What Investors Want to Know: Container Shipping Chartbook

Transcription

1 What Investors Want to Know: Container Shipping Chartbook Angelina Valavina, Senior Director EMEA Utilities & Transport June 2017

2 Contents 1 Recovery Depends on Market Discipline 2 2 Cost Cutting Still in Focus 6 3 Consolidation Through Mergers and/or Alliances 10 4 Defaults 15 5 Appendix 17 1

3 1 Recovery Depends on Market Discipline 2

4 Recovery Depends on Continuous Market Discipline Container Market Demand and Supply Global GDP growth Container transport volume growth Net capacity growth (%) F 2018F Source: Fitch, COSCO, Hapag-Lloyd Low net capacity growth in 2016 at 1.5% due to high scrapping and delayed deliveries Net supply growth is expected to accelerate in 2017 and 2018 despite forecast high level of scrapping Idle fleet is high at 7% of total fleet capacity at end-2016 Uneven improvement of freight rates in 1Q17 recovery mostly on Europe-Asia 3

5 F Order Book Is Declining But Mega-Ships Prevail Container Vessels Order Book Orderbook Orderbook-to-fleet (TEU million) 7 (%) 70 Vessels on Order by Size 100% >10,000 TEU 5,100-9,999 TEU <5,100 TEU % 80% 70% % 50% 40% % 20% 10% 0 0 0% F 2018F 2019F Source: Hapag-Lloyd, Fitch Source: COSCO Shipping Holdings Co Ltd, Fitch 4

6 Performance Will Remain Challenging in 2017 EBIT of Selected Container Shipping Companies, 2016 (USDm) ,000 1,500 1,000 EBIT of Selected Container Shipping Companies, 1Q17 (USDm) Q16 1Q ,000 Maersk Line CMA CGM Hapag-Lloyd COSCO -250 Maersk Line Hapag-Lloyd COSCO CMA CGM Source: Companies data, Fitch Source: Companies data, Fitch 5

7 2 Cost Cutting Still in Focus 6

8 Adapting to Challenging Environment Cost cutting Consolidation through mergers and/or alliances Defaults 7

9 Massive Ordering of Mega-Ships Benefits May Subside Average Container Ship Size (TEU) 4,500 3,000 1, Source: Alphaliner, Fitch Rapid vessel upsizing is more pronounced in container shipping Cost savings from the newest generation of ships are smaller than the savings from the previous increases in size. 60% of cost savings are related to more efficient engines rather than scale Larger vessels add to oversupply and lead to cascading. Mainly used on Far East-North Europe trade lanes Infrastructure challenges berth deepening, quay wall strengthening and port equipment 8

10 Freight Rates Do Not Support Unit Costs Freight Rates and Unit Costs of Selected Container Shipping Companies, 1Q17 (USD/TEU) Average freight rate Unit costs 1,400 1,200 1, Maersk Line Hapag-Lloyd COSCO CMA CGM Source: Companies data, Fitch 9

11 3 Consolidation Through Mergers and/or Alliances 10

12 Evolution of Container Shipping Alliances 1999 The New World Alliance APL/NOL (USA/Singapore) MOL (Japan) Grand Alliance P&O Nedlloyd (UK) OOCL (Hong Kong) Hapag-Lloyd (Germany) NYK (Japan) TRICON Hanjin (Korea) DSR-Senator (Germany) Cho Yang (Korea) Maersk/Sea-Land Maersk (Denmark) Sea-Land (USA) Sino-Japan Alliance COSCO (China) K Line (Japan) Yang Ming (Taiwan) M Maersk (Denmark) MSC (Switzerland) Ocean Alliance OOCL (Hong Kong) CMA CGM (France) COSCO (China) Evergreen (Taiwan) The Alliance Hapag-Lloyd (Germany) NYK Line (Japan) Yang Ming (Taiwan) MOL (Japan) K Line (Japan) UASC (Qatar) Source: Companies data, Fitch 11

13 Market Share of New Alliances Capacity Share of New Alliances on Far East Trade Capacity Share of New Alliances on Transpacific Trade Capacity Share of New Alliances on Atlantic Trade The Alliance 23% Other 5% The Alliance 29% Other 9% 2M 20% The Alliance 33% Other 5% 2M 38% 2M 49% Ocean Alliance 34% Ocean Alliance 42% Ocean Alliance 13% Source: Hapag-Lloyd, Fitch Source: Hapag-Lloyd, Fitch Source: Hapag-Lloyd, Fitch 12

14 Consolidation in Container Shipping Is Inevitable Mergers and acquisitions, rather than the historically more popular alliances, are inevitable to address chronic overcapacity and drive further cost savings in container shipping This is because alliances operate with limited scope and lack full coordination of networks and fleets, and exploitation of resources. This limits their ability to manage capacity and cut costs Alliances have proved popular because of their flexibility and because many shipping companies are either family- or state-owned. But market conditions are now unsustainable, with freight rates falling below operating unit costs for many companies, and bank loans are increasingly difficult to obtain This will continue to drive M&A, which can more effectively reduce costs, increase utilisation rates and support more disciplined capacity management M&A deals will only restore equilibrium and boost freight rates if they prompt capacity reduction 13

15 M&A Waves Consolidation Waves and Market Shares of Top-5 Container Liners 100% 90% CMA & CGM CMA CGM & ANL Hapag- Lloyd & cpships CMA CGM & USL Hapag-Lloyd & CSAV Hamburg Sud & ccni COSCO & CSCL Hapag-Lloyd & UASC 80% 70% 60% P&O & Nedlloyd NOL & APL Maersk & Saf-marine Maersk & SeaLand CMA CGM & Delmas Maersk & P&O Nedlloyd CMA CGM & Comanav CMA CGM & OPDR CMA CGM & APL Maersk & Hamburg Sud NYK Line & K Line & MOL 50% 40% 30% 20% Source: AP Moeller Maersk, Fitch 14

16 4 Defaults 15

17 More Container Shipping Defaults We expect more defaults in the short-to-medium term as the market fundamentals remain challenging The top-five container shipping companies are consolidating their positions but many of the other companies in the sector have quite weak financials, which are unstainable in the medium term unless the sector recovers Yang Ming restructuring plan; Hanjin, Rickmers default The impact on the sector will depend on the share of capacity of a defaulted entity being redeployed in the market Creditors' withdrawal of support may indicate a reassessment of the financing landscape, where secured bank funding for new vessels has remained relatively accessible even as market conditions have deteriorated. Such a change would pave the way for more restructurings 16

18 5 Appendix 17

19 Shipping: Fitch s Criteria and Related Research EMEA Airlines & Shipping Sectoral and Economic Challenges to Prevail, 6 December 2016 Fitch: Deals, Defaults Ahead as Shipping Outlook Stays Negative, 30 November Outlook: Global Shipping Consolidation, Costs and Capacity High on Agenda, 30 November 2016 Maersk Gets Little Solace from Sectoral Diversification, 8 October 2016 Criteria for Rating Non-Financial Corporates, 27 September 2016 More Container Shipping Defaults, M&A Will Follow Hanjin, 5 September 2016 M&A Not Alliances to Help Revive Container Shipping, 28 April 2016 Russia Privatisations May Hit Corp Ratings in Medium Term, 2 February 2016 Shipping Companies Ratings Navigator Companion, 9 March

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