CONTAINER TRADE FLOWS AND TRADE LANE CHANGES€¦ · “K”Line, Yang Ming . Carrier Alliance Share 13 ... Weekly Vessel Capacity 316,952 346,575 9% Weekly Available Capacity 298,997

International Trade Symposium

CONTAINER TRADE FLOWS AND

TRADE LANE CHANGES

Norfolk VA May 9, 2013

Today’s Speaker

2

Hayes H. Howard

CEO, BlueWater Reporting

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

6

-10%

-5%

0%

5%

10%

15%

20%

-10% -5% 0% 5% 10% 15% 20%

Import Growth

Export growth

USA

China

JapanEastern & Central Europe

Taiwan

South Korea

East Africa

South Asia

Levant & Caucasus

Gulf

South America

Central America

Caribbean

Western Europe

Russia

South East AsiaAustralasia

West Africa

South Africa

North Africa

Stronger exports

Stronger exports & above global average

Stronger imports & above global average

Stronger imports

Weighted Average

export growth: 2.86%

Weighted Average

import growth:

3.16%

Source: Seabury Cargo Advisory.

Today’s Market – Changing Trade Lanes

7

Ocean Trade Growth 2012

Source: Seabury Cargo Advisory.

Total international ocean trade growth 2.6%

-6

2

15

-3

1

4

6

162 16

14 4

-2

30

11

-7

13

3

-2

-3

Containerized Trade Projections 2013

8

From Containerization International, March 2013

Today’s Market – Overcapacity

9

• 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.

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

11Source: Clarkson Research Services

5%10%

19%2%

3%

11%

22%

32%

12%8%

13%

27%

23%

29%

15%

14%

8% 9%26%

5% 5%

0%

20%

40%

60%

80%

100%

Delivery 2013 - Approx 1.7 milTEU

Delivery 2014 - Approx 1.1 milTEU

Delivery 2015 - Approx 0.6 milTEU

Less than 4,800

4,800-7,019

8,000-9,700

10,000-12,600

13,000-14,000

16,000-16,020

18000

Changing Carrier Alliances

12

The “G6” and other new partnerships

Circle sizes represent comparative sizes of the carriers by

capacity. Bands represent new alliances/co-operations.

Maersk Line

MSC

CMA-CGM

Grand Alliance:

Hapag Lloyd, OOCL, NYK

New World Alliance:

APL, Hyundai,

MOL

Evergreen

Green Alliance:

Cosco, Hanjin, “K”Line, Yang

Ming

Carrier Alliance Share

13

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

Changing Carrier Alliances – Net Impacts

14

• More control by fewer decision makers.

• Greater choice for shippers.

• Potential for improved service levels – remains TBD.

• Probably higher rates – also TBD.

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.

Carriers exercise greater level over control over capacity and ultimately rate levels.

15

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%

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.

Carriers exercise greater level over control over capacity and ultimately rate levels.

16

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%

• 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

Panama Canal Expansion

Challenges to Panama Routes Today

18

• 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.

Panama/Suez – Transit Comparison

19

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

Growing Suez Share Asia to East Coast

North American Trade

20

Where Are The Profits?

21

• 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.

Liner Profitability 2007-2011

22

Source: American Shipper research

Carrier Margins Suffer in 2011

23

Source: American Shipper research

Altman Z-Score for Ocean Carriers

24

2.66 2.64

1.45

2.06

1.43

-

0.50

1.00

1.50

2.00

2.50

3.00

FQ4 2007 FQ4 2008 FQ4 2009 FQ4 2010 FQ4 2011

Source: Capital IQ, analysis by AlixPartners

Severe Distress

Moderate Distress

Thank you for your attention. I would

like to take your questions now.

For more information, you can contact

me at:

25

Q&A

Hayes [email protected]