covid mystery: a new era in liner shipping? · 2020. 10. 27. · shipping lines previous alliances...
TRANSCRIPT
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COVID mystery: a new era in liner
shipping?
Container Owners Association, 202022nd October, 2020
Tim Power
Managing Director, Drewry
PRIVATE & CONFIDENTIAL
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2 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
The COVID-19 mystery
How is it that, after a decade of financial disappointment,
lines are now making record profits despite the volume
downturn caused by the COVID-19 pandemic?
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3 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
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2009 and 2020: compare and contrast
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Freight rates: 2008-10
In 2009, freight rates collapsed on the Asia – Europe trade and fell by 32% on the
Transpacific trade
-
500
1,000
1,500
2,000
2,500
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
Headhaul rates 2008-10
Transpac EB Asia Europe WB
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2020: spot the difference
Asia – Europe rates rose sharply in Q4 2019 before eroding to Q2 2020 and recovering.
Transpacific rates were stable and are now rising rapidly
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
$2,400
$2,600
$2,800
World Container Index - Assessed by Drewry$ per 40 ft container
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6 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
Financials
Source: Company, DMFR
-600 -400 -200 0 200 400 600 800
HMM
ONE
Yang Ming
Evergreen
ZIM
RCL
Wan Hai
Matson
Hapag-Lloyd
CMA CGM
Cosco
Maersk group
OOIL
SITC
1H19 1H20
Aggregate profit of 14 carriers approx. USD 2bn in 1H20 (vs. negative USD 351mn in 1H19)
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Container shipping fundamentals
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Liner fundamentals
Factor Effect Comments
Economies of scale Structural overcapacityLines always build bigger vessels to exploit economies of
scale. This leads to continual overcapacity
PerishabilityPush for short-run
contribution – rate erosion
Unused capacity cannot be stored. Lines cut rates in order
to boost utilisation
High operational gearingPush for short-run
contribution – rate erosion
Lines’ networks represent a high fixed cost burden. The
logical response is to maximise utilisation
Commoditised service
offering
Limited differentiation of
product; price competitionPrice is the principal competitive weapon
Fragmented industry
No coordination of capacity
development, intense
competition
Too many carriers and no dominant carriers to establish
market stability
Inelastic demand curveFalling rates have a limited
effect on demand
Seafreight is a negligible element in the landed cost of
manufactured goods and makes no difference to end
market demand
The liner industry has been unable to make sustainable profits…
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Liner fundamentals
…but it could, with two changes. Have these changes happened?
Factor Effect Change? Comment
Economies of scale Structural overcapacityEconomies of
scale run out
Lines will build to match
demand not to chase
economies of scale.
Pursuit of share is less
important
PerishabilityPush for short-run contribution –
rate erosionNo Unchanged
High operational gearingPush for short-run contribution –
rate erosionNo Unchanged
Commoditised service
offering
Limited differentiation of product;
price competitionUnlikely Unchanged
Fragmented industryNo coordination of capacity
development, intense competition
Industry
consolidation
A small number of large
carriers is able to match
capacity to demand and
promote increased tariffs
Inelastic demand curveFalling rates have a limited effect
on demandNo
Rising rates have a
limited effect on demand,
supporting profitability
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What has changed
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Economies of scale: vessel sizes
0
5,000
10,000
15,000
20,000
25,000
19921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020
Average
ship size
Max
ship size
Maximum vessel sizes have rocketed since 2005
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12 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
Economies of scale: costs
Scope for vessel economies of scale in 2009 was large; now looks much less. Total
system costs show no economies of scale.
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
8,000 10,400 14,857 17,333 20,800
Liner % Ports and terminals % Combined %
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Market concentration: lines
Substantial increase in market concentration since 2016, 50% at the level of Top 5.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Containership fleet share (%)
Top 3
Top 5
Top 10
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14 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
Market concentration: alliances
The concentration of major lines into the three alliances on the main East – West trades
has created the structure for effective capacity management
Shipping Lines Previous Alliances 2016 Shipping LinesNew
Alliance
MaerskP3 Alliance (denied) 2M Alliance
Maersk2M Alliance (with
mergers)MSC MSC
CSCLCSCL / UASC Ocean 3
Hamburg Süd
UASC CMA CGM
Ocean Alliance (with mergers)
NYK Line
Grand Alliance
G6 Alliance
COSCO
OOCL CSCL
Hapag-Lloyd OOCL
NOL
New World Alliance
Evergreen
MOL NOL
APL APL
Hyundai Hapag-Lloyd
THE Alliance (with mergers)
COSCO
CKYH AllianceCKYHE Alliance
UASC
K-Line Yang Ming
Yang Ming MOL
Hanjin NYK Line
Evergreen Independent K-Line
HMM
Hamburg Süd Independent Independent Hanjin
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15 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
Liner growth rate
GDP multiplier has declined steadily since 2000 and is no longer a driver of container volume
growth. Long term outlook growth is modest with downside risks
0
2
4
6
8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Estimated teu to GDP multiplier with 5-year averages, 2000-2020
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Conclusions
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17 www.drewry.co.ukDrewry Maritime Advisors – STRICTLY CONFIDENTIAL –
Conclusion
• Scope for economies of scale is now limited. The liner arms race will abate
• Concentration at the company level and in major alliances has created the conditions in
which capacity can be matched effectively to demand
• Stable utilisation will promote higher rates and margins
• Likely changes in trade patterns pose significant risks to growth in deep-sea liner
trades
• Low growth should make lines more cautious about capacity expansion
Fundamentals have improved but demand growth outlook is uncertain
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