The outlook of the container shipping industry remains uncertain, according to NOL’s Chief, as the industry grapples with concerns over rising fuel costs, overcapacity and ripple effects from the Japan disaster. Shipping veteran Ron Widdows, who helms the Singapore-based company, the world’s sixth-largest container shipping company, talks to CNBC’s Christine Tan during Singapore Maritime Week 2011.
Q:The Japan earthquake and tsunami affected supply disruptions and saw many ports closed as a result. How much impact are you feeling from these latest developments?
A:Right now, not a lot but it’s early days though. Our major ports are in Tokyo, Yokohama, and Kobe. The smaller ports that were most affected by the earthquake and tsunami are not places that APL (a subsidiary of NOL) has ships calling. We have volumes there on some slot arrangements…but the ports that were closed were not the major ports.
Unlike in the Kobe earthquake if you remember back in the early 90's, all the cranes in the port fell like tinker toys. Amazing that (now) you can have an earthquake this large and the ports were largely unaffected. Infrastructure is largely intact. But there was disruption. There was some temporary cargo volume drop.
Q:But as a group, how reliant is NOL on shipping in Japan?
A:It is an important market but it’s less than 10 percent of our global revenue. And of that, you now get a squeeze on activity. I think very shortly, we're going to see an increase in shipments into Japan because of what’s going on with food and food products. The import of those commodities will no doubt come from the U.S. as well as from within Asia. Also, Japanese houses are largely wood construction. Most of that wood comes from the Pacific Northwest of the United States. So you would expect the export of building materials and food products to increase.
While there may be some lasting export impact, I think the imports into Japan will increase dramatically very shortly.
Q:A few liners have cut their service to Japan because of concerns of exposing their crew and their ships to radiation. Are you still maintaining your full service to Japan?
A:We do… full service packages. (But) we've issued instructions to our ships to stay 200 nautical miles away from the zone around the nuclear plant. Instructions from the Japanese authorities of course are not nearly that far, about 100 nautical miles. So we keep our ships much further away. We rely on the Japanese authorities to say at what point it is not safe.
Q:Another headwind you're facing is higher oil prices above $100 a barrel. How much is this hurting your bottom line?
A:Fuel recovery from last year’s contracts that we do is at a relatively higher level. So it has an impact but (we’re) still able to pass a good chunk of that on in contracts. In our industry, what’s uncertain is not the price of oil because that will continue to be high. But as contracts are now in negotiation, the wisdom with which our competitors and we contract is to ensure that you’re recovering bunker. That’s very important.
But as it goes in our industry, sometimes people do unwise things. So you have some people who have done new contracts who have eliminated fuel recovery from their rates. Who would do that?? Unimaginable. But that’s a dynamic that happens in our industry from time to time.
Q:You're engaging in slow steaming to help save on bunker fuel costs. Is this the best way to control fuel costs? How do your shippers feel about it?
A:Well we're really nice people. (Laughs) It does lengthen the supply chain by a few days. There are customers whose supply chain is so sophisticated and so tight that a two- or three-day impact is noticeable in their chain. On the other hand, there are many customers whose supply chain may be not quite as sophisticated. So it varies. There are some that I can tell you are very agitated, and you can understand how that would be so. But at the prices in the marketplace, and at these fuel levels, it is just an economic imperative.
This is an excerpt of Widdow’s first in-depth television interview, taken from CNBC’s longest-running feature program Managing Asia. Catch the show with anchor Christine Tan over the weekend on CNBC.