ALVAREZ & MARSAL CONTAINER SHIPPING INDUSTRY OVERVIEW VIRGINIA MARITIME ASSOCIATION INTERNATIONAL TRADE SYMPOSIUM

Transcription

1 ALVAREZ & MARSAL CONTAINER SHIPPING INDUSTRY OVERVIEW VIRGINIA MARITIME ASSOCIATION INTERNATIONAL TRADE SYMPOSIUM May 3, 2012 Robert F. Sappio

2 CONTENTS I. Background II. Macro-economic Outlook III. Industry Supply and Demand View IV. Industry Future Trends and Outlook V. Carrier Financial Performance VI. Other Issues Impacting Liner Shipping VII. Key Considerations and Conclusion VIII. About A&M IX. Appendix Copyright 2012 Alvarez & Marsal Holdings, LLC. All rights reserved. ALVAREZ & MARSAL, and A&M are trademarks of Alvarez & Marsal Holdings, LLC.

3 BACKGROUND State of Global Economic Recovery Remains Less than Robust Sovereign debt concerns, rising commodity prices, continued low levels of employment, and a weak housing market all contributed to weak trade growth. Carriers Investing in Scale to Offset Rising Costs Shipping companies invested heavily in new tonnage in search of improved economies of scale. The result is disequilibrium in supply and demand. Shippers and Carriers Face Increasing Business Complexity A changing regulatory environment, the potential for possible labor disruptions, more stringent environmental regulations, and continued uncertainty in the global economy add complexity to the current situation. Impacts Across a Broad set of Stakeholders Numerous stakeholders are impacted by the present situation; importers, exporters, service providers, ports, and others making it increasingly difficult to effectively plan in the near term. Pag e 2

4 MACRO-ECONOMIC OUTLOOK

5 YoY % Growth MACRO-ECONOMIC OUTLOOK Forecasted GDP suggests possible contraction in the EU economy with modest growth in US and Asian economies Annual Gross Domestic Product Growth Rate Upgrade in range Downgrade in range 15% 10% 8.1% India CAGR ( ) Percent 8.0 Analysts Consensus (2012F) Range (%) % China % 0% 2.0% 2.0% -0.8% Global US EU % Note: (1) IMF & EIU economic growth forecast error range estimated up to 1% based on past history; EIU GDP forecasts used for (2) Whereas GDP forecast for EU27 is not available, Euro area is used as proxy for consensus range purposes Source: WEO (Sep 2011), JPMorgan, Goldman Sachs, Deutsche Bank, UBS, BoA, EIU 4

6 Jan-2007 May-2007 Sep-2007 Jan-2008 May-2008 Sep-2008 Jan-2009 May-2009 Sep-2009 Jan-2010 May-2010 Sep-2010 Jan-2011 May-2011 Sep-2011 Jan-2012 MACRO-ECONOMIC OUTLOOK Oil prices continue to be on the rise. Average bunker price now exceeds $750/MT. Bunker price forecasted to be volatile in short term especially given security concerns in the Gulf. Bunker Index- marine fuel price trend U.S. less Alaskan North Slope Crude Oil First Purchase Price ($ per Barrel) $ $ $ $80.00 $60.00 $40.00 $20.00 $0.00 Dollars per Barrel Source: Bunker world Source: US Energy Information Administration 5

7 MACRO-ECONOMIC OUTLOOK With high unemployment across the developed world, euro zone debt crisis, weak housing markets, and high volatility in commodity prices, risks to a sustainable economic recovery persist. There are some promising signs, but perhaps too soon to tell. Unemployment remains high Euro Zone Debt Crisis Oil Prices remain volatile, casting uncertainty /impacting economies 6

8 INDUSTRY SUPPLY AND DEMAND VIEW

9 YoY % Growth INDUSTRY SUPPLY AND DEMAND VIEW World containerized trade is estimated to grow moderately this year but continues at a pace well below historical averages. Transpacific growth is expected to pick up in 2013? Intra-Asia Global Transpacific (HH) 20% 15% 10% Asia-Europe (HH) 5% -5% -10% -15% Containerized Trade Growth 17.2% 16.0% 15.3% 15.0% 9.3% 8.3% 8.4% 6.9% 6.8% 6.7% 6.4% 5.9% 5.5% 4.9% 0.4% 2.4% -4.2% -7.1% -13.9% -15.1% E 2013E Global Trade Growth Alphaliner (Mar 20, 2012) 7.7% 6.5% 7.5% Clarksons (Feb 21, 2012) 7.9% 7.7% 8.3% Drewry (Dec 22, 2011) 6.5% 5.4% - JP Morgan (Nov 29, 2011) 6.4% 4.5% 6.3% Global Insights (Sep 30, 2011) 6.9% 6.8% 6.7% Transpacific HH Trade Growth Clarksons (Feb 21, 2012) -0.4% 4.2% 6.1% Alphaliner* (Jan 10, 2012) -0.8% 4.6% 5.1% Drewry (Dec 22, 2011) 0.4% 3.1% PIERS (Dec 2, 2011) 0.2% 2.7% 4.9% Asia-Europe HH Trade Growth Clarksons** (Feb 21, 2012) 3.3% 2.8% 6.1% Alphaliner* (Jan 10, 2012) 2.8% 1.5% 6.3% Drewry (Dec 22, 2011) 3.9% 2.0% - Source: Equity analysts, shipping consultants and Company s estimates Note: *Alphaliner TP is FE-US, ASEU is FE-Europe **Clarksons growth is Far East to Europe 8

10 INDUSTRY SUPPLY AND DEMAND VIEW Headhaul volume growth trend: Weak demand growth continues to be a threat to market recovery in the near term. There are some signs of improvement but forecasts remain cautious. Source: Alphaliner 9

11 INDUSTRY SUPPLY AND DEMAND VIEW There is a significant number of new deliveries to come in 2012 and even more in Most vessels have capacity in excess of 10,000 teus and will trade in the FE-EU sector, thus cascading smaller ships to the Pacific and other trades. 10

12 INDUSTRY SUPPLY AND DEMAND VIEW More vessels in 2012 and again in is all the financing set for these deliveries? Tonnage- Vessel Deliveries by Quarter Note: 2014 Evergreen deliveries not included Source: Alphaliner Monthly Monitor 11

13 INDUSTRY SUPPLY AND DEMAND VIEW Capacity management will be key issue in New vessel deliveries will continue to grow at a strong pace in 2012/2013. The highest number of ULCS/VLCS capacity is expected to be delivered in the history of container shipping Source: Alphaliner 12

14 TEU INDUSTRY SUPPLY AND DEMAND VIEW Bigger ships drive the quest for economies of scale but with implications too much too soon? VLCS (>10,000 TEU) deliveries by carrier 250,000 VLCS (>10,000 TEU) Deliveries by Carrier in TEU 200, , ,000 50,000 - Source: Clarksons, AXS Alphaliner 10,

15 INDUSTRY SUPPLY AND DEMAND VIEW Trade Capacity Breakdown By Carrier how the largest carriers are deployed. 14

16 INDUSTRY SUPPLY AND DEMAND VIEW Supply and demand disequilibrium continues at least through 2013 Source: Alphaliner 15

17 INDUSTRY SUPPLY AND DEMAND VIEW Rise in sctive Capacity- too much, too soon: total fleet increased from 13.1 Mteu to 15.2 Mteu (16%) since Jan The rapid re-activation of idle fleet was a factor in the 2011 carrier results. Is it about to happen again? Source: Alphaliner 16

18 INDUSTRY SUPPLY AND DEMAND VIEW Global Idle Fleet State: The idle containership fleet has increased to 302 units (0.91m Teu) which represents 5.8% of the global cellular fleet it just now is dropping again to the 3.0% range. 18 units of the idle fleet are between 8,000-13,000 Teu The idle fleet is expected to fall over the next three months as several new services are to be launched on the Asia-Europe and Transpacific routes for the summer season * As of March 12, 2012 Source: Alphaliner 17

19 INDUSTRY SUPPLY AND DEMAND VIEW Extra slow steaming has absorbed some capacity, but excess capacity remains. Source: Alphaliner 18

20 INDUSTRY FUTURE TRENDS AND OUTLOOK

21 INDUSTRY FUTURE TRENDS AND OUTLOOK Transpacific utilization in 2011 was lackluster. Peak season utilization in 2010 was 100% vs. 90% in 2011.Utilization levels are improving now but the question is if they are sustainable for FY Source: Alphaliner 20

22 INDUSTRY FUTURE TRENDS AND OUTLOOK Far East - Europe route: peak season utilisation in 2011 was 85% vs. 95% in Although peak season demand in 2011 grew by 4%, supply peaked at 20% in June before capacity cuts took place Source: Alphaliner 21

23 INDUSTRY FUTURE TRENDS AND OUTLOOK Lower levels of utilisation have had downward pressure on price. While spot rates have increased in the near term, they represent only a sub-set of the broader market. Will this short term optimism be sustainable? For the Pacific trade did the BCO contracts take increases? Source: Alphaliner 22

24 CARRIERS FINANCIAL PERFORMANCE

25 CARRIERS FINANCIAL PERFORMANCE Carrier losses worsened in In the face of risings costs, anemic trade volumes and continued disequilibrium in supply and demand, will 2012 be any better? Source: Alphaliner 24

26 Operating Margin % CARRIERS FINANCIAL PERFORMANCE Carriers earnings showed little correlation to the carriers relative revenue sizes. Carrier scale vs.. Operating margin 2011 Revenue ($M) Source: Alphaliner, 22 carriers surveyed 25

27 OTHER ISSUES IMPACTING LINER SHIPPING

28 OTHER ISSUES IMPACTING LINER SHIPPING There are many other issues of material importance that carriers and shippers have to consider in the current environment. Chassis Management No clear an efficient model becoming apparent Disjointed approach by carriers creating confusion More transparency is required Labor related issues New agreements need to be concluded this year Carriers must improve productivity- larger ships make it so Carriers are ill prepared to bear higher costs Panama Canal expansion A significant improvement in infrastructure, but.. Over the last decade a major shift in cargo has already taken place Will the East Coast infrastructure be ready? Indexed Service Contracts Nothing new here many have been doing so for years There is a difference between indexed contracts / rate index The industry needs more indexed contracts v. rate index Environmental matters Increasing interest from shippers on a lower carbon footprint Low sulphur fuel in 2012 and again in 2015 how much $$$ Ballast water regulations how much $$$ 27

29 KEY CONSIDERATIONS AND CONCLUSIONS

30 KEY CONSIDERATIONS AND CONCLUSIONS Carriers are building bigger ships because they have to the cost of fuel and the need to win the scale game is critical to survival. Fuel alone is over 50% of voyage cost. Capacity growth likely to exceed demand in the next 2 years ( ) with a significant increase in ultra large ships Excessive competition will remain in place with downward pressure on price continuing. Capacity management will be critical, but thus far carriers have not shown the requisite discipline to do more to resolve The easy cost cutting has already been done. Further efforts to return to profitability require multiple initiatives on cost, revenue management, and capacity optimization. The next months remain very difficult. Consolidation, restructuring, new alliances, and service disruptions are possible as carriers desperately seek to lower costs. Carrier earnings pressure will continue and perhaps be more acute in 2012 failing a rapid rebound in global trade, or a more disciplined approach by owners. The capital markets may not be as accommodating as they were in 2009, so restructuring debt may be more difficult Shippers should take care in the carrier selection process Service contracting should focus not only on lower cost but service certainty as shippers seek to maintain lower inventory positions and depend on velocity of supply chain Keen regulatory oversight will continue in the US and EU Exporters may feel capacity and equipment shortages more acutely as and when carrier services are withdrawn Continued efforts relating to shipper -carrier engagement should not be abandoned 29

31 ABOUT A&M

32 GLOBAL PRESENCE Global Headquarters Local Headquarters Local Offices A&M (Alvarez & Marsal) was founded in 1983 when Tony Alvarez II and Bryan Marsal recognized the opportunity to provide radically different advice and hands-on support to organizations facing operational and financial hurdles situations demanding action, objectivity and real results. Since 1983, A&M s distinctive blend of leadership, problem solving and value creation has allowed it to become one of the fastest growing independent professional service firms. A&M has more than 1,700 professionals with offices in 39 cities and 16 nations, which are spread across North America, Europe, the Middle East, Asia and Latin America staffed, with 300 Managing Directors. A&M s geographic coverage ensures responsive, high-quality and consistent service in local and cross-border situations. 31

33 GLOBAL SERVICES Alvarez & Marsal brings its operational heritage, functional consulting experience and dedicated industry expertise to help meet the broad needs of our clients. A&M GLOBAL SERVICES Performance Improvement Corporate Restructuring Business Advisory Services Private Equity Services Enterprise Performance Improvement Process Improvement Supply Chain Operations Finance Information Technology Human Resources Merger Integration Strategy Interim Management Revenue Enhancement Turnaround Advisory Crisis and Interim Management Revenue Enhancement Claims Management Corporate Finance Creditor Advisory Risk Management Advisory Transaction Advisory Global Forensic and Dispute Services Global Asset Risk Services Tax Advisory Due Diligence / Acquisition Support Post-Acquisition Performance Improvement Services Exit Support Risk Management Advisory REPRESENTATIVE A&M INDUSTRY EXPERTISE Automotive and Suppliers Consumer Packaged Goods Energy Financial Services Healthcare High Tech Insurance Manufacturing Media and Entertainment Public Sector Real Estate Retail Transportation 32

34 A&M APPLICABLE EXPERIENCE AND SKILL SETS A&M s combination of operational expertise, maritime experience and track record in financial restructuring make it uniquely positioned to help companies in the maritime industry improve their performance Strong relationships across global maritime industry Ship owners Terminal operators Regulators Harbor masters and pilots Maritime operating experience, including: Marine terminal operations, chartering, capital investment decisions, load factor optimization and customer negotiations Hands-on experience operating chemical/oil tankers, break-bulk, containers, and barges Shipyard and marine-engine experience (new builds and repairs) Maritime academy graduates with licensed deck and engineering sailing experience Maritime financing experience, including: Ship financings for numerous shipping companies totaling over $3 billion in aggregate cost Shipping container financings for more than $250 million of equipment Financing for $1 billion of offshore drilling rigs and supply vessels Restructuring and financial advisory experience Deep experience in turnaround management and financial advisory, as well as creditor advisory services 33

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