High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Angus Whitley
(Bloomberg) — When the first fleet of convict ships arrived in Australia, the commander turned up his nose at Botany Bay and looked for a better port. More than 200 years on, luxury cruise ships may have to make do with the rejected inlet.
Further to the north, Sydney’s iconic harbor is running out of berths in the world’s fastest-growing cruise market. There’s barely a free slot left to dock at the main terminal opposite the Opera House before 2017 and many vessels are too large to slip under the Harbour Bridge and reach an overflow site.
Already, Carnival Corp. and Royal Caribbean Cruises Ltd. are diverting ships away from Sydney. With operators divided over how to clear the gridlock and a possible solution at Botany Bay still years away, the lack of infrastructure risks choking an industry that generates A$3.2 billion ($2.4 billion) annually. That’s just when Australia’s slowing economy needs a bump from tourism.
“We are running out of capacity and there’s no apparent immediate solution,” said Grant Gilfillan, chief executive officer of the state-owned Port Authority of New South Wales, which runs Sydney’s cruise terminals. “We can’t ignore it.”
Royal Caribbean favors using the Port Botany container terminal, about 15 kilometers (9 miles) by road south of Sydney Harbour. Sharing the facility with cargo ships would at least win time to find a “longer-term solution,” Gavin Smith, company vice president for the Asia Pacific region, said by e- mail.
Passengers would be confronted by Australia’s second- biggest container port alongside the country’s busiest airport. Carnival doesn’t want to subject its customers to that.
“Sailing to or from Sydney Harbour is integral to the passenger experience,” Carnival, which runs P&O Cruises, said in an e-mailed statement. The company is lobbying for extra space at the Australian naval base at Garden Island, near the Opera House.
The lack of capacity threatens a cruise market that has grown more than six-fold in only a decade. Passenger numbers jumped 20 percent to a record 1 million in 2014 making it the fastest-growing market in the world, according to industry group Cruise Lines International Association Australasia.
The Australian dollar has lost 21 percent against its U.S. counterpart in the past year, encouraging Australians to holiday at home and tempting overseas visitors. Yet the cruise industry’s capacity crunch limits its ability to take advantage of the boost to tourism. In turn, that won’t help an Australian economy headed for its sixth year of sub-trend growth since 2008.
The harbor’s newest cruise terminal at White Bay, which opened in 2013, has limited potential to ease the logjam.
Situated west of the Harbour Bridge, it can’t be reached by the largest ships. It’s also been plagued by complaints from residents that fumes from docked vessels induce headaches and nausea. Overnight stays at the site have been suspended until new rules force cruise ships to burn cleaner fuel as soon as October.
The state port authority has looked at two possible sites in Botany Bay for a new cruise terminal, said Gilfillan. A development might cost as much as A$500 million, making it hard to justify in the short term because the site would initially receive only spillover traffic from Sydney, he said.
More immediately, Gilfillan suggested cruise operators consider sailing into Sydney at night. The main terminal is running at less than half capacity because vessels mostly come and go during daylight hours, he said.
That’s not viable for most visits, said Royal Caribbean’s Smith. There wouldn’t be time to offload passengers, refuel and take on fresh stores before the next ship arrives in the morning, he said.
Either way, a lack of agreement between the two largest operators is hindering a solution, said Gilfillan.
“We want to get them thinking a little bit out the box,” he said. “We may find in two years’ time we’ve still got nothing.”
©2015 Bloomberg News
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