global container shipping market

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Global container shipping market with a particular focus on intermodalism Intermodal Asia

March 2014

Tina Liu Country Manager – China [email protected]

© Drewry 2014

2 Drewry Maritime Advisors

© Drewry 2012

© Drewry 2014


Agenda

Container shipping market fundamentals

Container shipping freight rate

European Intermodalism

© Drewry 2014


Industry fragmentation is high

4

4

0

1,000 Container Shipping Lines (3) Shipbuilding (1)

2,000

3,000 Cruise Lines (2)

4,000

5,000

10,000

0 5 10 Highly Competitive (less than 100)

15 20 Unconcentrated (100-1,000)

25 30 Modest Concentration (1,000-1,800)

50 High Concentration (greater than 1,800)

Even Competition: all competitors have equal market share No. Competitors

Wide Body Aircraft Manufacturing

International Express Package (4)

1. Source: UBS Global Shipbuilding reports May-09, 2. Source: Natixis, Carnival report Sep-09, 3. Source: Drewry, Containerisation International, 4. Source: RBC, Fedex report Aug-09

Herfindahl–Hirschman Index (HHI)

© Drewry 2014


Economics is challenging

5

© Drewry Financial Research Services Ltd 2013

5

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, linked to drive for economies

of scale. Very strong role of intermediaries (Forwarders

NVOCC)

Inelastic demand curve Falling rates have a limited effect on overall demand

• Lines are profitable only when, by chance, demand exceeds supply

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Current state of the market

6

• Fragile earnings, Carrier are burning cash – this cannot last much longer Industry finances

• Low newbuilding prices prompting new ordering • Finance available through lessors and new entrants

Newbuild prices and finance

• Consolidation needed; but aversion to M&A • Time to revisit historical structures? Rethink co-

operation agreements? Way forward

• Drive for operating economies of scale through larger ships is resulting in overcapacity

• Slow demand growth • Supply – demand equilibrium pushed back

Supply demand equilibrium

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? Questioning the cyclicality

Shipping Market Cycle

Optimism Supports New

Orders Supply

Exceeds Demand / Trade Growth Slows

Over Supplied Market

Freight Rates Drop

Vessel Demand Drops

Fleet Growth Slows/Trade

Recovers

Demand-Supply Realign

Freight Rates Recover

Demand For New Tonnage

? ?

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Containerships keep getting bigger

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Teu

Average Ship Size Average Newbuilding Largest Ship

Orderbook by size range (% of teu capacity)

9% 7%

3%

29% 45%

7% 0-4,000 TEU

4-6,000 TEU

6-8,000 TEU

8-10,000 TEU

>12,000 TEU

10-12,000 TEU

Recent orders split per vessel size (total teu)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000To

tal t

eu

< 8,000 teu 8,000 teu+

© Drewry 2014


Race to lower costs, upsizing the fleet

• Significant unit cost savings by EEEs can not be ignored • Drewry’s analysis suggests fuel costs/teu are already 34% lower than a typical 13,100 teu vessel • Ship operating costs lower by an impressive 11% • Combined cost savings together are a massive 30% cheaper than 13,100 teu ships on a round

voyage basis

Savings in slot cost per teu indexed to 8k teu vessel

Source: Drewry Maritime Advisors, Drewry Maritime Research

-7% -16% -19% -21%

-26% -30%

8k 10k

12k

13k

14k

16k

18k

600650700750800850900950

1,0001,050

USD

/teu

RV Slot cost at 85% Utilisation

• The rush to order vessels over 16,000 teu for deployment between Asia and Northern Europe will continue to gain momentum

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How will be the major players stacked by end 2016?

64

38

32

24 21

19 19

15 15 12

10 10 10 9 6 5 4

0

10

20

30

40

50

60

70

No. of ULCCs per carrier by end 2016

* Zim order cancelled

Source: Drewry’s Container Forecaster

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Liner shipping market structure

Many ships and shipowners

• Around 400 container shipping companies and 5,100 container ships worldwide

But concentration

• Top 20 container lines account for over 80% of the market

And alliances

• Effectively just 3 major global carrier alliances now

…but market still highly competitive as alliances are operational only, not commercial

0

200

400

600

800

1,000

1,200

1,400

Mae

rsk

Line

MS

CC

MA-

CG

MC

OS

CO

Eve

rgre

enC

SC

LH

apag

-Llo

ydH

anjin

OO

CL

APL

NY

KK

-Lin

eM

OL

Yan

g M

ing

UA

SC PIL

Ham

burg

-Sud

.W

an H

aiZi

mH

MM

Total owned fleet ('000 teu) Orderbook ('000 teu)

Owned fleet size by carrier, July 2013 (excludes leased and chartered vessels)

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Recent Container Freight Rate Trends Europe & US Imports from Asia (US$ per 40ft)

$800

$1,300

$1,800

$2,300

$2,800

$3,300

$3,800

Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13

US$

per

40f

t Con

tain

er

Shanghai-Rotterdam Hong Kong-Los Angeles

Source: Drewry’s Container Freight Rate Insight (www.drewry.co.uk/cfri) & World Container Index (www.worldcontainerindex.com)

Market share rate wars

Fundamentals weaken

Capacity & GRI initiatives


http://www.drewry.co.uk/cfri

http://www.worldcontainerindex.com/

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Recent Container Freight Rate Trends Europe & US Exports to Asia (US$ per 40ft)

$400

$500

$600

$700

$800

$900

$1,000

$1,100

Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13

US$

per

40f

t Con

tain

er

Rotterdam-Shanghai Los Angeles-Shanghai

Source: Drewry’s World Container Index (www.worldcontainerindex.com)

Market share rate wars


Volume growth supports rates

Weaker volume reduces rates

http://www.worldcontainerindex.com/

© Drewry 2014


Recent Container Freight Rate Trends Intra-Asia (US$ per 40ft)

$800

$850

$900

$950

$1,000

$1,050

$1,100

$1,150

$1,200

$1,250

$1,300

$1,350

$1,400

$1,450

$1,500

$1,550

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul 13 Oct 13

USD

/40f

t

Drewry's China-Japan Benchmark Drewry's Intra-Asia Index

Source: Drewry’s Container Freight Rate Insight (www.drewry.co.uk/cfri)

Overcapacity reduces rates

Low volatility of rates

http://www.drewry.co.uk/cfri

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Benchmarking Shipping Costs Drewry’s Benchmarking Club

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Chinese brands’ ambition

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Is intermodal critical in the overall supply chain?

Order/manufacture period Pre-ship Ocean Transit Port Dwell Delivery

Supply Chain Time

45 days 5 days 28 days 4 days 2 days

2/84 days 2/39 days

Supply Chain Landed Cost (€ per 40ft of Toys Asia - Munich)

Manufactured cost Pre-ship Ocean Transit Port Dwell Delivery

€545 €98,000 €193 €1,643 €348

€545/€100,729 i.e. 0.54% €545/€2729 i.e. 20.0%

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Europe – A population not always close to the ports

• European population 739 million consumers (GDP per capita: USD 32 thousand)

• 60% approx of population more than 250k away from main ports

• Importance of Rhine corridor through South Germany to Switzerland for population and economic activity

• Other clusters also need competitive access.

Asia-Europe main port - 250km radius

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Intermodal forms of transport Barge important out of Rotterdam/Antwerp, Rail in Germany. Feeders & Ferries to Scandinavia, Ireland

Rail

Truck

Barge

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Road network – E-Routes

http://en.wikipedia.org/wiki/File:Tabliczka_E15.svg

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Intermodal International Rail Network

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The inland waterways/barge network

35% of inland cargo from Rotterdam/Antwerp

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Because of these networks European Ports compete intermodally for the inland hinterland by…

Ocean Services – Price – Transit times – Frequency – Origin Port Coverage – Carrier operational efficiency (e.g. handling rates and berth slots)

Inland – Transport Coverage – Cost – Reliability – Frequency – Transit – Information Systems – Fiscal Arrangements (Duty/VAT)

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Does adding an inland terminal open up the market ?

“…60% of EU Purchasing within 500

kilometres of the terminal….”

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Overlapping multiple terminal footprints

Footprint defined by local transport costs. Prime costs often similar.

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The Three Models of Intermodal Provision

Carrier MSC,CMA-CGM

Strategic Objective: Minimisation of container fleet inland costs/port coverage Method of Operation: Use third party terminals and depots Contracted out train operations

Rail/Barge Operator Transfracht, Naviland

IFB, BCTN Strategic Objective: Profit from rail/barge freight operations Method of Operation: Often own/control inland terminals Train operations

Port/Terminal HHLA, Barcelona

ECT/EGS Strategic Objective: Extension of port hinterland to gain cargo volume Method of Operation: Sometimes acquire inland terminals Contracted out train operations

Forwarders Block Bookings etc.

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Relative costs and performance

Hamburg

Rotterdam

Frankfurt

Basel

€ Service per week

861

497

-

0.5

1

-

na

26

-


1424

802

-

1

1.5

-

na

14

-

Hamburg to Basel

Hamburg to Frankfurt


1239

1066

715.

1

1

4

na

26

8

Rotterdam to Basel


795

724

480

0.5

-

2

na

-

6

Rotterdam to Frankfurt

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End-Customer supply chain thinking

Cost is always the headline factor But….

Supply Chain architecture and practice items…

Simple

Visible

Track-able

Integrated whole supply chain

Reliability

Time cost

Risk

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Key future developments

• Rotterdam/Antwerp increased barge/rail modal share to reduce local congestion

• Rail/barge links to Central Europe and Southern. Germany

• Hamburg/Bremerhaven rail to Poland & Central Europe

• Adriatic/Med rail links to Southern Germany & Central Europe

• Spain rail to Southern France

• South France rail to North Europe

N-Europe transit times from Asia similar or better than West Med ports & larger ships means lower slot costs. Mediterranean

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If you want to get involved, areas to look out for

Traditional routings not always cheaper than new intermodal routings. Choose the right destination port not the traditional one

If selling ‘delivered’ terms then choosing right inland mode critical for cost and product reliability

Behaviours

Headline price always the most important initial consideration.

Reliability of service a critical choice factor. Service Frequency is essential to flexibility.

Final door delivery from inland terminal is important. Inland transit times (within limits) are less critical.

Next day delivery is accepted norm on shorter routes.

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Drewry background

Drewry has over 40 years’ experience within the maritime sector, employing over 90 specialists across our offices in London, India and Singapore. Offering research reports and consultancy services, our ability to assess the market and give our clients the knowledge to make critical decisions sets us apart from others. Our brand is renowned for its quality, with analysis that brings clarity to markets and enables us and our clients to stand above the competition. Drewry’s bespoke consultancy service has its foundations in our research, but it is defined by our breath of expertise, sector adaptability and international capabilities. Our services extend from the provision of data and information to large assignments calling for a broad mix of disciplines. Typical commissions encompass strategic planning; market research; forecasting; management consultancy; feasibility studies and project evaluation. Since the founding of the company in 1970, Drewry has evolved into one of the world’s leading international maritime consultancy and publishing organisations. Today, Drewry reports are sold in more than 90 countries and consultancy services commissioned by clients from over 70 countries. Over four decades, Drewry has built an extensive data library on trades, shipping costs, ship prices, fleets and freight rates. Sophisticated forecasting systems project trade flows, ship demand and supply, freight rates, costs and prices. The company’s people include experienced market analysts, economists and financial planners who have had high-level exposure to the maritime industry. Drewry is also able to call on the services and expertise of a number of freelance consultants for projects requiring specialist knowledge.

Drewry is a highly experienced, respected and well established sector expert

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Contact

Head Office – UK Drewry Shipping Consultants Ltd 15-17 Christopher Street London EC2A 2BS, United Kingdom t: +44 (0)20 7538 0191 e: [email protected]

India Office Drewry Maritime Services Private Limited 209 Vipul Square, Sushant Lok-1 Gurgaon, Haryana-122002, India t: +91 124 497 4979 e: [email protected]

Singapore Office Drewry Maritime Services (Asia) Pte, Ltd. 15 Hoe Chiang Road #13-02 Tower fifteen Singapore 089316 t: +65 6220 9890 e: [email protected]

Shanghai Office 555, 5th floor Standard Chartered Tower, 201 Shi Ji Avenue, Pudong District, Shanghai, China 200120 t: +86 (0)21 6182 6759 e: [email protected]

Tina Liu

Country Manager - China [email protected]

global container shipping market

Documents

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supply drewry

drewry maritime advisors

demand trade growth

overall demand lines

container shipping lines

new orders supply

teu capacity