2017 Container Shipping Outlook - A tragedy in three acts 4 Alan Murphy - ESPO Conference v7.… ·...

ESPO Conference – June 2017© SeaIntel Maritime Analysis

2017 Container Shipping Outlook- A tragedy in three acts

1

Alan MurphyCEO and Co-FounderSeaIntel Maritime Analysis

June 1st, 2017ESPO Barcelona 2017


SeaIntel

2

Container Shipping Analysts

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SeaIntel subscription reports

3


Prologue: 8 Years of over-supply

4


Gap in Supply/Demand opened in 2009

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1000Index Supply/Demand growth on Index basis, adjusted for structural factor

Demand Supply Supply, Adj.


Freight rates were down, starting to come up

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Freight rate volatility is through the roof

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Asia-N.Europe Spot Rates and Announced Increases

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+500 USDRate data based on SCFI from Shanghai Shipping Exchange

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Carriers’ P&L 2009-2016

8

- 2015-2016 were the worst years since 2009 in terms of over-capacity, tanking freight rates, weak demand, price wars and rate erosions, etc.

- Why did they end up with a profit of 2.7 bn USD for 2015? And why a 1.1bn loss in 2016?


Carriers’ P&L per Transported TEU

9

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0

100

200USD/TEU P&L per TEU, 2009-2016

2009 2010 2011 2012 2013 2014 2015 2016


Carriers’ Q2 P&L 2010-2017

10

- 2017-Q1 was better than the period in 2016, but that is really the only positive spin- “It is not as bad as last year” does not mean that everything is going great.- The larger carriers seem to be handling it better, ML still expecting a positive FY 2017.


Prologue II:Impact of BAF-delay

11


Impact of oil price and BAF delay

12

- Bunker oil prices lead BAF charges by approximately 3 months- When oil prices fall, carrier get a cash injection as their BAF only drops 1-2 quarters later- When oil prices rise, carriers have a cash drain, as costs go up but the BAF is delayed

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USD/FFEUSD/MT

Source: Bunkerworld, TSA Carriers

TSA Bunker Price (USD/MT) vs. TSA BAF (USD/FFE) - Asia-USWC

TSA Bunker price - Asia-USWC TSA BAF, Asia-USWC, USD/FFE


Impact of oil price and BAF delay II

13

- Using crude oil forecasts from the World Bank, we can create a forecast of Bunker Oil prices- The two variables are very strongly correlated

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Source: Bunkerworld, TSA Carriers, World Bank

TSA Bunker Price (USD/MT) vs. TSA BAF (USD/FFE) - Asia-USWC

TSA Bunker Bunker Est. WB Crude Crude Est.


Impact of oil price and BAF delay III

14

- 2015 saw a net cash injection of 4.13 bn USD to the industry - 2016 saw a cash drain of -2.64 bn USD in Q2-Q4- 2017-Q1 will be challenging with a cash drain of 570M USD- FY 2018 will see 350M USD cash drain, while FY 2019-2025 is projected at 160-180M USD

-0,01

0,25 0,16

2,50 2,44

-0,57

1,270,99

1,19

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-0,09-0,35

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3,0

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ion

USD

Industry Cash Flow effect from BAF delay


Act 1: Service disruptions, blank sailings

and Schedule Reliability

15


Visualizing service launches and suspensions I

16


Blank sailings 2012-2016

17


Visualizing blanks sailings I

18

Active services in Asia-North Europe


Global Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2016 79.2% 76.7% 79.9% 83.4% 85.5% 85.9% 84.8% 85.4% 85.5% 84.6% 83.4% 78.9%

2017 69.3% 72.2% 75.4% 71.4%

Change -9.9% -4.5% -4.5% -12.0%

2016 3.19 3.00 3.02 2.94 2.92 3.09 3.23 3.28 3.98 3.23 3.13 3.27

2017 3.52 3.89 3.67 3.45

Change 0.33 0.89 0.65 0.51

Schedule

Reliability

Avg. delay

of LATE

vessels

19

Global Reliability DevelopmentsGlobal developmentsIn April 2017, global schedule reliability reversed its upward trend and declined by 4.0 percentage points to 71.4%. On a Y/Ylevel, the Arpil 2017 global average was down 12.0 percentage points compared to April 2016. Schedule reliability in April 2017was based on 13,031 vessel arrivals.

N.B.: Starting from September 2015, we have introduced a new feature to measure vessel arrival delays. Importantly, the chartbelow to the right shows the average delay based ONLY on the vessels that are recorded as being late.

The global average delay for LATE vessel arrivals continued its positive trend and decreased further by 0.22 days over March2017 to reach 3.45 days in April 2017. However, the average delays showed a Y/Y increase of 0.51 days compared to the delaysof 2.94 days that were recorded in April last year.

65%

70%

75%

80%

85%

90%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Global schedule reliability

2012 2013 2014 2015 2016 2017

2

4

6


Global - Avg. delay for LATE vessel arrivals

2012 2013 2014 2015 2016 2017



2016 75.3% 65.5% 64.3% 79.5% 85.9% 84.4% 84.6% 84.3% 84.2% 85.7% 82.6% 78.1%

2017 72.5% 63.3% 65.1% 72.4%

Change -2.8% -2.2% 0.8% -7.1%

2016 3.08 3.28 3.33 3.23 2.87 2.84 2.91 2.87 3.41 3.83 3.28 3.03

2017 3.12 3.53 3.93 4.06

Change 0.04 0.25 0.60 0.83

Schedule

Reliability

Avg. delay

of LATE

vessels

20

Asia-North Europe – Trade DevelopmentsAsia – North Europe developmentsApril schedule reliability in the Asia-North Europe trade lane continued the upward trendand increased by 7.3 percentage points to 72.4%. On a Y/Y level the on-timeperformance decreased by 7.1 percentage points, from when reliability was equal to79.5%.

The average delay for LATE vessel arrivals increased by 0.13 days from 3.93 days inMarch to 4.06 days in April. Nonetheless, the average delay for ALL vessel arrivalsdropped by 0.32 days M/M, reaching 1.23 days in April.

The best performing carriers were Evergreen and COSCO with a reliability score of82.5%, while UASC followed with 81.5%.

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Average delay for ALL vessel arrivals

50%55%60%65%70%75%80%85%90%95%

100%


Asia - North Europe schedule reliability

2012 2013 2014 2015 2016 2017

2,5

4,5


Asia - North Europe - Avg. delay for LATE vessel arrivals

2012 2013 2014 2015 2016 2017



2016 86.7% 82.7% 80.8% 81.6% 84.1% 87.7% 84.9% 81.3% 87.9% 88.6% 82.7% 76.4%

2017 68.7% 58.7% 60.2% 68.4%

Change -18.0% -24.0% -20.6% -13.2%

2016 2.97 2.97 2.92 2.92 2.98 2.89 2.70 2.85 4.01 4.12 3.08 3.03

2017 3.71 4.41 4.26 3.51

Change 0.74 1.44 1.34 0.59

Schedule

Reliability

Avg. delay

of LATE

vessels

21

Asia-Mediterranean – Trade DevelopmentsAsia - Mediterranean developmentsIn April, schedule reliability in the Asia-Mediterranean trade lane increased significantlyby 8.2 percentage points to 68.4%. Nonetheless, the April score corresponds to adecrease of 13.2 percentage points compared to 81.6% recorded in April last year.

The average delay for LATE vessel arrivals decreased by 0.75 days to 3.51 days M/M androse by 0.59 days on a Y/Y level. The average delay for ALL vessel arrivals decreased by0.53 days from March to 1.23 days in April.

In the trade COSCO was the top performing carrier with a reliability score of 76.4%,followed by Evergreen at 75.7%, UASC at 75.0%, and Yang Ming at 74.9%.

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Average delay for ALL vessel arrivals

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Asia - Mediterranean schedule reliability

2012 2013 2014 2015 2016 2017

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Asia - Mediterranean - Avg. delay for LATE vessel arrivals

2012 2013 2014 2015 2016 2017


Act 2: New Mega-Alliances

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Alliances are not a new thing…

23

Source: Wang, Mariner: “The Formation of Shipping Conference and Rise of Shipping Alliances“International Journal of Business, Vol. 6, issue 5, 2015.


… They just controlled much less capacity

24

Source: Lu, Cheng and Lee (2006): “AN EVALUATION OF STRATEGIC ALLIANCES IN LINER SHIPPING - AN EMPIRICAL STUDY OF CKYH”, Journal of Marine Science and Technology, Vol. 14, No. 4, pp. 202-212 (2006)

Maersk Line

CMA CGM COSCOHapag-Lloyd

MSC

CSCL Evergreen

OOCL

UASC Hanjin

MOL

Yang Ming

APL

K Line

NYKHMM

0

1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

2M O3 CKYHE G6

Global TEU Fleet

On 1/1/2005, Alliance carriers controlled:GA: 1,102,197 TEU 12.2%

CKYH: 935,611 TEU 10.3%

NWA: 669,478 TEU 7.3%

TOTAL: 2,707,286 TEU 29.8%

On 1/1/2010, Alliance carriers controlled:GA: 1.260.410 TEU 8.9%

CKYH: 1.580.713 TEU 11.2%

NWA: 1.231.738 TEU 8.7%

TOTAL: 2,707,286 TEU 28.8%

On 1/1/2016, Alliance carriers controlled:2M: 5.727.298 TEU 28.1%

G6: 3.596.654 TEU 17.6%

CKYHE: 3.359.328 TEU 16.5%

O3: 2.891.174 TEU 14.2%

TOTAL: 15.574.454 TEU 76.4%

In 2015, six carriers entered alliance : Maersk Line (1st), MSC (2nd), CMA CGM (3rd), Evergreen(5th), CSCL (7th) & UASC (15th)


What are the new (April 2017) alliances?

25

2M Alliance

Ocean Alliance

THE Alliance

April 2017 (reality)

1st

2nd

7th

8th

3rd

11th

4th

5th

9th

6th

4.25M

3.19M

1.31M0.71M

2.37M

0.47M

2.22M

1.74M

0.68M

1.53M

F+O TEU

14th

17th

2M Alliance

Ocean Three

CKYHE

G6 Alliance

April 2016

1st

2nd

3rd

4th

5th

6th

9th

7th

12th

10th

11th

13th

15th

16th

THE Alliance

2M Alliance

Ocean Alliance

May 2016 (announced)

1st

3rd

14th

8th6th

13th

11th

9th

4th

5th

10th

16th

12th

15th

2nd


Alliance Capacity Market Shares

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0

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12

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Asia-N. Europe Asia-MED Asia-USEC Asia-USWC

No. of weekly services in TP & AE

The Alliance 2M Ocean Alliance

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10.000

15.000

20.000


Weighted average vessel size per trade lane


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Weekly average capacity in TP & AE


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Alliance Capacity Maket Shares in TP & AE

2M The Alliance Ocean Alliance


Act 3: Consolidation

27


- 100.000 200.000 300.000 400.000 500.000 600.000

Cap

acit

y (T

EU)

Disappearances in top-20 Jan 2000 - Dec 2014

The level of consolidation is unprecedented

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-

100.000

200.000

300.000

Cap

acit

y (T

EU)

Disappearances in top-20 Jan 1997 - Dec 1999

-

1.000.000

2.000.000

3.000.000

Cap

acit

y (T

EU)

Disappearances in top-20 Jan 2015 - present day


The level of consolidation is unprecedented

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Maersk Line

CMA CGM

COSCO

MOL

Hapag-Lloyd

HS

APL

CSCL

NYK

UASC

K

1.000.000 2.000.000 3.000.000 4.000.000 5.000.000

ML/HS

MSC

CMA CGM

COSCON

J3

HL/UASC

Evergreen

OOCL

Yang Ming

PIL

HMM

Zim

Wan Hai

FleetOrder

1.000.000 2.000.000 3.000.000 4.000.000

Maersk

MSC

CMA CGM

Evergreen

Hapag-Lloyd

COSCO

CSCL

Hamburg Süd

Hanjin

OOCL

MOL

UASC

APL

Yang Ming

NYK

HMM

K Line

Zim

PIL

Wan Hai

Fleet

Order


Epilogue:Forecast for 2017-2020

30


Rate erosion better on all trades, except Asia-USWC

31

-250

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Asia-North Europe12-week Average rate erosion

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Asia-Mediterranean12-week Average rate erosion

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Asia-USWC12-week Average rate erosion

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Asia-USEC12-week Average rate erosion


2016/17 TP Contracts were set “too low”

32

0

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CC

FI In

dex

(1

99

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SCFI

: U

SD/F

FE

Fig.1: SCFI versus CCFI on US West Coast

SCFI-USWC CCFI-USWC

400

600

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1000

1200

1400

1600

CC

FI In

dex

(1

99

8=1

00

0)

Fig.3: USWC vs model

CCFI-USWC Predicted USWC

400

600

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1000

1200

1400

1600

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17CC

FI In

dex

(1

99

8=1

00

0)

Fig.4: USEC vs model

CCFI-USEC Predicted USEC

70%

75%

80%

85%

90%

-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

Weeks in advance (SCFI vs CCFI)

Fig.2: SCFI-CCFI Correlation

USWC USEC


2016/17 TP Contracts were set “too low”

33

-0,4

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Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Fig.5: Deviation from SCFI model indication

USWC deviation 12 week average USEC deviation 12 week average

-30%-25%-20%-15%-10%

-5%0%5%

10%

Fig.7: USWC deviation from model

-60%

-40%

-20%

0%

20%

40%

1 6 11 16 21 26 31 36 41 46 51

Weeks into the contract

Fig.6: USWC contract rate deviation from model

May'09-Apr'10 May'10-Apr'11 May'11-Apr'12 May'12-Apr'13

May'13-Apr'14 May'14-Apr'15 May'15-Apr'16 May'16-Apr'17

-25%-20%-15%-10%

-5%0%5%

10%15%

Fig.8: USEC deviation from model


Shorter sailing distances has weakened demand

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0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

2012 2013 2014 2015 2016

Annual demand growth

TEU TEU Miles

90

100

110

120

2011 2012 2013 2014 2015 2016

Dem

and

ind

ex (

20

11

= 1

00

)

Global demand development

TEU demand TEU Miles demand

4.500

4.700

4.900

5.100

5.300

5.500

2011 2012 2013 2014 2015 2016

Nau

tica

l mile

s

Average sailing distance per TEU

2016 2017 2018

World GDP 3.1% 3.4% 3.6%

AE 1.6% 1.9% 2.0%

EMDE 4.1% 4.5% 4.8%

AE = Advanced economies. EMDE = Emerging market and developing economies

2016 2017 2018

World Trade 1.9% 3.8% 4.1%

AE 2.0% 3.6% 3.8%

EMDE 1.9% 4.0% 4.7%


Capacity Outlook 2017-2020

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-5%

0%

5%

10%

18 19 20 21 22 23

2015 2016 2017 2018 2019 2020

An

nu

al g

row

th

Tota

l Fle

et (

Mio

TEU

)

Confirmed orderbook less scrappings

Global Fleet Capacity Annual Fleet Growth

0%

10%

20%

30%

2015 2016 2017 2018 2019 2020

Large vessels as share of total fleet

>18000 TEU 10.000-17.999 TEU

0%

2%

4%

6%

2012 2013 2014 2015 2016 2017

Trade (demand) growth

Container volume (CTS) Merchandize trade (WTO) -

200.000

400.000

600.000

800.000

1.000.000

Low growth Average growth High growthN

om

inal

TEU

cap

acit

y

Necessary scrapping to maintain status quo2016 2017 2018


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2017 Container Shipping Outlook - A tragedy in three acts 4 Alan Murphy - ESPO Conference v7.… ·...

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