Challenging World for the Container Liner Operators Drewry

7/28/2019 Challenging World for the Container Liner Operators Drewry

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Drewry 2012

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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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Drewry 2012

3Drewry | 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

21|


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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