TOC Asia – April 2014 © SeaIntel Maritime Analysis TRADE ROUTE INTELLIGENCE & THE GLOBAL LINER...

TOC Asia – April 2014 © SeaIntel Maritime Analysis

TRADE ROUTE INTELLIGENCE & THE GLOBAL LINER SHIPPING OUTLOOK

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Alan Murphy COO and Partner SeaIntel Maritime Analysis

April 8th, 2014 TOC Asia


SeaIntel

Container Shippping Analysts

- Founded January 1st, 2011

- Wholly owned by Lars Jensen (CEO) and Alan Murphy (COO)

- 12 Analysts & Consultants in Copenhagen, Hong Kong and Brussels.

- Management Team with combined 40 years of experience in Container Shipping

Our Focus:

- Integrity

- Methodology

- Assumptions

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Major Milestones:

- 500+ Research & Analysis articles published since March 2011

- 1,000+ citations in Industry Press (Lloyd’s List, JoC, etc.)

- Official Knowledge Partner of the Global Institute of Logistics

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Agenda

• Current Market Situation

• The Impact of P3 and Reaction From Other Carriers

• Will the Ordering of Mega-Vessels Continue in 2014?

• Who is the World’s largest container carrier?

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Current Market Situation

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Asian Demand

Source: Container Trade Statistics

- For the last five months

of 2013 we saw a year-

on-year increase in Asian

exports and imports to

Europe.

- Last year we saw a

decrease in transported

TEU of 200,000 TEU in

Asian exports.

- At the same time Asian

imports increased with

300,000 TEU.

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Current Orderbook is Heavily Skewed to Large Vessels

Orderbook data based on Alphaliner

• 85% of the orderbook will be

delivered before December 31,

2015

• Annual average capacity growth

2014 estimated at 5.5% and

2015 estimated at 8.5%

• Global demand is expected to

grow 4-6% p.a. (SeaIntel

estimate)

Maintaining the current – over tonnaged (!) - market situation would

require the scrapping of 25% of all vessels below 3.000 TEU.

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Capacity on Asia-Europe – 2012 vs. 2013 vs. 2014

Source: SeaIntel Maritime Analysis

- Number of services have decreased from 39 in March 2013 to 37 services in March 2014.

- However, capacity deployed on Asia-Europe YTD is the same as in 2013 even though the

number of service has been reduced with two.

- 2013 Y/Y capacity decrease of 1.5%

- At the same time the average vessel size has increased by more than 7%.


Capacity on Transpacific – 2012 vs. 2013 vs. 2014

Source: SeaIntel Maritime Analysis Source: SeaIntel Maritime Analysis

- YTD capacity has increased 7% compared

with 2013.

- 2013 Y/Y Capacity increase of 10.8%

- Number of services have increased from 17

to 19 since March last year, while the average

vessel size has increased by more than 13%.

- YTD capacity has decreased by 1%

compared with 2013.

- 2013 Y/Y Capacity increase of 6.2%

- Number of services have been reduced from

44 to 41, while the average vessel size have

increased by 8% YTD compared with 2013.


Capacity on Asia-ECSA – 2012 vs. 2013 vs. 2014


- One service suspended in October 2013, so the total number of services is redúced to six.

- However, larger vessels have been cascaded into the trade and therefore the average weekly

capacity has increased 41%.

- 2013 Capacity increase of 9.5%


Capacity Management Results in Excessive Cascading to Other Trades

Rate data based on SCFI from Shanghai Shipping Exchange Capacity data from SeaIntel’s weekly capacity outlook report

Carriers have reshaped their Asia-East Coast South America networks in Q2 2013. The key changes have been the phase-in of significantly larger vessels not needed on Asia-Europe and Transpacific trades. The result has been an average capacity growth of 30% Y-o-Y in Q3 2013. Recent blanking of sailings has reduced capacity increase in Q4 to 20% Y-o-Y

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Widening gap between global supply and demand

• The gap has been growing

• Partial remedy be the carriers: slow-steaming

• No more saving grace from increasing sailing distances

• 2015 supply increase can be lower is we see further scrapping and slippage

• Impact first on Asia-Europe, then cascading to other trades


Cycle time drastically reduced

Due to structural overcapacity, cycle times are shrinking. For container vessels this is down to 6 months cycle time on some trades now.

Extra-loaders

Blank sailings

Mar

ket

stre

ngt

h

Vessel lay-ups

Vessel re-activation

Re-activate vessels, start new services

Extra-loaders

Cancel services

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The Asia-Europe Market Volatility is Worsening

Cycle time is rapidly shortening Rate declines following successful rate increases getting increasingly steep

Rate data based on SCFI from Shanghai Shipping Exchange

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Rate Increase Success

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Week-on-Week Changes in Asia-Europe

Rate data based on SCFI from Shanghai Shipping Exchange

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The Asia-Europe rate erosion worsens

The increasing price erosion is driven by a combination of structural overcapacity and the

carriers being ”trapped” in a game of prisoners dilemma.

For the carriers, increases are only feasible when they all stand firm at the same time

This results in an acute need for the carriers to manage capacity

-21 USD/week -39 USD/week

-65 USD/week -76 USD/week

-84 USD/week


Bunker Prices have increased exponentially

But Bunker per slot has remained stable, due to:

- Super Slow Steaming

- Increased vessel sizes

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On-time performance at all-time low

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Blank sailings = product volatility

The product volatility is increasing, and is not purely related to traditional seasons such as

Chinese New Year

This is currently the carriers’ only tool to manage capacity – and hence attempt to increase

freight rate lavels

We should expect product volatility to remain high due to the structural overcapacity


The Impact of P3 and Reaction From Other Carriers

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P3 Alliance – the Logical Step in a Commoditized Market

• Network scale advantages – especially the flexibility

stemming from a large network

• Utilizing the mega-vessels efficiently

• Shifting the pressure onto the other carriers

• P3 addresses low cost from several angles: • A ”conveyour belt” for the backbone east-west trade with large

vessels.

• The possibility to adjust weekly capacity through blank sailings in a more incremental manner.

• The possibility to have ”daily” services.

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What will non-P3 carriers do?

• The G6 and CKYH alliances will face significant cost pressure in 2015 with their current fleet composition (including orderbooks)

• Independent carriers must have alliance relationships

• Potential for an alliance shake-up

• G6 Alliance has already announced expansion to full-fledged coverage on all east-west trunk routes

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Vessel Size Advantage

Data from SeaIntel’s internal analysis

• It will be beneficial for CKYHE

to include CSCL or/and UASC

in terms of economy of scale

and cost reduction.

• G6’s average vessel size to

North Europe will not

increase significantly in 2014

nor H12015.

• P3 will have a significantly

scale-advantage in Asia-

North Europe.

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Product Advantage

• The product offered will

actually improve slightly

compared to what the

individual P3 carriers offer

today on Asia-N. Europe.

• P3 will be able to offer a

more diverse product to their

customers compared with G6

and CKYH.

• Asia-Europe services:

– P3: 14 (8/6)

– CKYHE: 9 (6/3)

– G6: 6 (5/1)

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P3 – the ”game for the other carriers

G6 CKYH Data based on Alphaliner

From a fleet growth perspective, the non-P3 carriers have very dissimilar interests

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Will the Ordering of Mega-Vessels Continue in 2014?

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+10,000 Vessels on Order by Alliances


- The P3 carriers have the

largest orderbook of

+10,000 TEU vessels and

have a critical scale-

advantage

- Evergreen, CSCL and UASC

would be attractive partners

for all the major east-west

alliances.

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Increasing Demand for Feedering?

- The average vessel size of

Top-200 vessels have

increased with 10,000 TEU

over the past 20 years.

- The increasing vessel size

on Asia-Europe can lead to

increasing demand for

feedering in Intra-Asia, due

to port infrastruture

limitations for +10,000

TEU vessels in Asia.

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Larger Vessels are Cascaded to Intra-Trades

Asia-Europe

Transpacific

Intra-Asia

Asia-ECSA

- The traditionally vessels

size in Intra-Trades are

<3000 TEU.

- The cascading effect has

led to that 5,000–6,000

TEU vessels are deployed

in Intra-Asia.

- Intra-Asia is a limited

market for post-panamax

vessels as they are not

geared.

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The likely next steps

The challenges: •Cost competitiveness

•Network depth and breadth

•Different level of growth / aggresiveness inside alliances The options: •Prevent the P3 from getting regulatory approval

•Order more large vessels

•Increase the number of ad-hoc Vessel Sharing Agreements

•Take more members into the existing alliances

•Completely reshape existing alliances

A risk, but not likely

Very likely

Very likely

Very likely

Possible

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Who is the World’s largest container carrier?

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Who is the World’s largest conatiner carrier?

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- The A.P. Moller-Maersk group still controls more capacity than any other entity - This may change as new-buildings get delivered (Alphaliner) - A.P. Moller-Maersk group capacity is 2.6 million TEU, MSC is 2.4 million TEU - Using published figures for APMM niche brands and a low estimate for Seago line, puts Maersk Line vessels at less than 400 and capacity at less than 2.35 million


Who is the World’s largest conatiner carrier?

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- The A.P. Moller-Maersk group carried close to 18 million TEU in 2013 - MSC carried close to 14 million TEU in 2013 - According to their own website, MCC carried 1.5 million FFE in 2012 - According to Safmarine online media center, Safmarine carried 1 million FFE in 2011 - Assuming volumes have not decreased in 2013, this puts Maersk Line below MSC - Maersk Line still has larger average vessels…


Conclusions

• Continued structural overcapacity

• Continued pressure on freight rates

• Focus on cost and lower bunker consumption.

• Service consistency and on-time peformance is out the window

• Size matters and we will see continued vessel ordering

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Thank you!

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TOC Asia – April 2014 © SeaIntel Maritime Analysis TRADE ROUTE INTELLIGENCE & THE GLOBAL LINER...

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