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| Reefer Business Shipowning activities: President Torben Janholt LauritzenCool: President Mats Jansson
The reefer market has become more consolidated in recent years and the existing fleet for specialized reefer vessels is now shared among larger players. LauritzenCool is one of the leading operators in ocean transportation of perishable foodstuffs. The company has a substantial global network to support the operations, with offices in Chile, Argentina, Brazil, South Africa, New Zealand, USA and Japan. Add to this cold storage and terminal operations in Port Hueneme (USA), Nueva Palmira (Uruguay) and Natal (Brazil). LauritzenCool Logistics is providing logistical solutions all along the cold chain, from the point of cultivation to the recipient of the consignment. What started in Chile during the 00/01 season has through organic growth during 2003 been further developed in Brazil, Argentina, Peru, Japan and South Africa. Volumes handled more than doubled from 2002 to 2003. At the beginning of 2003, LauritzenCool Logistics acquired 33% of freight-forwarding company Brasreefer (Brazil) and 80% of Universal Freight Forwarders Ltd. (USA), in September. New LauritzenCool Logistics offices in Costa Rica and Uruguay were set up at the end of the year. At year-end, LauritzenCool entered into a long-term tonnage sharing agreement with NYK Reefers Ltd. The agreement, which took effect on 1 January 2004, will lead to a larger combined fleet. The aim is to strengthen the competitiveness and to improve service, achieving the best possible flexibility for customers’ shipping programmes. An additional agreement has been made for NYK Reefers’ acquisition of 50% of LauritzenCool Logistics. Market Development 2003 created a great deal of optimism among reefer operators. All figures pointed in the right direction, with average spot rates in the peak month of March reaching 120 cents/cbft for small vessels, and slightly over 110 cents for larger vessels. Compared to the previous year, which was also relatively strong, 2003 rates were up 20 cents for vessels of 400,000 cbft, and 30 cents for small vessels. These were the best March figures since 1997. Apart from the general increase in consumer demand, there were several other reasons behind this remarkable upswing. One of them was the weather situation in Russia during the winter, where thick ice outside St. Petersburg caused congestion for many vessels and kept them off the market for long periods of time. Another important factor was the weak USD/EUR rate, which encouraged South American exporters such as Chile to direct shipments toward Europe instead of the United States.  There was also the impact of the recent free trade agreement between Chile and the European Union, meaning that tariffs on certain agricultural products will be gradually reduced. Argentina and Brazil had excellent crops and their respective governments focused heavily on exports of agricultural products. Mediterranean citrus, along with fish and poultry trades, gave a boost to the market and led to extremely good spot rates in November-December. At an average of about 50 cents for large vessels, these were the strongest off-season rates in a decade. In general, players in the reefer market look at the post-peak season with great interest because the seasonal development of the rate curve in recent years has shown a tendency toward higher off-season rates. Meanwhile, the peak of the busy season has gradually been reduced, even though the 2003 figures shot up toward a level that has not been seen in quite some time. The flattening of the peak curve is a result of increased competition from container lines with reefer container capacity, as well as growing use of deck containers on some specialized reefer vessels. The increased supply has been able to absorb high demand during the peak season at lower rates. At the same time, there has been a growth in demand for Southern Hemisphere fresh produce during the off-season, a time at which there is not such strong competition from container lines.  Operators with a strong spot orientation in their business benefited from the high rates in 2003, whereas operators who are more contract-bound could use the positive spot market as an indicator for future negotiations. There has always been a clear link between a strong reefer spot market and improved rate levels for contracts, but with a time lag as new contracts are negotiated for the coming season. As a result of increased container competition, this link tends to have diminished somewhat during the last few years, and the recent trend is for contracts not to increase at the same rate as the spot market. Just as in 2002, there was intense activity in sales and purchases of reefer vessels in 2003, underlining the improved market conditions. There was a net decrease in the specialized reefer fleet, which has led to a reduction in tonnage competing for cargoes. Although the scrap rate of reefer vessels has been extremely low during the last two-three years, the order book for new vessels is currently so small that total capacity is gradually being reduced. The decrease in fleet size is helpful in restoring a balance between supply and demand. The fleet During 2003, an average of 105 reefer vessels with a loading capacity between 265,000 and 760,000 cbft. were employed by LauritzenCool and associated operations. The two major pools are the Leonina Pool (fully-owned by LauritzenCool) and Reefership (a partnership between Eastwind, Armada and LauritzenCool). An average of 25 vessels were either on charter to or owned by JL. LauritzenCool employed 55-60 specialized reefer vessels, fluctuating in line with seasonal demand. All vessels are modern and large, 370,000 cbft and above. These vessels represent a total fleet size of about 30-33,000,000 cbft, with an approximate 7-8,000,000 cbft on-deck container capacity. Reefership employed 51 ships on average in several pool structures. At the end of the year, three Penguin type vessels were sold. These vessels did not match JL's core size segment. The average age of the company's owned fleet was 11.8 years in 2003 compared to the average of 16 years for the world fleet in the segment above 265,000 cbft. Fleet management is undertaken by Lauritzen Fleet Management in Copenhagen. All vessels are operated under the Danish flag and are registered in DIS (Danish International Ship Register). Technical operation of the owned fleet was satisfactory in 2003. However, two vessels encountered engine damages late in the year, resulting in unexpected off-hire service of 0.6%. No dockings were carried out in 2003 compared to four dockings in 2002. Prospects for 2004 The general outlook for the reefer market is positive. As for longer-term contracts, there are clear indications of an improved market. Vessel earnings are expected to increase, since seasonal earnings in 2003 were based primarily on contracts made during the previous year. With the strong 2003 season as an indicator, contracts for 2004 have been set with an approximate 5-10% increase, in some cases higher. Spot rates are expected to be in line with 2003. It is improbable that all the positive factors that fell into place during the past peak season will reoccur, at least not at the same time. Certain contributing factors will most likely continue, such as the strong efforts of South American and other countries in the Southern Hemisphere to increase their exports of fresh produce. The weak USD/EUR rate will encourage exporters to focus on Europe. Russian imports will continue to grow, increasing South African and Argentinean citrus exports. European crops were severely hit by the heat wave in 2003, and with low stocks and bad quality it is probable that there will be greater demand for Southern Hemisphere fruit. The fleet situation in the specialized reefer segment is experiencing a better balance between supply and demand, which is expected to continue. Container lines will continue their efforts to win reefer cargo, which is a challenge for specialized reefer operators. At the same time, the continuing upward trend in world fresh produce exports gives growth opportunities for both transport modes. LauritzenCool expects to benefit from the good market conditions described above. Apart from the profit from sale of vessels, the result for 2004 is expected to be on level with the 2003 result. The weaker USD will have a significant and negative effect on the result due to increased costs valued in USD. Increased earnings from owned and chartered vessels offset the cost increase. Fewer vessels in the LauritzenCool pool will have a minor negative effect on the result in 2004. |
