What Investors Want to Know: Container Shipping Chartbook - Angelina Valavina, Senior Director EMEA Utilities & Transport - Fitch Ratings
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What Investors Want to Know: Container Shipping Chartbook Angelina Valavina, Senior Director EMEA Utilities & Transport June 2017
Contents
1 Recovery Depends on Market Discipline 2
2 Cost Cutting Still in Focus 6
3 Consolidation Through Mergers and/or Alliances 10
4 Defaults 15
5 Appendix 17
11 Recovery Depends on Market Discipline
2Recovery Depends on Continuous Market Discipline
Container Market Demand and Supply
Global GDP growth Container transport volume growth Net capacity growth
(%)
20
15
10
5
0
-5
-10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F
Source: Fitch, COSCO, Hapag-Lloyd
Low net capacity growth in 2016 at 1.5% due to high scrapping and delayed deliveries
Net supply growth is expected to accelerate in 2017 and 2018 despite forecast high level of scrapping
Idle fleet is high at 7% of total fleet capacity at end-2016
Uneven improvement of freight rates in 1Q17 – recovery mostly on Europe-Asia
3Order Book Is Declining But Mega-Ships Prevail
Container Vessels Order Book Vessels on Order by Size
Orderbook Orderbook-to-fleet >10,000 TEU 5,100-9,999 TEUPerformance Will Remain Challenging in 2017
EBIT of Selected Container Shipping Companies, EBIT of Selected Container Shipping Companies,
2016 1Q17
(USDm) 2015 2016 1Q16 1Q17
2,000 (USDm)
300
250
1,500
200
150
1,000
100
500 50
0
0 -50
-100
-500 -150
-200
-1,000 -250
Maersk Line CMA CGM Hapag-Lloyd COSCO Maersk Line Hapag-Lloyd COSCO CMA CGM
Source: Companies data, Fitch Source: Companies data, Fitch
52 Cost Cutting Still in Focus
6Adapting to Challenging Environment
Cost cutting
Consolidation through mergers and/or alliances
Defaults
7Massive Ordering of Mega-Ships – Benefits May Subside
Average Container Ship Size
(TEU)
4,500
3,000
1,500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Alphaliner, Fitch
Rapid vessel upsizing is more pronounced in container shipping
Cost savings from the newest generation of ships are smaller than the savings from the previous
increases in size. 60% of cost savings are related to more efficient engines rather than scale
Larger vessels add to oversupply and lead to cascading. Mainly used on Far East-North Europe trade
lanes
Infrastructure challenges – berth deepening, quay wall strengthening and port equipment
8Freight Rates Do Not Support Unit Costs
Freight Rates and Unit Costs of Selected Container Shipping Companies, 1Q17
Average freight rate Unit costs
(USD/TEU)
1,400
1,200
1,000
800
600
400
200
0
Maersk Line Hapag-Lloyd COSCO CMA CGM
Source: Companies data, Fitch
93 Consolidation Through Mergers and/or Alliances
10Evolution of Container Shipping Alliances
1999 2017
The New World Alliance 2M
APL/NOL (USA/Singapore) Maersk (Denmark)
MOL (Japan) MSC (Switzerland)
Grand Alliance Ocean Alliance
P&O Nedlloyd (UK) OOCL (Hong Kong)
OOCL (Hong Kong) CMA CGM (France)
Hapag-Lloyd (Germany) COSCO (China)
NYK (Japan) Evergreen (Taiwan)
TRICON The Alliance
Hanjin (Korea) Hapag-Lloyd (Germany)
DSR-Senator (Germany) NYK Line (Japan)
Cho Yang (Korea) Yang Ming (Taiwan)
MOL (Japan)
Maersk/Sea-Land K Line (Japan)
Maersk (Denmark) UASC (Qatar)
Sea-Land (USA)
Sino-Japan Alliance
COSCO (China)
K Line (Japan)
Yang Ming (Taiwan)
Source: Companies data, Fitch
11Market Share of New Alliances
Capacity Share of New Capacity Share of New Capacity Share of New
Alliances on Far East Trade Alliances on Transpacific Trade Alliances on Atlantic Trade
Other Other Other
5% 9% 5%
The The
The 2M
Alliance Alliance
Alliance 20%
29% 33%
23%
2M 2M
38% 49%
Ocean
Ocean Alliance Ocean
Alliance 42% Alliance
34% 13%
Source: Hapag-Lloyd, Fitch Source: Hapag-Lloyd, Fitch Source: Hapag-Lloyd, Fitch
12Consolidation in Container Shipping Is Inevitable
Mergers and acquisitions, rather than the historically more popular alliances, are inevitable to address
chronic overcapacity and drive further cost savings in container shipping
This is because alliances operate with limited scope and lack full coordination of networks and fleets, and
exploitation of resources. This limits their ability to manage capacity and cut costs
Alliances have proved popular because of their flexibility and because many shipping companies are
either family- or state-owned. But market conditions are now unsustainable, with freight rates falling below
operating unit costs for many companies, and bank loans are increasingly difficult to obtain
This will continue to drive M&A, which can more effectively reduce costs, increase utilisation rates and
support more disciplined capacity management
M&A deals will only restore equilibrium and boost freight rates if they prompt capacity reduction
13M&A Waves
Consolidation Waves and Market Shares of Top-5 Container Liners
100%
Hapag-Lloyd COSCO &
Hapag- & CSAV CSCL
CMA & CMA CGM CMA CGM
Lloyd &
90% CGM & ANL & USL
cpships Hamburg Hapag-Lloyd
Sud & ccni & UASC
80% CMA CGM CMA CGM Maersk &
P&O & Maersk & & & CMA CGM &
Hamburg
Nedlloyd Saf-marine Delmas Comanav OPDR
Sud
70%
Maersk & CMA CGM & NYK Line &
NOL & Maersk & P&O APL K Line & MOL
60% APL SeaLand Nedlloyd
50%
40%
30%
20%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: AP Moeller Maersk, Fitch
144 Defaults
15More Container Shipping Defaults
We expect more defaults in the short-to-medium term as the market fundamentals remain challenging
The top-five container shipping companies are consolidating their positions but many of the other
companies in the sector have quite weak financials, which are unstainable in the medium term unless the
sector recovers
Yang Ming – restructuring plan; Hanjin, Rickmers – default
The impact on the sector will depend on the share of capacity of a defaulted entity being redeployed in the
market
Creditors' withdrawal of support may indicate a reassessment of the financing landscape, where secured
bank funding for new vessels has remained relatively accessible even as market conditions have
deteriorated. Such a change would pave the way for more restructurings
165 Appendix
17Shipping: Fitch’s Criteria and Related Research
“EMEA Airlines & Shipping – Sectoral and Economic Challenges to Prevail”, 6 December 2016
“Fitch: Deals, Defaults Ahead as Shipping Outlook Stays Negative”, 30 November 2016
“2017 Outlook: Global Shipping – Consolidation, Costs and Capacity High on Agenda”, 30 November 2016
“Maersk Gets Little Solace from Sectoral Diversification”, 8 October 2016
“Criteria for Rating Non-Financial Corporates”, 27 September 2016
“More Container Shipping Defaults, M&A Will Follow Hanjin”, 5 September 2016
“M&A Not Alliances to Help Revive Container Shipping”, 28 April 2016
“Russia Privatisations May Hit Corp Ratings in Medium Term”, 2 February 2016
“Shipping Companies Ratings Navigator Companion”, 9 March 2015
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