CARRIER STRATEGIES, COST vs VALUE & THE SUPPLY CHAIN IMPACT June 9 th 2015 TOC Rotterdam Andrew Penfold Director Ocean Shipping Consultants
Far-reaching changes are underway. What will be the supply/demand balance in the container market? How will the cascading of large vessels onto secondary deepsea trades impact terminals? Are the alliances here to stay? What about even larger vessels (22,000TEU+)? How can increased consignment size and transshipment intensity be handled? Title: RHDHV Powerpoint V04 22/06/ Page 2
Overview of global container trade volumes Global containerised trade has been increasing steadily since the slowdown: 182 million TEUs (full). 9.8% annual growth in the period 2003-2008. 6.6% annual growth in the period 2003-2015. Title: RHDHV Powerpoint V04 22/06/ Page 3
What does it mean for global port business? Currently container shipping generates 680 million TEU moves globally. Two structural issues: Transshipment increasing. Empty containers stable share. Title: RHDHV Powerpoint V04 22/06/ Page 4
What is driving this growth? Historically, there is a close correlation between World GDP growth and container trade growth. This has been called into question, but remains a remarkably robust indicator especially for supply/demand overviews. Title: RHDHV Powerpoint V04 22/06/ Page 5
Medium-term forecast to 2020 Based on IMF projections on World GDP growth and anticipated multipliers and transshipment assessment, together with trade-by-trade review. Further strong demand growth under Base Case economic assumptions transshipment underlining demand growth. Title: RHDHV Powerpoint V04 22/06/ Page 6
And what about the supply side? 10,000TEU+ sector has recorded the most rapid growth and will continue to do so. Penetration of ULCS vessels (say,14,000teu+) has been very fast as lines seek to maintain competitive slot costs. Major trades cannot absorb all of this, hence cascading of large vessels to other trades. Title: RHDHV Powerpoint V04 22/06/ Page 7
Characteristics of the fleet - overview Total fleet end-q1-2015: 5,106 container vessels. Total capacity end-q1-2015: 18.2m TEU. Owners: 47% of the fleet. Operators: 53% of the fleet. Fleet deployed Fleet owned # TEU # TEU 1 Maersk 606 2,907,270 259 1,597,988 2 MSC 497 2,539,354 171 1,016,939 3 CMA-CGM 448 1,649,675 99 569,647 4 Hapag-Lloyd 186 980,354 82 533,314 5 Evergreen 197 953,946 105 517,016 6 COSCO 163 825,405 93 469,553 7 China Shipping 135 673,578 83 535,715 8 Hanjin Shipping 98 608,459 45 327,771 9 Mitsui OSK Line 112 602,134 39 242,665 10 NOL/APL 94 562,346 56 460,807 11 Hamburg-Sud 111 533,365 44 279,137 12 OOCL 98 531,577 54 403,706 13 NYK 107 501,424 49 261,712 14 Yangming 87 401,920 46 221,333 15 PIL 162 380,499 109 261,975 16 HMM 57 377,705 25 185,185 17 K Line 70 363,901 46 267,105 18 UASC 54 362,492 28 229,118 19 Zim 80 331,968 25 140,511 20 Wan Hai 86 200,388 73 175,395 3448 16,287,760 1,531 8,696,592 68% 89% 30% 48% Title: RHDHV Powerpoint V04 22/06/ Page 8
Container container vessel orderbook 90% of vessels on order are of 10,000TEU+. There is a concentration in the 18,000TEU+ range which is increasing all the time. This means that capacity will continue to increase on the Asia- Europe trades at a pace faster than demand. There are difficulties in deploying large vessels elsewhere. Freight rates are moving in different directions great uncertainty. Title: RHDHV Powerpoint V04 22/06/ Page 9
Capacity utilisation on the Asia-Europe trades It is necessary to assess from a route-specific perspective. Westbound utilisation remains significantly below optimum level and is driving down freight rates. We anticipate this will worsen. Balance will remain weak. Title: RHDHV Powerpoint V04 22/06/ Page 10
Supply/Demand Balance Analysis period Q4/2009-Q12015: Downturn in freight rates. Now placing increased pressure on other trades as cascade is broadened. Both capacity utilisation and bunker prices are pushing freight rates down i.e. allowing rates to fall as line cost structures improve. Title: RHDHV Powerpoint V04 22/06/ Page 11
Bunker prices an important cost sector Analysis period Q4/2009-Q12015. Impact on supply: some increased speed greater supply side development. Significant impact on variable costs. Not clear just how far speed can be steppedup for new generations ULCSs. Title: RHDHV Powerpoint V04 22/06/ Page 12
Shanghai Containerised Freight Index Created in Oct-09, the SCFI is compiled from spot tariff rate assessments submitted weekly by a panel of 15 carriers and 15 noncarriers. Designed to be comprehensive. Clearly the primary trend is negative. Global imbalances take time to spread between trades. Lower bunker prices complicate interpretation. Title: RHDHV Powerpoint V04 22/06/ Page 13
Vessel Size - TEU The Cascading Effect is well underway Much larger vessels on Primary trade and also larger vessels deployed on Secondary deepsea trades where port capacity permits. This is driven by an excess of vessels displaced from primary deepsea trades cascading to the secondary trades. Actual demand at present seldom justifies these much larger vessels but it s a fact of life. With ongoing orders of ever larger vessels the cascading effect will continue. This will also push of larger vessels into the feeder sector. 14000 12000 10000 8000 6000 4000 2000 0 Average Ship Shizes on Key Container Trades, 2010-2014 Asia-ECNA via Suez Asia-North Europe Transatlantic (N.Europe) Europe-South America Atlantic Europe-Southern Africa Europe-Middle East/Indian SC Europe-Australasia Transpacific Asia-South America Pacific Asia-Middle East 2010 2011 2013 2014 Title: RHDHV Powerpoint V04 22/06/ Page 14
And the size of container vessels will not stop here Ocean Shipping Consultants / Lloyds Register analysis confirmed there are no technical limits to building and operating even larger vessels up to 24,000TEU. Development of 22,000TEU vessels will be by means of increasing length, with 430-433m being the likely dimension. There are two options for 24,000TEU vessels either further lengthening, with a slightly deeper draught or a shift to broader vessels on a length of up to 430m. This would entail an additional row of containers. Title: RHDHV Powerpoint V04 22/06/ Page 15
Shipping alliances what does it mean? Alliances should be primarily perceived as defensive tonnage management exercises. Four major alliances, but not clear how robust these arrangements are. Cosco and China Shipping are wild cards in this. Port impact significant but may be shorter term than initially thought. Will they survive a freight upturn? Title: RHDHV Powerpoint V04 22/06/ Page 16
Where is the limit for ship size increase? Port infrastructure and equipment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Panamax Post-Panamax Super-Post-Panamax Malacca-Max? Title: RHDHV Powerpoint V04 22/06/ Page 17
Increased consignment sizes and transshipment Potential Consignment Sizes Vessel Capacity - TEUs 3500 4500 6800 8500 12500 14500 18270 22000 24000 Current port rotations (4 port calls) TEUs 1750 2250 3400 4250 6250 7250 9135 11000 12000 Mov es 1094 1406 2125 2656 3906 4531 5709 6875 7500 Port concentration (3 ports calls) TEUs 8333 9667 12180 14667 16000 Mov es 5208 6042 7613 9167 10000 Transshipment Effects Percent 20.0% 22.0% 25.0% 25.0% 35.0% 35.0% 40.0% 40.0% 40.0% There are already rapid increases in consignment sizes for Asia-Europe and Transpacific deployments. These increases will continue. There are further pressures to reduce port calls, with this resulting in much larger consignments that will require transshipment to fill the vessels. If port calls are dropped (as seems certain), then this will further increase terminal pressures. In reality, these combined effects will lift consignment size from 2100 moves for a 4 port 8500TEU rotation to up to 10,000 moves for a putative 24,000TEU vessel on a 3 port rotation. Title: RHDHV Powerpoint V04 22/06/ Page 18
Points to take away The supply/demand balance is weak and will not improve in the near term. Rate pressure has been focused on the Asia-Europe trades but cascading will spread this effect. Recent ordering will postpone recovery even if demand remains strong. Low fuel prices will speed-up vessels but also lift demand in the medium term a neutral effect? Focusing of demand in larger vessels and consignment sizes will further pressure terminals. Alliances should be seen as defensive and will endure as long as oversupply is manifest. Recovery (when reached) will see further reorganisations. Cheap freight rates for some time, but with continued uncertainty on individual line positions. Title: RHDHV Powerpoint V04 22/06/ Page 19
Thank You Andrew Penfold Email: andrew.penfold@rhdhv.com Web: www.maritime-rh.com/osc-home.html Title: RHDHV Powerpoint V04 22/06/ Page 20