OCEAN CARRIERS: MARKET CONDITIONS, CARRIER LOGISTICS AND CHANGING INDUSTRY DYNAMICS. Bill Sheridan. APL Network Operations & Logistics

Transcription

1 OCEAN CARRIERS: MARKET CONDITIONS, CARRIER LOGISTICS AND CHANGING INDUSTRY DYNAMICS Bill Sheridan APL Network Operations & Logistics

2 William F. Sheridan Director Network Operations, Western Region Seattle, WA June 27, 2012

3 Contents Economic Trends Market Dynamics Chassis Paradigm Sustainability Navigating our Future 1

4 2 Economic Trends

5 Global Demand for Key Markets & Trades TRANSATLANTIC 2011 Size: 6.1 m TEU 2012 Growth Rate: 4.1% HH 4.1% BH ASIA - EUROPE 2011 Size: 23.2 m TEU 2012 Growth Rate: 5.8% HH 6.3% BH TRANSPACIFIC 2011 Size: 20.8 m TEU 2012 Growth Rate: 4.5% HH 7.0% BH AFRICA IMPORTS 2011 Size: 5.6 m TEU 2012 Growth Rate: 10.8% INTRA-ASIA 2011 Size: 45.5 m TEU 2012 Growth Rate: LH 10.8% HH 9.7% BH SS 6.9% LTAM 2011 Size: 13.4 m TEU 2012 Growth Rate: NS/EW 8.5% HH 9.3% BH Intra LTAM 9.2% Notes World trade is forecasted to be MTEU by Remaining volume unaccounted in the map primarily include Africa exports and Central Asia total trade Source: Seabury, GPS

6 Containerized trade continues to grow in 2012 but at a more moderate pace Global GDP and Container Demand Growth 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 11.2% 4.8% 3.8% 2.3% 11.1% 2.9% 13.4% 3.6% 13.9% 4.9% 10.9% 4.6% 10.2% 5.3% 11.0% 5.4% 2.8% 4.0% -0.7% -9.9% 14.0% 5.2% 7.3% 3.8% 7.7% 3.2% 7.8% 3.9% -15.0% F 2013F Global GDP Container Demand Growth Note: EIU data forecasts used for 2012 and 2013 Source: Drewry, Seabury, Clarksons, IMF WEO Sep2011/Jan 2012, EIU Global Forecasting 4

7 This is largely driven by slower global growth in 2012 due to uncertainties arising out of the European government debt issues GDP Growth 15.0% CAGR ( ) 10.0% 5.0% 0.0% 8.2% 6.9% 3.2% 1.9% -0.8% India 8.0% China 11.2% Global 4.4% US 2.6% EU27 2.6% -5.0% F 2013F 2014F 2015F 2016F EU27 US Global China India Source: IMF WEO Sep2011/Jan2012, EIU Global Forecasting 5

8 Oversupply is likely to extend into 2013 due to orders of >8,000 TEU vessels during 2010 and 2011 Demand and Supply Growth Rate Forecast F 2013F Demand Growth Supply Growth Source: Alphaliner, Drewry, Clarksons, Seabury, MDS 6

9 In 2011, challenging freight rate environment and rising fuel costs have negatively impacted liner earnings Liner Companies FY11 Results : Ranked by EBIT Margin (%) EBIT (US$ millions) EBIT Margin (%) EBIT Margin (%) EBIT (US$M) 4.0% % 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% 2.2% 1.7% % -1.9% % % % % % % % % % % % ,000 OOCL HPL CMA- CGM MAERSK MOL HMM APL HANJIN NYK K-LINE CSAV 7 Notes APL results for Liner division and is proxied by Core EBIT. Maersk results are inclusive of Damco Logistics but exclude terminals and gains on sale Operating profit used as proxy for EBIT: HMM and Hanjin Ordinary income as proxy for EBIT: MOL and Kline Recurring income as proxy for EBIT: NYK Source: Company financial reports

10 Main Carriers Operating Margins 1Q 2012 vs 4Q

11 Strong delivery flow in next 12 months but lack of recent newbuild orders will result in diminishing deliveries from 2H 2013 Thousand TEU Delivery is expected to peak in 2Q 12, with ~.5M TEUs coming on stream this quarter 2.5% % % % % Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q % Scheduled Newbuild % of Global Fleet Source: MDS March2012 9

12 Containerships >10,000 teu : Monthly deliveries in 2012 breakdown by Carrier 2012 Vessel Delivery by Carrier Source: Alphaliner 10

13 Challenging container shipping environment is forcing liners to manage capacity Source: Alphaliner 11

14 12 Market Dynamics

15 Market Dynamics In order to remain competitive many carriers have ordered ultra large ships. Thirteen different carriers have ordered ships over 12,500 TEU. Demand growth is not keeping pace, resulting in pressure on rates which have already reached non-compensatory levels in key trades. Carriers are operating in the red, resulting in idle capacity and more slowsteaming. Carriers are looking for ways to control costs while still providing quality service and innovative solutions to their customers. 13

16 Trade flows to/from Asia have shifted significantly. Shifting pattern in Asia is producing a significant increase in equipment repositioning as inbound flows are growing in countries other than China where the outbound demand is highest. Top EB countries are not growing their WB volumes as fast as other Asian countries, creating increasing mismatch of in/ out volumes in Asia North China South China Japan Vietnam UAE Malaysia US Exports growing to SEA, M East which need longer transit Repositioning Boxes need to be repositioned to major exporting regions e.g. North China This relatively recent shift in flow creates longer equipment turn, drives up repositioning cost to get the boxes to China where they are needed to support outbound demand, and increases the size of the equipment fleet carriers must have to service the market.increasing costs. 14

17 15 Domestic Intermodal

18 World Containerized Trade Outlook World containerized trade estimated to have moderate growth this year. TP growth is expected to pick up in 2013 Containerized Trade Growth Intra Asia Global 4.2% 7.1% 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% 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% Transpacific (HH) Asia Europe (HH) 13.9% 15.1% E 2013E 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% 16 Source: Equity analysts, shipping consultants and SLM estimates Note: *Alphaliner TP is FE-US, ASEU is FE-Europe **Clarksons growth is Far East to Europe

19 17 Chassis Paradigm

20 Chassis Background USA is only location where carriers provide chassis Carriers are pursuing paradigm shift away from Liner chassis provisioning OCEMA (Ocean Carrier Equipment Maintenance Agreement) is forum under FMC authority where carriers can discuss operational issues OCEMA established chassis pools as a first step of rationalizing Chassis provisioning 18

21 Paradigm Shift Overview Carriers are considering the following approaches -Continue with current program Carrier provided - Pool Participation Continue to supply chassis, but join a pool -Trucker model Divest chassis, new owner charges trucker 19

22 What is APL doing APL will phase out its container chassis fleet beginning 2012 and will conclude by By relying on providers who specialize in chassis management, this will ensure that equipment is deployed more efficiently. In Spring 2012, APL will begin a pilot program at terminals in Denver and Salt Lake City. 20

23 21 Sustainability

24 Continued Environmental Initiatives Eco-responsible operations for a sustainable future Optimize speed, schedule, weather routing and best practices to reduce CO 2 emissions (Slow Steaming) Low Sulphur Fuel Cold Ironing Seawater Scrubber Ballast Water Treatment Slide Valves Environmentally friendly paint on ship hulls Voluntary Speed Reduction in Southern California waters to reduce emissions Eliminating drayage thru on-dock rail 22 22

25 Service Options: Investing in our Network New CGG Facility 43 Acres Container Capacity: 1,600 Stalls, 400 Decked Gates: 4 Inbound/3 Outbound M&R: 19,000 Sq. Ft. Shop 10 Bay Chassis/ Container Repair Fleet Expansion 34 Vessels ordered Delivery between Q and 2014 Best fuel efficiency in the industry 10x14,000 TEU Vessels Productivity Improvements at GGS Crane Backreach Opens up more traffic lanes under the hook Better traffic flow, increased efficiency Future growth Increased safety 23

26 Future developments such as the widening of the Panama Canal in 2014 will help exporters Larger vessels with increased deadweight Provide the capability to serve USEC from Asia Post Panamax trade patterns expected to shift, benefiting Atlantic Coast Ports Upgraded infrastructure is required to increase capacity and efficiently move products for global import and export customers Source: Drewry Supply Chain Advisors 24

27 Service Reliability 94% on-time performance within the Trans-Pacific Trade 25

28 26 Navigating Our Future

29 While uncertainty remains in 2012, we continue to focus on managing costs and operational efficiencies Ordered 34 new vessels which can potentially replace existing charters Capacity management Cost Structure Example Slow steaming Exploring technological advancements New vessel specifications Fixed cost Bunker G&A Variable cost Enhancing operational efficiencies Densification of volume (e.g. costs efficiencies through volume increase in own terminals) Centralization of processes (e.g. Global Service Centre, Chongqing, China) Relocation of US headquarters to Phoenix 27

30 Navigating Our Future Building Integrated Partnerships Collaboration TSA discussions with the Shipper Advisory Council Establish multi-year contracts to reduce rate volatility Planning Accurate forecasting tied to equipment and space commitments Use IT solutions to exchange business information and optimize visibility Integrated Partnerships Sharing TSA revenue index Adjusted TSA bunker formula Share pain points and KPIs thru regular business reviews Innovation Identify opportunities and create new solutions up and down the supply chain Find creative ways to contract, seeking stability and clarity 28

31 Thank You

32 Value Chain Origin services Our value chain Destination services Warehouse Land Consol Terminals Container shipping Terminals Deconsol Land Warehouse Visibility NOL s container shipping and logistics businesses form a value chain which offers customers reliable, time-definite and costeffective services from origin to destination. As supply chains become more complex, our total value chain proposition offers strong advantages for customers

33 End-to-end solutions 31