Trade Concentration and Large Vessels in the Container Trades Andrew Penfold Director, Ocean Shipping Consultants Ltd. Barcelona, June 2008 SIL 2008 Barcelona.

Trade Concentration and Large Trade Concentration and Large Vessels in the Container TradesVessels in the Container Trades

Andrew PenfoldAndrew PenfoldDirector, Ocean Shipping Consultants Ltd.Director, Ocean Shipping Consultants Ltd.

Barcelona, June 2008Barcelona, June 2008

SIL 2008 BarcelonaSIL 2008 Barcelona

Presentation Overview - trade expansion, Presentation Overview - trade expansion, concentration and larger vesselsconcentration and larger vessels

• What is actually happening to trade volumes?What is actually happening to trade volumes?

• How are these likely to develop - are these trends sustainable?How are these likely to develop - are these trends sustainable?

• How have shipping lines reacted to these developments?How have shipping lines reacted to these developments?

• Optimum future vessel sizesOptimum future vessel sizes

• The true position for container terminalsThe true position for container terminals

• Supply/demand balance for larger vesselsSupply/demand balance for larger vessels

• Issues arising from the size revolutionIssues arising from the size revolution

Scale economies are driving the business, ship size revolution will have Scale economies are driving the business, ship size revolution will have major effects for all trade sectors - not just arterialmajor effects for all trade sectors - not just arterial


What is Happening to Trade Volumes?What is Happening to Trade Volumes?

• Volumes have increased dramatically, with port demand reaching around 470m Volumes have increased dramatically, with port demand reaching around 470m TEU in 2007TEU in 2007

• Demand has actually accelerated with total volume’s CAGR increasing from Demand has actually accelerated with total volume’s CAGR increasing from 10.5% pa in the 1990s to 12.8% pa since 200010.5% pa in the 1990s to 12.8% pa since 2000

• This growth - although focused on Asian trades - has been broadly-based and This growth - although focused on Asian trades - has been broadly-based and all regions have benefitedall regions have benefited

• This is the true manifestation of globalisation - made possible by This is the true manifestation of globalisation - made possible by containerisationcontainerisation

• Transshipment has been a major demand sector and reached nearly 112m TEU Transshipment has been a major demand sector and reached nearly 112m TEU last yearlast year

• Large vessels + feeders is the dominant modeLarge vessels + feeders is the dominant mode

Ports are under pressure to handle larger vessels, shipping lines position under Ports are under pressure to handle larger vessels, shipping lines position under pressure from overtonnaging and fuel pricespressure from overtonnaging and fuel prices


World Container Port Demand by Region Since World Container Port Demand by Region Since 1990 - million TEUs1990 - million TEUs

0

50

100

150

200

250

300

350

400

450

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Others Americas

North America

Australasia/Oceania

East Asia

Sub-Saharan Africa

Middle East & South Asia

S.Europe/Mediterranean

North Europe

2001 - some slowdown in demand growth


What is Happening to the Container Fleet?What is Happening to the Container Fleet?

• The role of 10,000TEU+ vessels has increased dramatically - The role of 10,000TEU+ vessels has increased dramatically - driven by scale economies and competitive pressuresdriven by scale economies and competitive pressures

• Sheer level of ordering for ULCS and New Panamax vessels is Sheer level of ordering for ULCS and New Panamax vessels is difficult to justify - overtonnaging (again) will be the outcomedifficult to justify - overtonnaging (again) will be the outcome

• Transpacific and Asia-Europe trades will absorb most of this Transpacific and Asia-Europe trades will absorb most of this tonnage - but the ‘cascade’ effect will see redeployment of tonnage - but the ‘cascade’ effect will see redeployment of 6000TEU+ vessels into the Atlantic and some N-S trades6000TEU+ vessels into the Atlantic and some N-S trades

• At the same time fuel is At the same time fuel is muchmuch more expensive - there are more expensive - there are pressures to slower steaming and dropping port callspressures to slower steaming and dropping port calls

• The overall effect will be further concentration and transshipment The overall effect will be further concentration and transshipment activityactivity


Design Development of Deepsea Design Development of Deepsea ContainershipsContainerships


TEUs LOA (m) Beam (m) Draught (m) Berth depth (m)

First generation: 1968 1,100Second generation: 1970-80 2-3,000 213 27.4 10.8 12.0Panamax: 1980-90 3-4,500 294 32.0 12.2 12.8-13.0Post-panamax: 1988-95 4-5,000 280-305 41.1 12.7 13.5-14.0Fifth generation: - 1996-2005 6,400-8,000 300-347 42.9 14.0-14.5 14.8-15.3Current development stage 8,000-12,500 320-380 43-47 14.5-15.0 15.3-15.8Ultra large carriers since 2006: - 12,500 366+ 49+ 14.5-15.0 15.3-15.8- 14,500 380-400 58.0 15.5 16.3

Source: Ocean Shipping Consultants Ltd

A Ship Size Revolution is Underway - IA Ship Size Revolution is Underway - I

Container Fleet Development by Vessel Size 1990-2007

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

'000 T

EU

s

8000+

4000-7999

3000-3999

2000-2999

1000-1999

100-999


Asia-Europe Vessel Costs Per TEU Slot by Asia-Europe Vessel Costs Per TEU Slot by Speed and Bunker Price - $/TEU SlotSpeed and Bunker Price - $/TEU Slot

23k 24k 25k

6800TEU$160/t 194.0 193.7 194.0$321/t 247.6 253.0 257.2$500/t 307.1 316.9 327.6

12500TEU$160/t 143.4 144.5 146.2$321/t 183.0 189.0 195.8$500/t 227.2 238.6 250.9

Source: Ocean Shipping Consultants Ltd.


A Ship Size Revolution is Underway - IIA Ship Size Revolution is Underway - II

Container Ship Orderbook Development 2000-2007

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2000 2001 2002 2003 2004 2005 2006 2007

8000+4000-79993000-39992000-29991000-1999100-999


Orderbook for very large vessels at unprecedented levels

A Ship Size Revolution is Underway - IVA Ship Size Revolution is Underway - IV

Major N. European Ports: demand by ship size to 2030

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Percenta

ge o

f TE

Us

10000TEU+

8001-10000 TEU

7001-8000 TEU

6001-7000 TEU

5001-6000 TEU

4001-5000 TEU

3001-4000 TEU

2001-3000 TEU

Up to 2000 TEU


A Ship Size Revolution is Underway - IIIA Ship Size Revolution is Underway - III

Ship Size Development on Deepsea Trades to 2020

2000 2007 2010 2015 2020East AsiaAverage Vessel Capacity 4800 6215 8500 10500 12000Largest Vessel 7500 13500 14500 14500 14500Transatlantic ServicesAverage Vessel Capacity 3125 3170 3250 3850 5200Largest Vessel 4550 6470 6600 8500 10000South/Central America ServicesAverage Vessel Capacity 1345 2508 3200 3800 4500Largest Vessel 2500 5560 6600 6600 8000Indian Sub-Continent ServicesAverage Vessel Capacity 1020 2975 3250 4500 5500Largest Vessel 1850 5060 5060 6800 10000African ServicesAverage Vessel Capacity 1415 2250 2400 3200 3400Largest Vessel 3150 5060 5100 5500 6600Australasian ServicesAverage Vessel Capacity 1890 2205 2200 2500 3200Largest Vessel 3750 4130 5500 5500 5500Iberia/Mediterranean ServicesAverage Vessel Capacity 550 1095 1200 1500 2000Largest Vessel 1465 5925 6000 6000 6000Intra North Europe & ScandinaviaAverage Vessel Capacity 420 490 600 750 950Largest Vessel 1100 1440 1500 1800 1800



Much Larger Vessel Sizes - a continuing Much Larger Vessel Sizes - a continuing processprocess

• We are in the middle of a size-based revolution for container shipsWe are in the middle of a size-based revolution for container ships

• This is not just in the arterial trades - much larger vessel sizes are This is not just in the arterial trades - much larger vessel sizes are expected in north-south trades and for feedersexpected in north-south trades and for feeders

• The economic drivers are clear - lines that don’t move up will see their The economic drivers are clear - lines that don’t move up will see their competitive position underminedcompetitive position undermined

• Already 13,500TEU+ vessels are a reality and the orderbook confirms Already 13,500TEU+ vessels are a reality and the orderbook confirms this will acceleratethis will accelerate

• The decision to proceed with Panama Canal expansion was a key factor. The decision to proceed with Panama Canal expansion was a key factor. This will accelerate penetration of larger vessels into the AtlanticThis will accelerate penetration of larger vessels into the Atlantic

Shipping lines will introduce much larger vessels. Ports will have to Shipping lines will introduce much larger vessels. Ports will have to respond. respond.


The True Position for Vessel SizesThe True Position for Vessel Sizes

• Clearly, the pressure is on to berth larger vessels but, as trades Clearly, the pressure is on to berth larger vessels but, as trades are severely imbalanced, actual draught is much less than design are severely imbalanced, actual draught is much less than design draught. E.g. Asia to Europe vessels are full of light cargoes, draught. E.g. Asia to Europe vessels are full of light cargoes, Europe to Asia has many heavy containers and many emptiesEurope to Asia has many heavy containers and many empties

• Draught has received much attention but only limited further Draught has received much attention but only limited further increases are anticipatedincreases are anticipated

• The major pressure for ports will be handling huge consignments The major pressure for ports will be handling huge consignments and allowing access for long and wide vesselsand allowing access for long and wide vessels

• Investment attention is now focused on handling capacity Investment attention is now focused on handling capacity andand providing effective links:providing effective links:

- For high volume for feedersFor high volume for feeders

- For the hinterland (especially intermodal)For the hinterland (especially intermodal)


Design Draught v. Actual Draught at Design Draught v. Actual Draught at N.Continent Container Terminals 2005-2006N.Continent Container Terminals 2005-2006

60

70

80

90

100

110

120

130

140

150

160

No. Vessels

Draught (cm

)

Max. Draught

Draught on arrival

Draught on departure


Forecast Summary - what is the outlook?Forecast Summary - what is the outlook?

• Strong demand growth will continue, but there will be increased Strong demand growth will continue, but there will be increased risksrisks

• These risks are macro-economic These risks are macro-economic

- How will the Chinese bubble be sustained and what are the How will the Chinese bubble be sustained and what are the implications for container trade and ports?implications for container trade and ports?

- Will the transpacific slowdown be mirrored in the Asia-Europe Will the transpacific slowdown be mirrored in the Asia-Europe trades?trades?

• There are also significant technical changes that will revise the There are also significant technical changes that will revise the shipping market - specifically the Ultra Large Container Ship and the shipping market - specifically the Ultra Large Container Ship and the Panama Canal programmePanama Canal programme

• There will be increased reliance on feedering - this sector will see There will be increased reliance on feedering - this sector will see ship size increase and demands for much better serviceship size increase and demands for much better service

• A subsidiary concern - will there be enough feeder ships?A subsidiary concern - will there be enough feeder ships?


Latest Demand ProjectionsLatest Demand Projections

• Forecast container port demand will reach between 778-870m TEU by Forecast container port demand will reach between 778-870m TEU by 2015 and could exceed 1bn TEU by 20202015 and could exceed 1bn TEU by 2020

• The main danger - the ‘increased risk case’ is that there is dislocation The main danger - the ‘increased risk case’ is that there is dislocation and lower average growth in the medium term. The Chinese bubble, and lower average growth in the medium term. The Chinese bubble, ‘sub-prime’ and ‘credit crunch’ mean risks are much higher now‘sub-prime’ and ‘credit crunch’ mean risks are much higher now

• Even here, demand will remain very strong but year-on-year growth Even here, demand will remain very strong but year-on-year growth rates will vary widelyrates will vary widely

• This makes demand projection (and vessel/project financing) much This makes demand projection (and vessel/project financing) much more difficultmore difficult

A period of massive demand expansion is forecast, but volatility will be A period of massive demand expansion is forecast, but volatility will be much greater. much greater.


Forecast World Container Trade to 2026 - Forecast World Container Trade to 2026 - million TEUsmillion TEUs


0

100

200

300

400

500

600

700

800

900

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

High Case

Low Case

Base Case

Source: OSC Ltd.

Implications for Container TerminalsImplications for Container Terminals

• In order to handle much larger vessels and consignment sizes In order to handle much larger vessels and consignment sizes terminals must both expand and make better use of existing terminals must both expand and make better use of existing facilitiesfacilities

• In North Europe, consignment sizes are averaging nearly 2700TEU In North Europe, consignment sizes are averaging nearly 2700TEU for 6000TEU+ sizes. For very large vessels, up to 5000TEUs have for 6000TEU+ sizes. For very large vessels, up to 5000TEUs have been handled at single port callsbeen handled at single port calls

• These increases will be noted in all major front rank portsThese increases will be noted in all major front rank ports

• Terminal productivity has increased - especially volume per berth Terminal productivity has increased - especially volume per berth metre - but there remain wide differencesmetre - but there remain wide differences

• Terminals which do not lift productivity will see market share Terminals which do not lift productivity will see market share declinedecline

• There is scope for considerable further improvementThere is scope for considerable further improvement


Major Container Terminals: Berth Productivity Major Container Terminals: Berth Productivity 2000-2006 - TEUs/m/a2000-2006 - TEUs/m/a

0

500

1000

1500

2000

2500

Hong Kong MTL Selected Asian Ports Selected US Ports Primary NW Europe

2000

2001

2002

2003

2004

2005

2006


Implications for Container ShippingImplications for Container Shipping

• In the short term - downward pressure on freight rates as a result In the short term - downward pressure on freight rates as a result of demand uncertainty and over supplyof demand uncertainty and over supply

• Much higher fuel prices will slow trading speeds - absorbing some Much higher fuel prices will slow trading speeds - absorbing some excess capacityexcess capacity

• Cascade effect will accelerate ship size pressures in secondary Cascade effect will accelerate ship size pressures in secondary trades - larger vessels much sooner than anticipatedtrades - larger vessels much sooner than anticipated

• As market returns to equilibrium the emphasis on larger vessels As market returns to equilibrium the emphasis on larger vessels will be confirmedwill be confirmed

• Investment required in feeder vessels to meet demandInvestment required in feeder vessels to meet demand

• Mid-size vessels under pressureMid-size vessels under pressure


Daily Charter Rates for Representative Vessels Daily Charter Rates for Representative Vessels since 1998 - $/daysince 1998 - $/day


0

10000

20000

30000

40000

50000

60000

2450/2650 TEU3500TEU4400TEU


Supply side issues have been the generator of the cyclical pattern in container markets

Estimated ‘Cascade’ Effect for Large Estimated ‘Cascade’ Effect for Large Containerships to 2010Containerships to 2010


2006 2007 2008 2009 2010

Trade Volume* - million TEUTranspacific 28.80 31.40 34.80 38.28 42.11Asia-Europe 21.40 26.60 27.80 31.14 34.87Total 50.20 58.00 62.60 69.42 76.98Total Fleet Development** - million TEU4000-7999TEU 2.01 2.30 3.01 3.76 4.538000TEU+ 0.95 1.49 2.03 2.72 3.25Total 2.96 3.79 5.04 6.48 7.78Required Fleet*** - million TEUTotal TEU 2.96 3.42 3.69 4.09 4.54Estimated Cascade from Major Trades to Other TradesTotal TEU 0.37 1.35 2.39 3.24Estimated TEUs redeployed 0.11 0.40 0.72 0.97

* Headhaul volumes x 2** based on scheduled delivery year*** basis 2006 average productivity


Even delayed delivery will see cascade of vessels to smaller volume trades

Container Fleet Productivity 1990-2007 Container Fleet Productivity 1990-2007 - TEUs per fleet TEU- TEUs per fleet TEU


0

5

10

15

20

25

30

35

40

45

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

<2000TEU2000/2999TEU3000/4999TEU5000/7999TEU8000TEU+Total Fleet


Productivity is key driver of freight and charter markets

Productivity and Freight Rates 1994-2007Productivity and Freight Rates 1994-2007


20

21

22

23

24

25

26

27

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

200

400

600

800

1000

1200

1400

1600

1800

2000

Container Fleet ProductivityAsia-Europe Freight Rate

Source: OSC Ltd. / Containerisation International

3500TEU Productivity and Charter Rates 3500TEU Productivity and Charter Rates 1998-20071998-2007


16

17

18

19

20

21

22

23

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

10000

15000

20000

25000

30000

35000

40000

45000

50000

3000/4999TEU Productivity3500TEU Daily Charter Rate


5000TEU+ Containership Demand to 2026 - 5000TEU+ Containership Demand to 2026 - million TEUsmillion TEUs


0

100

200

300

400

500

600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Low CaseHigh CaseBase Case

Source: OSC Ltd.

Demand focuses on 5000TEU+ fleet sector - ULCS/NPX dominant on these trades

Large Containership Fleet Development to 2012 Large Containership Fleet Development to 2012 - ‘000TEUs- ‘000TEUs


0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

end-April2008

end-2008 end-2009 end-2010 end-2011 end-2012 end-2013

10000TEU+

8000TEU/9999TEU

5000TEU/7999TEU

Source: OSC Ltd.

Forecast 8000TEU+ Productivity to 2026 Forecast 8000TEU+ Productivity to 2026 - TEUs per fleet TEU- TEUs per fleet TEU


0

5

10

15

20

25

30

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Base Case

Low Case

High Case

What does all this mean?What does all this mean?

• Massive container demand growth - even under ‘high risk’ scenarioMassive container demand growth - even under ‘high risk’ scenario

• Concentration of demand in largest fleet sectorsConcentration of demand in largest fleet sectors

• Increased transshipment:Increased transshipment:

- Hub and spoke, andHub and spoke, and

- Interline (relay)Interline (relay)

• Bigger ships Bigger ships andand much bigger consignments concentrated on hub much bigger consignments concentrated on hub port callsport calls

• Short/medium term pressure on shipping profitabilityShort/medium term pressure on shipping profitability

• Concentration of demand in much larger hub terminals with Concentration of demand in much larger hub terminals with supporting feeder and regional portssupporting feeder and regional ports


Andrew PenfoldAndrew PenfoldDirector, Ocean Shipping Consultants Ltd.Director, Ocean Shipping Consultants Ltd.

Barcelona, June 2008Barcelona, June 2008


www.osclimited.com

Trade Concentration and Large Trade Concentration and Large Vessels in the Container TradesVessels in the Container Trades

Trade Concentration and Large Vessels in the Container Trades Andrew Penfold Director, Ocean Shipping Consultants Ltd. Barcelona, June 2008 SIL 2008 Barcelona.

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