Editor's Introduction
Reefer Operators still waiting for the good time to return

As is made clear by several of the articles in this publication, few sectors of the shipping business have had such a tough time as the conventional reefer shipping industry. Rates have been very depressed for the past two years, and few if any of the leading specialist carriers have been able to stay out of the red.

At the dawn of the new millennium, there was a marked sense of optimism within the reefer shipping business that better times were not too far ahead. This more confident mood was encouraged by healthy spot charter rates in the first two months of 2000, which were around 10% higher than at the same time last year, continuing a steady recovery that had been in evidence from mid-1999.

These hopes were cruelly dashed, however, by the performance of the market during the peak period between March and the end of May, which many consider to be the worst in memory. Fruit volumes on key trades were down, rates were at rock bottom, and as a result another loss-making year beckons.

Amid all the optimism of the early part of 2000 specialist consultancy, Reefer Market Services (RMS) warned that there would be 'only slow and fragile recovery'. This analysis seems to have been proved right. Inevitably, the volatile banana market is having, and will continue to have a strong influence on shipping prospects. There are reports that the major multinationals like Dole, Chiquita and DelMonte have cut back on their banana sales, in an effort to improve their bottom line results. This has reduced business for reefer ship operators in some sectors, and has also created more opportunities for independent traders, in the Mediterranean and former eastern block countries in particular. This changed the traditional nature of this business, putting it in the hands of those who will only ship bananas to make a profit, rather than to maintain market share.

Fruit sales into Europe generally have also been depressed by good domestic crops over the past year or so. There are still considerable stockpiles of apples and pears in cold store, and this has reduced the amount of cargo available for reefer shipping companies from South America and South Africa in particular. All is not lost, though, and sooner or later the market will turn around. A year ago other tramp sectors, especially bulk carriers and VLCC tankers, were in a slough of despond. But they have seen a sudden change round in their fortunes.

The same could well happen over the next 12 months in the reefer shipping business. An important influence on the market, working in favour of the reefer carriers, will be the contracting size of the conventional reefer fleet. Most of the newbuildings that were on order at the end of 1999 have now been delivered, and there are hardly any vessels still to come in the rest of 2000 and 2001. Certainly deliveries for the next two to three years will be in single figures.

Moreover, as a high proportion of the current world fleet is above 20 years of age, scrapping activity is almost certain to be sustained throughout 2000 and the following year. With bunker prices still increasing rapidly, it is difficult to see how many of the older vessels, which are less fuel efficient than their more modern competitors, can be viably operated in these circumstances.

Despite the fruit market problems encountered in the first half of 2000, there is a strong belief that demand for reefer shipping services will increase at a steady rate over the next few years. New markets, such as India, are being developed, and there is optimism that more cargoes will be shipped to the Middle East, as the oil price rise is translated into higher regional demand. Asian and, possibly, Russian economic recovery may also prove helpful.

Taking both the conventional reefer ship supply and perishable produce demand projections into account, it seems highly probable that reefer freight rates will firm up significantly over the next two years - perhaps more strongly in 2001 than in 2000. Of course this assumes there are no further weather related disasters or global economic set-backs.

Developments in the reefer container market may also assist the general trend, as lines are now trying hard to raise their freight charges. Nonetheless, continued competition from liner shipping companies seems certain to reduce the share of perishable produce carried conventionally over the next few years.

The mood of the reefer ship operators is generally pragmatic. As John Rowland, vice president of Lauritzen Reefers said: 'We are more optimistic about the future, but there is some way to go to make this business really worthwhile. There is a long haul ahead.'

There are many challenges, commercial and technical, which lie ahead for the reefer shipping industry. But there are exciting opportunities as well that are opening up for innovative players.

Success in future may well depend on carriers appreciating that, although market conditions are still depressed, now is the time to take a positive approach to the business. Otherwise they will not be ready when the recovery comes.

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