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  • MSC sees further rationalization and growth in its container shipping industry

    Posted on: February 25th, 2018

    By Brian Dunn

    The humble container means nothing to most people, except those in the shipping industry. It has been around for decades and revolutionized how cargo is transported today. Last year, Port of Montreal celebrated the 50th anniversary of the arrival of the first containers at the port.

    “We look at the container and what we do with our ships as a true element of the world and how the people in the world function,” said Sokat Shaikh, President, MSC Canada. “Over the course of the years that I’ve worked at the company, you come to realize that as simple as a container is, and the cargo that goes into that container, moving it from Point A to Point B with our ships is not that simple because it’s a complex logistics grid. “But aside from the complexity of the logistics grid, which is our responsibility, it’s what it (the container) does and what the products inside the container represent.”

    The products in the container represent the world, from one country to another, an appreciation for expertise. It’s appreciating that a piece of clothing from Italy or a bottle of wine from South Africa has value in Canada, because we don’t make such products, or because it is different from or has other value-added characteristics than something we do or may be able to produce locally, or complement local production, Mr. Shaikh continued. “When you look at it from that perspective, trade has improved our standard of living and our quality of life. If we were solely dependent on products produced within our region, we would be severely short-changed and deprived from the best products out there.” Trade drives the economy and increases wealth, which increases everyone’s well-being. As a result, the Canadian government has taken an aggressive approach on trade, by concluding the Comprehensive Economic Trade Agreement (CETA) with Europe and through recent trade talks in Davos to find other potential regions to boost Canadian trade. We could look at containers as enablers of trade, noted Mr. Shaikh, creating opportunity.

    And what does the MSC container transportation business mean to Mr. Shaikh personally? “It’s a logo we stand behind and gives us the facility to enrich the environment we’re in, Canada, and we’re very proud of a company that invests in that environment and an understanding that we’re pretty much connected to most Canadians either directly or indirectly.” It’s not uncommon that business associates or friends return from overseas telling stories of seeing the MSC logo on ships in different parts of the world, loading or offloading cargo.

    Partners in the supply chain can also be competitors, but they are also an important part of the equation of moving cargo and promoting trade, Mr. Shaikh noted. “We have a tremendous amount of respect for how we all have come to realize that we have to rationalize, and can’t work independently in the sense that we did in the ‘90s and early 2000s. “Our individual actions have an impact on the industry participants collectively, and have contributed to tremendous financial strain in our industry during the last decade. For the most part, the industry has now weathered the storm, and we see a forward path that is improving.”

    The consolidation of carriers has been the caveat to improved results, said Mr. Shaikh. “Whether the container is blue, green, yellow, grey or white, it’s going on the same ship and in many cases, the services are consolidated and the only thing that distinguishes one from the other is the level of service we provide and the attention we give to our customers.”

    On an individual performance basis, 2017 ended “quite well” and MSC expects to build on that this year and next. MSC Canada as a whole (Vancouver, Prince Rupert, Montreal and Saint John) grew six per cent year over year. The focus has been on the west coast and Montreal where MSC opened a second terminal.

    In the past year, the company has added 45-foot containers to its Canadian fleet and has developed some project cargo business as a result. In addition, MSC has seen substantial growth in special equipment, from reefer containers to open tops and flat racks.

    The company is looking at opportunities to offer customers alternative shipping options. If a customer in Calgary or Edmonton has only shipped via Vancouver, for example, is there an opportunity to look at a mix of their cargo moving between Montreal and Vancouver, depending how they look at their business, inventory levels, destinations or just in time deliveries? For example, one large customer had historically moved the bulk of its cargo from the west coast to Ontario. During the past two years, MSC changed it to a mix of west and east coasts, which allows the customer the ability to better protect itself from potential disruption, such as a strike or a rail issue that might have a greater impact on the west coast, as opposed to the east coast, or vice versa. “So we do business with them here to the point where we’ve added to their supply chain with them looking at destuffing in Montreal and ultimately doing some bonded warehousing and then move to direct door facilities, their retail outlets, which they wouldn’t have ventured into.” In addition to its Canadian ports, MSC can tap into its network of U.S. ports for importing or exporting cargo if the need arises.

    For the past few years, MSC has been trying to convince some of its customers to ship product for Eastern Canada via Canadian ports rather than through U.S. east coast ports. “A large majority of our produce comes in via that route and to change that, we would have to make a large investment on the Canadian front which is being done on a small scale, but it’s moving in the right direction. “A good example of that is CanEst that’s moving grain into Montreal, putting it into silos and ultimately loading it and sending it on ships. If that facility had not existed, the opportunity from the original point would have been via any other exit port.”

    If the Port of Montreal had a platform similar to certain ports in the U.S., such as Holt Logistics in Philadelphia, (large on-site distribution centres, pick and pack facilities and warehousing), it could attract more business, suggested Mr. Shaikh.

    “For example, a produce company would discharge 50,000 tonnes of cargo either in bulk or containers, pick and pack and sort at the port and send to locations inland, rather than move the cargo off pier to a warehouse facility, destuff it, then send it inland which is way too costly.” While space is limited at the port of Montreal, such an opportunity exists at its Contrecoeur facility, he added.

    In terms of shipping rates, they haven’t improved, but rationalization has improved costs, with the industry having found ways to stem the red ink, including economies of scales. Another way to reduce costs is to replace smaller, less productive vessels with newbuilds in the 22,000 TEU range, and MSC has ordered 11 of them, said Mr. Shaikh.

    The industry as a whole expects to benefit from CETA with an estimated increase in cargo volume of 20 per cent once the agreement hits its peak, he added. And while the Trans Pacific Partnership has not been signed, Canada is making headway with country to country agreements in the region which will also increase trade between Canada and Asia.

    With business growth resulting in higher levels of employment, MSC has needed to double its Vancouver office space this past summer, and will more than double its Toronto office space this coming summer. Furthermore, having outgrown its existing space on St. Jacques St. in Old Montreal, it plans to purchase a much larger building in the same area that will increase its available space three-fold, and plans to gradually move in at the beginning of next year.