CONTAINER TRADE FLOWS AND TRADE LANE CHANGES International Trade Symposium Norfolk VA May 9, 2013
Today s Speaker Hayes H. Howard CEO, BlueWater Reporting 2
Agenda Introduction About BlueWater Reporting Changing Trade Lanes & Shipping Patterns The Mega Vessel Era Is Upon Us Changing Carrier Alliances/Emergence of the G6 Panama Canal Expansion/Suez Canal Growth Carrier Financials & Financing Q&A
IMF forecasts 3.3% growth for 2013 4
Output, Prices and Jobs 5
Today s Market Changing Trade Lanes 20% 15% 10% 5% 0% -5% Import Growth Weighted Average import growth: 3.16% Russia USA China Japan South Korea Taiwan East Africa South Africa Australasia Stronger imports & above global average Stronger exports & above global average North Africa South America Levant & Caucasus South East Asia Central America Caribbean Weighted Average export growth: 2.86% South Asia Western Europe Eastern & Central Europe Export growth -10% -10% -5% 0% 5% 10% 15% 20% Source: Seabury Cargo Advisory. Gulf Stronger exports Stronger imports West Africa 6
Today s Market Changing Trade Lanes Ocean Trade Growth 2012 4-6 -3 3-3 -7 0 11-2 3 1 15 2 16 16 2-2 13 14 4 6 Total international ocean trade growth 2.6% Source: Seabury Cargo Advisory. 7
Containerized Trade Projections 2013 From Containerization International, March 2013 8
Today s Market Overcapacity Endemic overcapacity likely to persist for through 2013 at least. Eastbound transpacific capacity rose around 7.5 percent in 2012. Westbound Asia Europe capacity rose around 3 percent in 2012. Weakened demand on traditional key trades Transpacific and Asia-Europe. No sizable trades where carriers can retreat to recapture revenue growth. 9
Mega-Vessel Era Carriers consistently seeking to improve their economy of scale. Persistent investment in larger ships to achieve lower per-slot operating costs. Means ports have to be able to handle larger vessels and more cargo than ever before. Larger vessels will likely make fewer calls, going to bus stop rotations.
Mega-Vessel Era Deliveries 13-15 100% 5% 5% 26% 8% 9% 80% 15% 60% 14% 23% 29% 13% 27% Less than 4,800 4,800-7,019 8,000-9,700 10,000-12,600 40% 20% 8% 22% 32% 12% 11% 13,000-14,000 16,000-16,020 18000 0% 2% 5% Delivery 2013 - Approx 1.7 mil TEU 3% 10% Delivery 2014 - Approx 1.1 mil TEU 19% Delivery 2015 - Approx 0.6 mil TEU Source: Clarkson Research Services 11
Changing Carrier Alliances The G6 and other new partnerships Green Alliance: Cosco, Hanjin, K Line, Yang Ming Evergreen Grand Alliance: Hapag Lloyd, OOCL, NYK New World Alliance: APL, Hyundai, MOL MSC CMA-CGM Maersk Line Circle sizes represent comparative sizes of the carriers by capacity. Bands represent new alliances/co-operations. 12
Carrier Alliance Share Alliance share includes Services operated by Alliances and services with an alliance carrier as a dominate operator, plus services operated by Maersk Line, MSC, CMA CGM and Evergreen Line 13
Changing Carrier Alliances Net Impacts More control by fewer decision makers. Greater choice for shippers. Potential for improved service levels remains TBD. Probably higher rates also TBD. 14
Managing Capacity Carriers are becoming more efficient at constraining capacity as new ships come on line. But can also quickly increase capacity if demand warrants. Asia to North America 4/1/2012 4/1/2013 Increase Vessel Count 434 487 12% Vessel TEUs 2,462,942 2,659,127 8% Average Vessel Size 5,675 5,460-4% Weekly Vessel Capacity 316,952 328,415 3.60% Weekly Available Capacity 297,850 305,852 2.60% Carriers exercise greater level over control over capacity and ultimately rate levels. 15
Managing Capacity or Not Carriers are becoming more efficient at constraining capacity as new ships come on line. But can also quickly increase capacity if demand warrants. Asia to North America 5/1/2012 5/1/2013 Increase Vessel Count 436 487 12% Vessel TEUs 2,507,972 2,782532 11% Average Vessel Size 5,752 5,714-1% Weekly Vessel Capacity 316,952 346,575 9% Weekly Available Capacity 298,997 322,265 8% Carriers exercise greater level over control over capacity and ultimately rate levels. 16
Panama Canal Expansion Panama Canal expansion completion delayed until 2015. East Coast ports have been focusing on meeting a 2015 deadline to handle larger ships. ACP claims max vessel capacity through the Canal could be 14K TEU more likely 8-10K vessels will transit the canal. Canal tolls will likely increase significantly with unknown impact on shipper s rates. More likely extra capacity through the Canal will have largest impact on rates. 17
Challenges to Panama Routes Today Carriers claim Panama services are unattractive /unprofitable. Mega-vessels call the US West Coast not the East. Bunker fuel prices double while Panamax vessels are inefficient double whammy. Canal tolls have increased steadily 2X since 2005. 18
Panama/Suez Transit Comparison Norfolk via Panama Norfolk via Suez Nautical Miles Days Nautical Miles Days Singapore 9,873 24 12,692 No services Yantian 11,489 27 11,250 29 Shanghai 12,164 34 10,671 26 Busan 12,495 No services 10,222 24 Tokyo 12,902 No services 9,882 23 Showing fastest direct transit time 19
Growing Suez Share Asia to East Coast North American Trade 20
Where Are The Profits? Top publicly-traded lines lost nearly $6 billion in 2011. Only two in the black. The industry has lost money from operations over 5 years to 2012. In general carriers suffering from weak cash flow, high debt loads. Industry probably in the black for 2012, but results vary widely: In the black: CMA-CGM, Maersk, OOCL, China Shipping, etc. In the red: COSCO, APL, Zim, etc. 21
Liner Profitability 2007-2011 Source: American Shipper research 22
Carrier Margins Suffer in 2011 Source: American Shipper research 23
Altman Z-Score for Ocean Carriers 3.00 2.66 2.64 2.50 2.00 1.50 1.45 2.06 Moderate Distress Severe Distress 1.43 1.00 0.50 - FQ4 2007 FQ4 2008 FQ4 2009 FQ4 2010 FQ4 2011 Source: Capital IQ, analysis by AlixPartners 24
Q&A Thank you for your attention. I would like to take your questions now. For more information, you can contact me at: Hayes Howard 904-355-2601 hh@shippers.com 25