Containerships Interview: Les Warren

Containerships is a Finnish container transport company, which operates throughout Europe and within the Mediterranean and Baltic Seas. They have a fleet of thirteen sea-going vessels and over 14,300 individual containers. With over 45 years’ experience and 19 offices across Europe, they offer the best door-to-door service available. Containerships have dedicated terminals in Helsinki, Ghent and St Petersburg, and their own truck fleet in Russia, Finland, the UK and Lithuania. Here, ITM speak to Les Warren, who explains the ever-changing role of the company in the UK and the Baltic region.

What’s your role in the UK, and how does that relate to the European arm of Containerships?

I’m the regional sales manager for the UK and Ireland. I control a team of four outside sales people and three inside sales people. Basically we’re responsible for all the sales – export, import, whatever – within the UK and Ireland. I’ve been with the company for 17 years, starting off as a salesman in 1995 and rising up through the ranks. When I joined, the company was very specialised, just dealing with two ships going backwards and forwards between the UK, Russia and Finland. We’ve grown organically through acquisition over the years.

So can you see any further room for expansion, particularly within the UK?

In reality, the only real expansion we can do in the UK is to call at another port, for example in Scotland. At the end of the day though, it’s all driven by economics. If there’s enough cargo for us to warrant it, then sure. It has to make commercial sense before we’d even consider it.

In our experience, most, if not all, of the ports, especially in England, seem to be owned by a larger company. Would it be possible to open a new port in the UK without it being hived off quickly to a bigger company?

It’s very difficult, if not nigh on impossible for any newcomer to take a port and invest in it. There are all these companies that have been around for years and are well established. Besides, the ports themselves aren’t really what we’re into. We’re customers of the ports, and our owners are more interested in terminals. Maybe if we could put a terminal within a port, we’d consider it in the future, but it’s unlikely because the investment involved would be substantial. For example, the terminal we built in Russia cost several millions, and some members of the company saw it as a bit of a white elephant; as it turns out, it’s been one of the best decisions we’ve made as a company. We were the only Western company to own its own terminal in Russia. Of course, any major investment like this takes an awful lot of guesswork and looking several years ahead on the part of whoever is putting up all the money.

Is UK Government legislation a help or a hindrance for you as a company and the industry as a whole?

To be honest, most of the time it’s pretty neutral. It doesn’t necessarily help us, but it doesn’t necessarily hinder us either. One of the biggest things that affected us was when they upped the limit to 44 tonnes a few years ago. It helped us, because we could put more into our containers. There’s not really been a great deal of legislation that’s hampered us, to be honest.

Well, obviously the thing we’re all crying out for is lower fuel costs!

That’d be great for everyone, not just us, but I can’t see it happening. It rakes in too much money for the Government.

There’s been a number of super-large container ships launched recently, such as the Emma Maersk and the CMA CGM Marco Polo. What are your feelings on that? Are ships getting too big?

Eventually it has to reach a maximum point where they just can’t get any bigger. These vessels are already a lot bigger than most ports can actually handle. They haven’t got the cranes to reach across them, simple as that. You either need to build more docks like they have on the continent, where you have a channel like a dry dock, and cranes can work the vessel from both sides, or you need substantial investment from the port owners in larger cranes that can reach across the ships. Of course, that all comes back to cost. I can understand the logic of the likes of APM and CGM, but when you speak to some of the larger carriers, it seems to be a case of once one carrier has announced a big ship, all the others do the same so they don’t get left behind. The problem is, the market share is shrinking. At the same time as these mega ships are coming in, which were probably ordered several years ago, there’s just no volume or demand any more. Recently, a Maersk vessel got its engine flooded in the Suez, and half the containers on board were empty. If they’d all been full, the situation would have been even worse. These leviathans are fine if you’re in the global trade, but Containerships never will be. We’ll always be a niche carrier, because we will always then be seen as a specialist and an expert in the field in which we operate. The impact these big global companies have on the likes of us is that when their core business goes down, they start looking into other things. They end up dipping into our market until their core business picks up again, and then they’ll leave us alone. I always say that the container shipping industry is its own worst enemy. The big boys always say they’re not going to chase market share and they’ll focus on getting the rates up, then as soon as the rates go up a little bit, they all go back to chasing market share again!

You’d think that a bigger vessel equals more containers, but it’s not always that simple, is it?

No, absolutely. The voyage costs are basically the same whether the ship is half full or completely full. You’ll burn a bit more fuel the heavier the vessel is, but it rides better in the water. An empty vessel will in fact cost you more to power because the propeller is sitting too high in the water to get good drive. Nowadays, you’ve really got to be working your vessels to at least 70% capacity to make the voyage economically viable. Of course, if you’re advertising a liner service like ours, for example, with fixed day sailings and fixed day arrivals, you can’t sit around waiting for the ship to fill up. You have to stick to the schedule because of the way the vessels rotate; they have to be in a specific port on a specific day.

How viable is rail freight in the UK? Is that something that can be built upon, and is it something Containerships is looking to push ahead with?

Simple answer: It doesn’t work! The main port we operate from is Teesport. If we wanted to open a new port in, say, Scotland, you’d look at a map and say, “well, there’s a fair distance between Teesport and Scotland. We could run a rail service to, say, Glasgow, surely it’ll work economically.” What lets it down is that, firstly, the cost of the rail itself is quite high. You’ve also then got to get a truck at the Glasgow end for the local connection. Local connection costs are pretty high at the moment, so when you add those two things – the rail cost and the truck cost – together, it works out more expensive than sending one of our trucks from Teesport up to Scotland, making the collection and coming back down again. Rail freight basically prices itself out of the market. The rail network in the UK is so antiquated in most areas, with tight tunnels and low bridges, that you won’t be able to get a 9’6” box through unless you’ve got lower platforms. The rail operators won’t invest in low platforms because there’s not enough rail cargo going through to make it viable. The other downside to rail is simply the number of times you can run it. You have to buy slots on the network, which means the trains can only run at certain times, usually during the night. If you start using a rail service that, for example, runs to Teesport from Scotland three times a week, it’ll mess with our shipping schedule. As a result, the transit times for our shipments will get longer. Containerships runs a premium service to the Baltic Sea. We’re the only direct service between the UK and Russia. The ship the cargo leaves on is the ship it arrives on – there’s no transhipment in between. We’re also the fastest on the water in the areas we operate to. That’s what our customers are used to, so we can’t tinker with it too much. If it has an adverse effect on transit times, customers complain, even if it saves them money. The financial benefits aren’t enough to warrant a shift to rail.

As always, it boils down to being cost effective.

Absolutely. It’s not about being cheap, it’s about being cost effective. At big ports like Felixstowe or Southampton, there are so many carriers calling there that it’s easy to integrate their global services with a regular, daily or even hourly rail service from centres like Birmingham or Manchester. That’s where rail scores highly. But when you’re talking about a small port like Teesport, then there’s not such a demand for rail.

What are shipping rates like at the moment?

Right now they’re lower than they have been in the past. When we first got heavily involved in the Baltic trade routes, particularly into Russia, before the 1998 collapse of the Rouble, freight rates were extremely high. It had just opened up to Western trade. They were buying just about anything, so there were huge volumes of cargo. Over the years, more competition has come into the market and buyers have got more savvy and started looking at quality over quantity. Rates have been steadily coming down. Compared to the rest of the world, rates in the Baltic are higher than, say, to the Far East. That’s simply because there are fewer carriers in the Baltic, with fewer ships and it’s a more awkward area to deal with. You have to have an A1 Ice Class vessel to be able to sail in the Baltic in the winter. You wouldn’t be allowed into the frozen areas of St Petersburg Bay without one, because the icebreakers wouldn’t come to your rescue if you get stuck. A1 Ice Class vessels cost more, so nobody’s going to suddenly start switching routes from the Mediterranean to the Baltic, because they’d have to switch back again in the winter. That, naturally, keeps the rates higher. Having said that, the pressure on the rates is higher than ever these days.

Absolutely. But nowadays the only way many shippers, haulage companies and 3PL providers can make any money is by including fuel costs in their invoices. Without that they wouldn’t make a penny unless they upped the shipping rates.

There are still some very large organisations in this country who will not accept fuel surcharges. They won’t accept the fact that we’re a shipping line, not an oil broker. We can’t foresee what the cost of vessel fuel will be in six months’ time, but we’re expected to simply absorb any increases in fuel costs. They want fixed prices for an extended period of time. Exporters seem to think that because times are hard, lines will be desperate to take any cargo at any cost. That’s simply not the case. As a carrier there’s certain things we can control, but fuel prices are one of those things that we’ll never be able to. One of the most interesting things for me will be the effect of the new low-sulphur fuel regulations that are coming into effect in 2015. By then, the sulphur emissions of all vessels operating in the Baltic must be 0.1%. The only way you can reach that figure is by changing your fuel, which is a lot more expensive and would also involve changing your engines, or you can fit a scrubber to the existing engines. These clean the emissions and let you meet the regulations. However, there are only three manufacturers in the world who can fit these scrubbers, and they can each only fit three per year! There are currently about 3,000 vessels operating in and out of the Baltic, which would have to all meet the new regulations. It’s an impossibility! It’s an EU directive that hasn’t been thought through, and is one piece of legislation that is going to massively affect shipping around the Baltic, and the North Sea.

How do you combat the issue of cargo security?

Touch wood, it’s never been a massive issue for us, even operating to the far reaches of the Russian hinterland. In the UK we’ve had the occasional theft, which has been sometimes opportunistic, sometimes planned. I can count on one hand the number of times it’s happened to us in the 17 years I’ve been with Containerships. One of those instances was when the driver didn’t do what he was meant to have done. All of our containers are just generic boxes so it’s impossible to tell what’s in one from the outside. We keep the information flow to a minimum, only telling people who need to know what the cargo is. Scotch whiskey, for example, is a high-value, easy to sell-on commodity. The drivers are under specific instructions that when they load they must have enough driving hours to get back to port or they aren’t allowed to set off. They have a list of places where they are allowed to park if they need to – if they get stuck in traffic and their driving hours are used up and they can’t make it back to port – and they must only stop in those places. We try and minimise the risk as much as possible by doing simple things, well. All our containers have high-security bolt seals; you’ll spot in an instant if they’ve been tampered with. To be honest, that’s all you can do, really. The containers are all built to a certain specification, so they’re very secure. We run 54 of our own trucks in the UK with our own drivers, who all work directly for us. That adds an extra layer of security. Most of our guys have been with us for a long time, so they know all the routes and stopping places, where’s dodgy and where’s safe. Cargo security is just a case of using common sense and experience.