Analysis: WWL to use more 'group' capacity

Shipping line and logistics provider Wallenius Wilhelmsen Logistics (WWL) is set to restore laid-up capacity in November, as well as add up to 12 new vessels to its fleet in the next two years, as it seeks to renew its stable of 60 pure-car-and-truck carriers (PCTCs) and roll-on/roll-off (ro-ro) ships for growth in emerging markets such as China and South America, as well as in anticipation for stricter fuel regulations.

 

But according to both WWL and its 50% owner, Wilh. Wilhelmsen ASA (WW ASA), sluggish volumes mean that the company will have to be more flexible in balancing capacity, in particular by working across the fleet of sister companies, such as Eukor. The company also depends on a recovery in the proportion of high-and-heavy and break-bulk cargo carried on its vessels.

 

According to WWL’s chief executive, Arild Iversen, WWL will receive seven new vessels in 2011, followed by 3-5 more in 2012. Iversen sees the investment in the more fuel-efficient vessels as a positive step towards lowering bunker consumption and carbon emissions in the face of several new regulations set to come into force that will raise fuel costs, including low sulphur fuel restrictions along the US and Canadian coast in 2012, and an even stricter mandate in Europe for 2015.

 

But the new deliveries are coming before shipping volumes have seen a total recovery for WWL. Kai Kraas, chief operating officer for ocean services, pointed out that while volumes have recovered from their 2009 lows (which in some high-and-heavy trade lanes fell as much as 80%), weak imports to Europe and exports from Japan have put a strain on the efficiency of WWL’s network. “What we miss is the trade balance, as import to Europe is limited, driven by weak imports to Russia,” Kraas said. “Exports from Europe and the US to China and South America are very strong, however, and these are markets where we are seeing not only cars but improvements for high-and-heavy and break-bulk cargo.”

 

Despite the mixed recovery, WWL has been able to restore much of the capacity shelved in 2009, when it put 19 vessels into storage. According to Iversen, the last of those vessels will return to service in early November. But with the restored capacity, together with the new vessels coming online, WWL will likely face a challenge in managing its capacity should sales fail to increase or contract again. Iversen admitted that he anticipated an ongoing “slow recovery”, while Kraas said that he foresaw some slack in capacity until the middle of 2011. “There are of course quite a few new vessels coming in, but it depends on how they are deployed in the global network on whether or not capacity will be balanced,” Kraas said.

 

WWL’s advantage in managing its fleet capacity can be seen nevertheless in the ability of its owners – WW ASA and Wallenius Lines – to allocate vessels among sister companies they also own or control. For deep sea these include South Korea-based Eukor and ARC in North America. In 2009, for example, Eukor was able to redeliver a higher number of vessels than WWL, according to WW ASA’s president and chief executive officer, Jan Eyvin Wang, who had been president of Eukor until his new posting in June this year. “If one of the companies has an imbalance in capacity, we will focus more on synergies,” said Wang. “You saw that to the extreme in 2009, where Eukor could redeliver more vessels than WWL, and then use the spare capacity of WWL.”

 

While Wang said that such a scenario was unique, and that each company should run a balanced fleet, he pointed to increases in the amount of shared tonnage and return loads that could be achieved between WWL and Eukor. “If Eukor has a ballast leg, WWL can use that vessel. We have seen both companies making huge strides in this area, which is showing up directly on the bottom line,” said Wang.

 

Those opportunities have been partly increased since Glovis, the logistics arm of the Hyundai-Kia Group – in which WW ASA also owns a share – acquired vessels and began to carry a sizeable portion of Hyundai-Kia volume exported from South Korea, traditional Eukor cargo. Wang, who sits on the board of management for Glovis, said that rather than a competitive threat to Eukor – which actually leases several vessels to Glovis – the logistic provider’s entry to the shipping market had enabled Eukor to grow in new trade lanes.

 

One example, according to Wang, was importing premium cars to China, including the export of Jaguar Land Rover vehicles from the UK. In this “group” solution, WWL processes and loads the vehicles at the port of Southampton in the UK, where Eukor vessels move the vehicles to Tianjin or Shanghai, and WWL once again takes responsibility at the ports until final delivery to dealers.

 

The contract is part of WWL’s expansion of supply chain management (SCM) – such as inland transport, port processing and claims management – in emerging markets such as China, South America and Thailand, according to WWL’s Nils Lie, vice president for business development. Lie said that SCM services are a strategic way to build closer relationships with ocean clients. But he admits that WWL needs to rely on Eukor for some new markets where its shipping services are less developed. “We will probably see more and more examples of using services across Eukor and other group companies,” said Lie. “Eukor is very strong in some ocean segments where WWL is less so, such as in India.”

 

Another area where Lie is particularly keen to grow the SCM services is among agricultural and construction equipment manufacturers (known as ‘high-and-heavy’ cargo). This is critical for WWL as not only is its current fleet tailored towards a higher proportion of these cargo types than competitors, but several of its new deliveries will be ro-ro ships designed to carry more high-and-heavy and project cargo, and fewer cars compared to pure-car-and-truck carriers. According to Iversen, the ratio that company aims for is 50% passenger cars, 30% high and heavy, and 20% project cargo. While the high-and-heavy is now recovering on some trade lanes – particularly South America – it is still lagging passenger cars.

 

Wang remained upbeat about the fact that WWL would now be taking on new vessels, pointing out that many of the ships have advanced technology in not only reducing bunker consumption but also using solar energy and more careful ballast water treatment. “From an owner’s perspective this is very important as it shows a form of leadership, not only in satisfying the customer but also in reducing the environmental footprint left behind,” said Wang. 

 

WWL’s Iversen also pointed to the environmental capabilities of the new vessels, but added that he did not expect to see new orders put on the books anytime soon.

 

“We are relatively happy with our [fleet] situation until 2014,” said Iversen. “But from WWL’s side, you won’t see a new-building boom right now, as I don’t expect any shipping line to be ordering massively. We can’t see where the capacity would go.”