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Confidential Containership Industry Review Q3 2006 Prepared by Group Research & Development (GRD) September 2006. Executive Summary. The global economy is likely to do well in 2006, expanding by 3.9% as compared to 3.5% in 2005.
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Confidential Containership Industry Review Q3 2006 Prepared by Group Research & Development (GRD) September 2006
Executive Summary The global economy is likely to do well in 2006, expanding by 3.9% as compared to 3.5% in 2005. Against this backdrop, global trade demand is expected to remain strong in 2006, about the same level of growth attained in 2005. US consumers’ appetite for imported goods is expected to remain strong as US interest rate hikes has come to a halt for two rounds. Demand for Asian made consumer goods has shown resilience in the first half of 2006. China will remain the factory of the world for years to come and the emergence of India as a manufacturing hub will spurs more Asian exports. Intra-Asian trade will stand to benefit from trading of raw materials and semi-processed goods between the neighbouring Asian countries and the manufacturing giant. Soaring oil prices have fallen in recent weeks augur well going forward. The total container capable capacity stands at 10.8m TEU with total of 9,218 vessels as at Aug 06. This reflects an increase of 8.6% over Dec 2005. The total order book currently stands at 4.5m TEU. This corresponds to 42% of total existing shipboard capacity. Supply growth for 2006 is estimated to reach 13.4%, exceeding demand growth of 10.5%. Supply is expected to moderate to 12.6% in 2007. Supply growth is expected to overtake demand growth in 2006 following a balanced supply/demand situation in 2005. Overcapacity situation is likely to prevail for 2007 and 2008. Factors such as congestion, increasing trade imbalances and increasingly trade distances may ease the oversupply situation, but unlikely to swing the balance.
Executive Summary (continued) In terms of tonnage ranking, Maersk continues to lead the pack, with MSC in a distance 2nd. CMA-CGM remains in 3rd position ahead of Evergreen in 4th, followed by COSCO who leaps into 5th position, pushing Hapag-Lloyd into 6th. APL remains in the 9th spot, while NYK took the 8th position In ownership profile, charter owners now control 53% of the total container capable fleet, holding steady from the previous quarter. This equates to 5.77m TEU in the hands of charter owners and 4.79m TEU owned by operators. In the charter market, softening rates are showing signs of steadying. Yards remain bullish, backed by healthy forward orderbook, supported further by strong orders from the tanker/LNG market, newbuilding prices of containership is expected to stabilize.
Economic Outlook While 2006 is likely to do better than previously expected, the world economy in 2007 and 2008 are expected to moderate, though still healthy. World GDP growth is to reach 3.9% on 2006, but moderate to 3.2% in 2007. China is expected to record growth at 10.7% in 2006, but slowing to 9.9% in 2007. Similarly, India GDP growth will moderate to 7.4% in 2007 from 7.6% in 2006.
Container Trade Demand Outlook On expectation of a healthy world economic growth, global trade demand in 2007 is expected to moderate slightly, following a higher expected than growth in 2006 Source : NOL GRD Estimates
Containership Supply Outlook Containership supply is estimated to grow 13.4% in 2006. 2007 is likely to see a 12.6% increase or 1.50m Teus. 2008 will witness another 1.47m Teus delivered, slowing to a 10.9% growth rate. At this point, the new orders growth for 2009 stands at 5.6%.
Demand & Supply Balance Outlook Container Trade – Demand and Supply 1990-2008F Supply growth is estimated to outpace demand growth, but the gap is narrowing Source: Drewry, Trade Horizon, MDS/GRD
Container Trade Demand/Supply Balance Comparison Demand/Supply Balance as at Aug 2006 -5.4% -2.4% Data from difference sources ( GRD, Drewry, Clarksons) show the same trend – supply/demand growth gap will narrow over the next 3 years. -2.8% Note : Drewry numbers only take into account pure containerships while Clarkson and GRD numbers includes all ships that carry containers, even smaller geared ships that carry containers. As such, Clarkson and GRD numbers are better reflection of demand & supply gap.
Freight Rate Trend and Outlook Freight rate in 1Q 06 fell steeper from the slight fall posted in 4Q 05. Going forward, freight rate is expected to remain weak in view of overcapacity in the industry Source: Containerisation International
Charter Hire Rates In the charter market, softening rates are steadying. Fixtures in both July and August were not abundant, but rates continued to hold and could yet strengthen in all but the smaller tonnage sizes. Source: Howe Robinson & Co Shipbrokers
Charter Hire Rates (continued) The charter market has slowed over through most of 2005, across all classes but rates have continued to hover at the current level in recent months. At Aug 2006, charter rates, on average, fell by 28.7% as compared to the same period last year. The largest fall was seen for vessels in the 2750 Teu range.
Newbuilding Prices Easing newbuilding prices starting to hold Yards remain bullish, backed by healthy forward orderbook, helped by strong orders for tankers/LNG. As a result, newbuilding prices for containership continued to stabilize. Sustained new orders from tankers/LPG sector would exert upward pressure on new containership prices
Newbuilding Prices(continued) Yards with remaining 2009 berths have given priority to existing clients, frustrating new buyers trying to get an audience with the yards. This supply side pressure has led to a further increase in price, allowing the previously uncompetitive yards to be competitive again, which has, in turn, increased somewhat the supply of 2009 delivery berths available. At the same time, demand from the tanker and gas sectors continues to put pressure on containership buyers to commit or risk losing the opportunity. Although, in a number of cases, the last vessels in some series orders have encroached into Q1 2010, in general, the yards are not yet in a position to market 2010 capacity further. Activity, therefore, looks set to stagnate again. With the introduction of double hull bunker tank rules for deliveries from August 2010 onwards, yards can expect the demand to continue in the short term, as buyers look to sign contracts for the remaining ‘cheap’ ships in 1H 2010.
Overview - Supply As at Aug 2006, the total container capable capacity stood at 10.8m TEU. The container capable capacity grew 8.6% over December 2005, and 20.4% over December 2004.
Containership Age Profile At Aug 2006, the average age for the global containership fleet is 15.7 years. APL operates a relatively young fleet of average 9.8 years, with approximately 63% of its total fleet below 10 years of age.
Container Capable Fleet Ownership Nov 1998 vs Aug 2006 Fleet Size: 5.74m TEU Fleet Size: 10.8m TEU Owner Operated: 3.14m TEU, 54.7% Owner Operated: 4.79m TEU, 44% Charter Owner: 2.34m TEU, 40.8% Charter Owner: 5.77m TEU, 53% < 3000 TEU 3000 - 6999 TEU > 7000 TEU Note: The above chart does not include portion of fleet for whic h ownership is unknown. (Source: MDS /NOL GRD Aug 2006) Container Capable Fleet Ownership Profile The mix of charter owned and operator owned vessels remained steady as of Aug 2006. Charter owned vessels currently account for about 53% of total container capable fleet.
Newbuilding Contracts Ordering of vessels <3,000TEU continued to increase On YTD comparison, containership newbuilding contracts were lower in 2006 as compared to the 2003/2004 levels, in line with the market sentiment. Into the nine months of 2006, orders for smaller vessels, particularly of size below 3,000 Teus are relatively small as compared to the significance of larger ships.
Top 20 Operators Maersk remains far ahead at the top, doubling the size of its closest rival, MSC. CMA CGM retained its 3rd place, ahead of Evergreen in the 4th. Hapag-Lloyd is in 5th, with COSCO in 6th position. CSCL remains in the 7th position and APL fills 8th place.
Top 20 Operators – Capacity Table (Source: MDS /NOL GRD Aug 2006) Hapag-Lloyd registered the highest growth after its acquisition of CP ships, posting a 110.6% y-o-y growth. MOL was second, posting 38.4% and CMA-CGM was third, registering a 31.0% rise over the same period a year ago. MSC posted the fourth highest growth, reaching 30.1%. Of the total orderbook of 4.54mil TEUS, 70% of the capacity will be delivered to the top 20 carriers.
Orderbook as at Aug 2006 (Deliveries 2006 and Beyond) As at Aug 2006, the order book currently stands at 4,540,132 TEU. The top five carriers (Maersk-Sealand, MSC,CMA-CGM, ZIM and NYK) based on individual orderbook, together accounted for approximately 34.5% of the total orderbook. (Source: MDS /NOL GRD Aug 2006)
East-West Market Share (ytd Jul 2006) Maersk maintains lead in all three east-west trades. Hapag-Lloyd takes third position in the Transatlantic trade, after its acquisition of CP Ships APL ranks 5th overall, no.2 in the Transpacific, no.9 in Asia-Europe and no.5 in Transatlantic
Multi Carrier Alliances CHKY Alliance CHKY Alliance Grand Alliance Grand Alliance 198 Vessels 147 Vessels 123 Vessels 133 Vessels 32 Strings 22 Strings 19 Strings 19 Strings 917,998 TEU 630,057 TEU 609,687 TEU 646,660 TEU Incl Americana(CP Ships) MISC MISC partnership in TATL trade New World Alliance New World Alliance Cooperates in selected trades Cooperates in selected trades Cooperates in selected trades Cooperates in selected trades 96 Vessels 81 Vessels 15 Strings 12 Strings 18 Vessels 18 Vessels 21 Vessels 18 Vessels 492,665 TEU 381,426 TEU 4 Strings 4 Strings 4 Strings 3 Strings UASC UASC UASC UASC 63,110 TEU 55,854 TEU 55,854 TEU 55,854 TEU Maersk Line Evergreen Group 207 Vessels 85 Vessels 33 Strings 15 Strings 977,051 TEU 393,762 TEU Alliance Developments After a year on consolidation in the industry, the carriers are starting to map out their strategy to adapt to the new dynamics. The Grand Alliance's new global service schedule in the year included a close working relationship with the New World Alliance in the Asia-Europe trade. The Grand Alliance and New World Alliance confirmed plans to start a joint Panama Canal service from Asia to the U.S. East Coast by end August 2006. This will be the fifth all-water service for both alliances. Each alliance will contribute four 3,500TEU ships on the weekly service, which will run on a 56-day rotation. The tentative port rotation is: Shanghai, Chiwan, Shekou, Hong Kong, Savannah, Puerto Manzanillo (Panama) and Norfolk.A clear trend has emerged as many carriers and carrier alliances have reworked existing services to offer direct services from a half-dozen cities in China to key load centers in the U.S. and Europe.
