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China Shipping turned the situation to the better. The profits of the three Japanese carriers (“K” Line, MOL and NYK) are largely attributed to their other business segments, as in two of the three cases their operating results on container operations are negative. APL, Coscon, CSAV, Hanjin, Hapag-Lloyd and Zim are still far away from making profits. Revenues per TEU are with some exceptions lower than last year, same period. Carriers depending on the intra-far or China domestic trade (China Shipping, Coscon, RCL and SITC) recorded revenues/TEU in line with those of last year, but on the East-West carriers “K” Line was the only one able to charge its customers more than the year before.
No freight recovery for years to come
Maersk Line is one of the few in the industry to have produced respectable 2nd Quarter results, helped by unexpectedly good volumes in the Asia-Europe trades, which helped to stabilise average freight rates. However, Maersk Line’s net operating profit of $ 547 million and annualised return on invested capital of 10.8% was far more a reflection of cost cutting initiatives than higher revenue, with Maersk Line Chief Executive revealing that Maersk’s strategy excludes any assumption of a long term freight rate recovery.
“When it comes to pricing, we do not subscribe to the view that freight rates will get better in the industry, all the evidence points to declining rates,” Skou said in a telephone interview. On average over the past 10 years, prices have been falling by between 2% and 4% a year, a trend that, in Maersk’s opinion is unlikely to be reversed. Freight rates may go up in the short term for particular reasons such as inventory replenishment, as occurred in the 2nd Quarter, which pushed up utilisation levels, but such rallies are likely to be temporary.
Container capacity continues to rise
Overall capacity operated by the Top 21 container carriers increased 5.6% or 847,000 TEUs in the last 12 months, according to industry analyst Alphaliner’s latest newsletter, furthering chronic overcapacity in the container shipping market. The Top 21 carriers, which control 86% of the total global liner capacity, received a total of 1.37 million TEUs in new ships from August 2013 through July 2014, accounting for 93% of the capacity delivered over the past year, according to Alphaliner.
Meanwhile, a total capacity of 523,000 TEUs has been disposed of, either via scrapping or by means of redelivery of chartered tonnage, Alphaliner said. The disparity implies that overcapacity remains a chronic issue, in line with analysts’ predictions. In July, Stifel Transportation & Logistics Research Group reported that overcapacity will continue to hurt the industry by pushing down freight rates, making it harder for carriers to turn a profit.
Recent interim results from several carriers, including APL, OOCL, Hanjin and Hapag-Lloyd have also shown that overcapacity remains an issue, as the carriers highlighted the importance of managing costs in the current weak freight environment. According to Container Trade Statistics’ global price index, ocean container freight rates fell from a reading of 93 in January 2013 to 85 in March 2014.
The Director of Alix Partners said that rates are about 25% below where carriers need them to be able to make money. Nevertheless, out of the top 21 carriers, 16 expanded their operated capacity, with Hyundai Merchant Marine, Hamburg Sud and Evergreen logging the largest year-over-year increases, with capacity as of August 2014 21.2%, 17.4% and 15.2% respectively, Alphaliner said.
According to Drewry Maritime Research, the TEU capacity of the global fleet is slated to increase 6% this year and in 2015, as ship sizes in virtually all trade lanes are increasing. Alphaliner said the high number of vessel deliveries dampened demand for older chartered tonnage, with the main carriers’ chartered fleet falling 203,000 TEUs over the same period. The same carriers also sent 320,000 TEUs of owned and long term chartered ships for scrap, accounting for two-thirs of all capacity scrapped in the last 12 months, according to the analyst. Five carriers reduced their operated capacity in the last 12 months, with APL recording the largest reduction (down8.8% year-over-year in August), followed by CSAV, Hanjin Shipping, Zim and PIL with declines of 6.5%,5.2%, 2.3% and 0.9% respectively, Alphaliner said. Although APL, received 103,000 TEUs in new ships over the past year, the carriers scrapped 23,000 TEUs in old ships and returned 135,000 TEUs of chartered tonnage, resulting in a reduction of its operated capacity from 637,000 TEUs last August to 581,000 TEUs currently.
Similarly, Hanjin Shipping offset more than 69,000 TEUs of capacity on new ships in the last 12 months after it sent 52,000 TEUs of older ships for scrap and returned 50,000 TEUs of chartered vessels. Zim and CSAV also reduced operated capacity through separate corporate restructurings, with Zim shedding capacity through the return of ships via a debt restructuring deal and CSAV cutting capacity ahead of its planned merger with Hapag-Lloyd.
Container ports to handle 840 million TEU by 2018
The above forecast four years from now compares with 640 million TEU in 2013 and 674 million TEU projected for this year. The combination of faster traffic growth and strong profit levels is attracting aggressive new players to enter the container terminal operator business, according to the 11th Global Container Terminal Operators Annual Review and Forecast report published by shipping consultancy Drewry. It says Africa and Greater China are the regions that will see the most rapid growth.
Overall, growth rates are expected to average an annual 5.6% in the five years to 2018, compared with 3.4% in 2013. That will boost average terminal utilisation from 67% to 75% in 2018, Drewry forecasts. “The sector’s strong financial performance and accelerating growth is encouraging new market entrants and renewed merger and acquisition activity in the container ports sector,” said Neil Davidson, Senior Analyst in Drewry’s ports and terminals practice. “Financial investors are particularly active at present, attracted by typical EBITDA margins of between 20% and 45%.” Drewry has also added two companies to its league table of 24 terminal operators it considers to be global. Both China Merchants Holdings International and Ballore Group have been growing aggressively. In the case of CMHI further acquisitions are particularly likely.
Other operators, such as Gulftainer and Yilport are also expanding rapidly and are challenging for inclusions in Drewry’s league table. The composition of the top five players, when measured on an equity TEU throughput basis, has changed little from last year, except new entrant CMHI which is now in fifth place. PSA again heads the table, by virtue of its scale and 20% stake in Hutchison Port Holdings which comes second. APM Terminals is third, followed by DP World.
CMA CGM, CSCL and UASC form ‘Ocean Three’
The French line CMA CGM has announced that it has signed three agreements with China Shipping container Lines (CSCL) and the United Arab Shipping Company (UASC). Under the name of ‘Ocean Three’, the agreements concern the Asia-Europe, Asia-Mediterranean, Transpacific and Asia-US East coast trades.
They are a combination of vessel sharing, slot-exchange and slot-charter agreements. The agreements on the transatlantic trade are being finalised and will be announced soon. CMA CGM said the partners will use those transhipment hubs they have in common in all the biggest Asian, European and North American ports.
These agreements are pending authorisation from the Federal Maritime Commission. After the Chinese authorities stopped the planned P3 alliance, consisting of Maersk, MSC and CMA CGM, rumour had it that the French line was to set up a so called CUC alliance with the two carriers CSCL and UASC, which have remained outside global container shipping alliances so far.
The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).
