Georgia Foreign Trade Conference (GFTC 2020) February 2-4, 2020 The Cloister, Sea Island, Georgia
Container Shipping Market 2020 Outlook
E-mail: [email protected] Containership Market Outlook Contents not to be reproduced without permission : [email protected]
To lead or not to lead
After the first four races in the 1983 America’s Cup finals, (the American sailboat) Liberty led 3-1 in the best-of-seven series. Liberty got off to a 37-second lead when (the Australian challenger) Australia II jumped the gun and had to recross the starting line.
The Australian skipper tried to catch up by sailing way over to the left of the course in the hopes of catching a wind shift. Liberty’s skipper chose to keep to the right- hand side of the course.
Summary excerpt taken from Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life by Avinash K. Dixit and Barry J. Nalebuff (1991)
Australia II’s gamble paid off as the wind shifted 5° in her favor and she won the race by one minute and 47 seconds. She went on to win the next two races and won the cup.
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‘Follow the challenger’ strategy
• Reversal of the ‘follow the leader’ strategy • The leader should imitate the strategy of the challenger - even when the challenger is pursuing a poor strategy • When leading, the way to stay ahead is to play “monkey see, monkey do” (under certain circumstances)
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Lemmings effect in container shipping a phenomenon wherein crowds exhibit a certain kind of behaviour for no reason other than the fact that a majority of their peers do so
• The lemmings phenomenon is not new in shipping
Excerpt from Shipping Economics: Collected Papers By S.G. Sturmey (1975)
• How have these manifested in carrier behaviour in terms of: Strategy on new ships orders IMO 2020/Scrubber strategy Digitalisation strategy Consolidation strategy Logistics integration strategy
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How the landscape has changed – 1975 to 2020
Top 20 Carriers in 1975 Capacity Operated in TEU 0 10,000 20,000 30,000 40,000 50,000 Sea-Land Service Overseas Containers Ltd Hapag-Lloyd American President Lines United States Lines Nippon Yusen Kaisha Orient Overseas Container Line Seatrain Lines American Export Lines Associated Container Transportation • In 1975 – 6 out of Top 20 were Mitsui OSK Lines Kawasaki Kisen American carriers inc. 3 in Top 5 Matson • The only Asian carriers in Top 20 East Asiatic Co. were Japanese (4 at that time) and Zim 1 from Hong Kong (still part of UK) Yamashita Shinnihon Kisen Ben Line • 3 carriers from UK Nedlloyd • The largest carrier from Denmark is Maersk Line not Maersk Wilh. Wilhelmsen
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Only 4 of the Top 20 remain as independent entities
Top 20 Carriers in 1975 Capacity Operated in TEU 0 10,000 20,000 30,000 40,000 50,000
Sea-Land Service 1999 - acquired by Maersk Overseas Containers Ltd 1986 - acquired by P&O. 2005 - acquired by Maersk Hapag-Lloyd American President Lines 1997 - acquired by NOL United States Lines 1986 – filed for bankruptcy Nippon Yusen Kaisha 2018 – merged into ONE Orient Overseas Container Line 2018 – acquired by COSCO Seatrain Lines 1981 – filed for bankruptcy American Export Lines 1977 – filed for bankruptcy Associated Container Transportation 1991 – split between P&O and Blue Star Mitsui OSK Lines 2018 – merged into ONE Kawasaki Kisen 2018 – merged into ONE Matson East Asiatic Co. 1993 – acquired by Maersk Zim Yamashita Shinnihon Kisen 1988 – merged with Japan Line. 1991 - acquired by NYK Ben Line 1991 – acquired by EAC Nedlloyd 1996 – merged with P&O. 2005 – acquired by Maersk Maersk Line Wilh. Wilhelmsen 1993 – exit from liner trades
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Repeating the same mistakes – last 50 years
Recurring themes in this industry
• Overcapacity
• Shipping companies struggle to stay afloat
• Governments continue to prop up struggling lines
• Changing regulatory regimes – IMO 2020 Sulphur Cap – Ballast Water Management
Excerpt from Containerisation International Yearbook 1984
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IMO 2020 – Scrubber take-up has surged • Significant increase in scrubber take-up rate : Up to 42% of total containership capacity will be scrubber-fitted
Total Fleet (Jan 2020) 5,350 ships 23.63 Mteu Orderbook 327 ships 2.17Mteu % of current fleet with scrubber/LNG engines (as at Feb 2020)
Scrubbers ordered (est.) 1,086 ships 10.04 Mteu •Scrubbers (estimated) Delivered/Ongoing 390 ships 3.42 Mteu • 20.3% of total units Newbuildings due 191 ships 1.59 Mteu • 42.5% of total TEU capacity Retrofits planned 505 ships 5.03 Mteu
LNG fuelled ordered 38 ships 0.42 Mteu • LNG fuel Delivered/Converted 9 ships 0.02 Mteu • 0.9% of total units Newbuildings due 33 ships 0.51 Mteu • 2.4% of total TEU capacity Conversions planned 5 ships 0.03 Mteu (Data as at 1 Feb 2020)
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IMO 2020 – Breakdown by Main Carriers Maersk 2017 “Position established on the use of low-sulphur fuels and NOT scrubber Sustainability Report technology.” Maersk 2018 “Invested in scrubbers on a share of our vessels. Scrubber technology is a less Sustainability Report extensive element of our sulphur cap fuel sourcing strategy, the vast majority of our container vessels will comply using low sulphur fuels. In 2017, we publicly stated that we would not rely on this technology, but for the time being we need to secure that we are not overly reliant on a single means of compliance.”
Expected Fleet end 2021 TEU 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000
Maersk 44% MSC 73% COSCO 13% CMA CGM 45% Hapag-Lloyd 14% ONE 0% Evergreen 76% Yang Ming 36% PIL 60% HMM 89% Zim 0% Wan Hai 13% Scrubber fitted
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IMO 2020 – High LSFO price spread • Current LSFO price spread $200-$250 per ton – down fron a peak of $300-$370 in early Jan • Spread is expected to narrow but significant uncertainty remains
Singapore Bunker Price : Rotterdam Bunker Price : MGO, IFO380 and VLSFO MGO, IFO380 and VLSFO 800 $/ton 800 $/ton
700 700
600 600
500 500
400 400
300 300
200 200
100 100
- - Jul-19 Jul-19 Jan-20 Jan-20 Oct-19 Oct-19 Sep-19 Sep-19 Dec-19 Dec-19 Aug-19 Aug-19 Nov-19 Nov-19
VLSFO spread Singapore VLSFO spread Rotterdam 0.5% VLSFO Singapore 0.5% VLSFO Rotterdam IFO380 Singapore IFO380 Rotterdam MGO Singapore MGO Rotterdam
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IMO 2020 – Scrubber retrofits surged • Number of ships being retrofitted has surged since July 2019 • Up to 110 ships (1 million TEU) on average have been taken out of circulation • Average retrofit time ~60 days (vs expected 45 days)
120 Breakdown by size range 110 >15,000 TEU
100 10,000-15,000 TEU 90 5,100-10,000 TEU 80 <5,100 TEU 70 60 50 40 30 20 10
No. of ships undergoing retrofit undergoing ships of No. 0 Jul 2018 Jul 2019 Jan 2018 Jan 2019 Jan 2020 Jun 2018 Jun 2019 Oct 2018 Oct 2019 Apr 2018 Apr 2019 Feb 2018 Sep 2018 Feb 2019 Sep 2019 Feb 2020 Dec 2018 Dec 2019 Aug 2018 Aug 2019 Nov 2018 Nov 2019 Mar 2018 Mar 2019 May 2018 May 2019
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Increase in inactive capacity – scrubber bonus • Rise in inactive capacity has brought down the effective capacity growth rate • But return of scrubber fitted ships in 2H 2020 will push up the effective supply growth
Total fleet growth vs Effective fleet growth : 2015-2020(F) 25 Projected active fleet 15% Inactive capacity Active (employed) capacity YoY % Change in total capacity YoY % Change in active capacity 24
10% 23
22 year) 5% - on 21 -
20 0% Total Capacity in TEU Millions TEU in Capacity Total 19 % Change (Year Forecasts 18 -5% 2015 2016 2017 2018 2019 2020 2021
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Demand still growing – but at a slower pace • 2019 global demand growth est. at 2.5% (vs 5.2% in 2018) - pace has continued to slow • 2020 demand growth expected to remain slow at 2.2%
Alphaliner Global Ports Survey - Growth by Quarter : 2008-2019 20%
15%
10%
5%
0%
-5%
-10%
-15% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 (F)4Q19
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Effective supply growth has also slowed • Effective capacity growth has slowed in 4Q 2019 – mainly due to scrubber bonus • Capacity management by carriers – mainly using blank sailings
Alphaliner Global Ports Survey - Growth by Quarter : 2008-2019 20% Vs Growth in Effective Supply 20%
15% 15%
10% 10%
5% 5%
0% 0%
-5% -5% capacity active in Change
-10% -10%
-15% -15% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 (F)4Q19 Note : Effective capacity excludes idle containership capacity GFTC 2020 Page 13 Containership Market Outlook Contents not to be reproduced without permission : [email protected]
Supply/Demand still main driver for freight rates • Rate weakness in 2019 only mitigated through capacity management • But mixed success in securing IMO 2020 bunker surcharge
Alphaliner Global Ports Survey - Growth by Quarter : 2008-2019 20% Vs Growth in Effective Supply 20% Vs Freight Rate Index 15% 15%
10% 10%
5% 5%
0% 0%
-5% -5% capacity active in Change
-10% -10%
-15% -15% CCFI Index (Jan 1998=1,000) SCFI SCFI Index (Oct 2009=1,000) 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 (F)4Q19
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Getting past the supply hurdle • 1.06 m TEU in 2019 Containership Deliveries by Month 2010-2021 • 1.11 m TEU in 2020 TEU Delivered To be delivered (Forecasts) • 0.86 m TEU in 2021 300,000
250,000
200,000
150,000
100,000
50,000
TEU 0 Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 2019 Jan 2019 Jan 2020 Jan 2021 2010 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018
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Top 12 Carriers – Managing capacity growth is key Total capacity in TEU 0 100,000 200,000 300,000 400,000 500,000 600,000 APM-Maersk MSC COSCO CMA CGM Hapag-Lloyd ONE Evergreen Yang Ming PIL HMM Zim Wan Hai Newbuildings to be delivered in 2020 Retrofits ongoing/waiting (Jan 2020)
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Getting past the supply hurdle
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New vessel orders – A new wave is expected
• A new wave of new ship orders are expected – focus remains on large size 24,000 teu • Hapag-Lloyd/ONE – will have to order new ships soon
No. of >18,000 teu ships by year of delivery 0 5 10 15 20 25 30 35 40
Maersk MSC 2M
CMA CGM COSCO/OOCL Evergreen OCEAN Alliance Hapag-Lloyd ONE Yang Ming
THE Alliance HMM Year of delivery Pre-2018 2018 2019 2020 2021 2022
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End Please send any queries to [email protected]
Alphaliner clients include the following:
- Shipping lines - Investment Banks - Ports
GFTC 2020 © Alphaliner Page 19