challenging world for the container liner operators drewry
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The Independent Maritime Advisor
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Drewry 2012
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SingaporeDrewry15 Hoe Chiang Road,#13-02 Tower Fifteen
Singapore 089316T: +65 6220 9890E: [email protected]
Drewry was founded in 1970 as a provider of independent information
and advice to the global maritime industry. We are privately owned with
research and advisory teams in London, Delhi, Singapore and Shanghai.
LondonDrewry15-17 Christopher StreetLondon EC2A 2BS,UnitedKingdomT: +44 (0)20 7538 0191E: [email protected]
DelhiDrewry209 Vipul Square, Sushant Lok-1Gurgaon 122002, IndiaTelephone: +91 124 40476 31/32E: [email protected]
ShanghaiDrewry555, 5th floor Standard Chartered Tower,201 Shi Ji Avenue,Pudong District, Shanghai,China 200120
Drewry | The Independent Maritime Advisor
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Freight Rates & FreightProcurement Support
Main consultancy services offered by Drewry Supply ChainAdvisors
International Supply ChainNetwork Optimisation
International Supply ChainStrategy
Support
Feasibility Studies
Due Diligence
Supply Chain Framework &
Design
DC Location
Routing & Ports
Inland Corridors
Strategic Sourcing
Supply/Demand Trends
Equipment Supply
Constraints
Congestion Impact
Risk Analysis
Shipping corridors
Routing & ports
DC Location
Port of entry strategy
Inland and intermodal links
Operation & Process Mapping
Supply Chain Performance
Evaluation / Benchmarking
Landed Cost Calculation
Air/Sea Mode Selection
Inventory positioning
Value Adding Locations
Container freight rates
Maritime industry
benchmarks
International logistics
research
Published reports and
databases
Quarterly advisory service
Future transport capacity
Freight Trends
Carrier Performance
Assessments
Contract Tender / Bid Support
Negotiation Process Support
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Focus: International end to end supply chains (not just transport)
Factorys door
at originOrigin DC
Internationaltransport
Ports/airportsDestination
DC
Customer
Value addedactivities
Processes, Documents, Finance and Physical flows
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What is it like working for Drewry
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Challenging World for the Container Liner Operators09 March 2012
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Carrier Profitability Annual boom and bust cycle
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-10
-8
-6
-4
-2
0
2
4
6
8
10
US$
billio
n
EBIT Profit/Loss (Left axis) EBIT margin (right axis)
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-40%
-30%
-20%
-10%
0%
10%
20%
30%
2002 2003 2004 2005 2006 2007 2008 2009 2010
Cumulative Profits (loss) in US$ billion 2006-2010Maersk 2.9CMA 3.4
APL 0.6
CSAV (0.9)ZIM (0.5)
EBIT Margin (%) 2002 - 2010
Carrier Profitability Is anyone making money?
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161 million TEU of full containers moved in 2011
Annual growth in container trade of 10% to 2008
Slowing growth since
Steady containerisation of general cargo trades and commodities
More than 400 container shipping lines worldwide.
Over 4,000 container ships worldwide
Growth of global liner networks
This is not the first time the industry has had to face challenging times
Mid 90s to early 2000 slowdown in demand growth resulting in huge oversupply situation
Now is different from before - In 2011 global demand increased by over7% but the top 20 carriers lost a minimum of $5-6 billion
Industry overview
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-15%
-10%
-5%
0%
5%
10%
15%
20%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
N AMERICA EUROPE FAR EAST/SE ASIA
MID EAST LAT AMERICA OTHER REGIONS
% change in world traffic
Historical volume development
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Global containership size development
Total order book by teu size range (% of teu capacity)
50%
21%
7%
13%
6%
4%
10,000 teu +
8,000
9,999 teu
6,000 7,999 teu
4,000 5,999 teu
2,000 3,999teu
< 1,999teu
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Economies of scale
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Factor Effect
Economies of scale Structural overcapacity
Perishability Push for short run contribution rate erosion
High operational gearing Push for short run contribution rate erosion
Fragmented industry Continuous battle for share
Commoditised Little scope for differentiation; intense price competition
Inelastic demand curve Falling rates have a limited effect on demand
Liner economics
Cumulative effect is continuous rate erosion
Lines are profitable only when, by chance, demand exceeds supply
This situation will persist until economies of scale run out and an oligopoly is established
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Dominance of the big three
4% 4%3%
31%58%
17%
10%
6%
50%
17%
16%
13%
8%47%
16%
1992 2006 2011
MaerskMSC
CMA CGM
Remaining 17
Remaining 17Remaining 17
Maersk
MSC
CMA CGM
Maersk
MSC
CMA CGM
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The shipping market cycle
Optimismsupports orders
Supply exceedsdemand / tradegrowth slows
Over tonnaging
Freight rates drop
Demand forvessels drops
Fleet growthslows / trade
recovers
Demand andSupply realign
Freight rates
recover
Demand for newtonnage
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Round voyage slot costs (Asia-N. Europe)
-
200
400
600
800
1,000
1,200
4,000 9,000 11,000 14,000
US
$/teu)
Capacity (teu)
Capital costs + operating costs Fuel costs Port + canal costs
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Freight rate development
0
400
800
1,200
1,600
2,000
2004 2005 2006 2007 2008 2009 2010
All-in rate including BAF (US$ per teu, right axis)
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Operating Margins (US$ per TEU)
-15%
-10%
-5%
0%
5%
10%
15%
-200
-150
-100
-50
0
50
100
150
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011
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1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
US$/40ft
80.0
85.0
90.0
95.0
100.0
105.0
110.0
Supply-demandindex
(1980=100)
Asia-USWC Freight rates Asia-N Europe Freight rates Supply-Demand Index
Container shipping - the Great Escape
Layup
Slow steaming
Unexpected volume bounce
Delay in vessel delivery
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Freight rate outlook
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
90
92
94
96
98
100
102
104
106
108
2010 2011 2012 2013 2014 2015 2016
Drewry East-West Supply-Demand Index All-in rate including BAF (US$ per teu, right axis)
22D | Th I d d t M iti Ad i
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Carriers selling vessels to independent shipowners in sale and lease-back charter deals
European banks may foreclose loans to independent shipowners who have had a three year holidayfrom interest payments under Basel II regulations
Operators exiting the industry (MISC) or certain trade lanes due to poor profitability (PIL/Wan Hai)
Carriers announcing large freight rate increases to reduce losses
Newbuild orderbook has substantially slowed down less finance available, LOIs cancelled
Planned IPOs have been delayed or halted
Some carriers seeking more operational alliances or actual operational partners In trouble: Zim did not achieve waiver of financial covenants by end of 2011; CSAV looking for
partner; Horizon Lines experiencing difficulties and exited transpac trade (vessels chartered until2018)
2011 carrier failures included TCC and Yang Hai Shipping; Trailer Bridge filed for bankruptcy
Drewry does not foresee industry M & A activity. Consolidation more likely from exit ordisappearance of smaller companies
Some new equity being raised CSAV cash injection, Trailer Bridge (Seacor Holdings)
Carrier are burning cash this cannot last much longer, Lines are now acting - Maersk
Volatility and carrier losses (containers)Current financial trends conclusions
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Estimated industry cash reserves and burn rate, US$ billions
0
5
10
15
20
25
1-J un-11 1-Aug-11 1-O ct-11 1-Dec-11 1-Feb -12 1-Ap r-12 1-J un-12 1-Aug -12 1-O ct-12
Daily Cash Burn Rate = US$48.7mForecast Date When CCE Runs Out = 03/10/2012
Daily EBIT Loss = US$25.7mForecast Date When EBIT Losses Exceed CCE = 15/02/2014
CashReserves
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Liner operators have previously emerged from difficult times andwhilst these are challenging times, no doubt the liner industry willonce again emerge from these challenges