Liner alliances: rationale ESPO Tim Power Director, Head of Maritime Advisors. 15 th May 2014

Transcription

1 Liner alliances: rationale ESPO 2014 Tim Power Director, Head of Maritime Advisors 15 th May 2014

2 2 Contents 1. Liner fundamentals Liner economics and the cycle Historical market growth Historical supply demand balance 2. Alliances

3 3 Liner fundamentals

4 Liner economics and the cycle 4 Liner shipping is a cyclical industry; cycles driven by cash balances and utilisation Optimism supports orders Demand for new tonnage Supply exceeds demand / trade growth slows Freight rates recover Over tonnaging Demand and Supply realign Freight rates drop Fleet growth slows / trade recovers Demand for vessels drops

5 Liner economics and the cycle 5 Liner economics are fundamentally challenging and promote earnings erosion Factor Economies of scale Perishability High operational gearing Commoditised service offering Fragmented industry Inelastic demand curve Effect Structural overcapacity Push for short-run contribution rate erosion Focus on price competition Limited differentiation of product; price competition No coordination of capacity development, intense competition Falling rates have a limited effect on demand

6 Liner economics and the cycle 6 Economies of scale are very significant 1,200 1, Round-voyage slot cost at 85% utilisation (US$/TEU) 1, US$/TEU ,000TEU 10,000TEU 12,000TEU 13,000TEU 14,000TEU 16,000TEU 18,000TEU

7 Liner economics and the cycle 7 Liner shipping is fragmented 10,000 HHI Index 5,000 Wide Body Aircraft Manufacturing 4,000 3,000 Cruise Lines (2) 2,000 International Express Package (4) 1,000 Shipbuilding (1) 0 Even Competition: all competitors have equal market share No. Competitors Highly Competitive (less than 100) Unconcentrated (100-1,000) Modest Concentration (1,000-1,800) High Concentration (greater than 1,800) Notes 1. Source: UBS Global Shipbuilding reports May Source: Natixis, Carnival report Sep Source: Drewry, Containerisation International 4. Source: RBC, Fedex report Aug-09 2

8 Global container traffic (mteu) Annual growth (%) Historical growth 8 Growth has been rapid but volatile: very hard to match capacity growth to demand growth % % 150 6% 120 1% % 30-9% 0-14% Container Traffic (mteu) Annual growth

9 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2013 3Q2013 4Q Rates and profitability 9 Result: profitability has been poor and very volatile Historical development of E-W Freight Rates (US$/teu) Sample carriers EBIT (US$bn and %) $250 $200 $150 $100 $50 $0 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -$ % Revenue ($bn) Operating profits ($bn) Operating Margin (%)

10 10 Alliances

11 Plus ca change 11 Mogul Steamship Co Ltd v McGregor, Gow & Co 1892 Shipowners had better sell out as there is no use continuing in business if the law decides we must cut each others throats and ruin ourselves. John Swire, agent for Alfred Holt, founder of the Far Eastern Freight Conference

12 Joint ventures, consortia and vessel sharing agreements 12 Roles Allowed lines to develop early container services Mechanism to share capital investment Lines combine to offer service coverage and frequency Manage capacity development Mechanisms Joint schedules: vessels operated in coordinated schedules Shared capacity: lines share space on all vessels, generally in line with capacity provision Joint marketing: in certain consortia, single marketing entity in specific locations Cost pools: all operational costs pooled and shared Revenue pools: all revenue pooled and shared Supported the development of liner services and promoted stability of earnings and capacity development Note: with acknowledgements and thanks to Tony Mason and ICS

13 Recent developments in alliances Mega carriers and mega alliances 13 Relentless pursuit of economies of scale = ever larger ships P3 To fill these ships, carriers have to come together in alliances G6 Since 2011, the pressure for alliance size and geographical scope has intensified: Maersk, CMA-CGM and MSC in P3 Grand and New World Alliances to G6 in Asia-Europe route. G6 expanding to Transpacific and Transatlantic Evergreen joining CKYH CKYH

14 P3 alliance network Case study The P3 will be a powerful force and will call at numerous ports 14 15,000 Average vessel size TEU 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 G6 P3 P3 5,000 Asia-N Europe Asia-USWC Asia-USEC

15 P3 alliance network Case study 15 Alliance port and terminal choices involve many trade-offs for each carrier What is the effect on schedule reliability? How can the best frequency of service and transit times be obtained? Where is the cargo generated? How can the widest range of direct port calls be delivered? Is there a terminal operator in the port affiliated with the shipping line? What are the benefits and pitfalls of consolidating port calls? Can the ships physically access the port? Is the port already established in at least one loop?

16 16 Drewry was founded in 1970 as a provider of independent information and advice to the global maritime industry. Since then we have worked with over 4,000 clients in more than 100 countries. We are privately owned with research and advisory teams in London, Delhi, Singapore and Shanghai. London Drewry Christopher Street London EC2A 2BS,United Kingdom T: +44 (0) E: info@drewry.co.uk Singapore Drewry 15 Hoe Chiang Road, #13-02 Tower Fifteen Singapore T: E: singapore@drewry.co.uk Delhi Drewry 209 Vipul Square, Sushant Lok-1 Gurgaon , India Telephone: /32 E: india@drewry.co.uk Shanghai Drewry 555, 5th floor Standard Chartered Tower, 201 Shi Ji Avenue, Pudong District, Shanghai, China T: +86 (0)