Archives for category: Container

We’re well into the Year of the Rooster in China now, but trade figures for last year are still coming in and it’s interesting to see what a major impact China still had in 2016. Economic growth rates may have slowed, and the focus of global economic development may have diversified to an extent, but China was very much still at the heart of the world’s seaborne trade.

Not A Lucky Year

In 2015 the Chinese economy saw both a slowdown in growth and a significant degree of turbulence. GDP growth slowed from 7.3% in 2014 to 6.9%. Steel consumption in China was easing and growth in Chinese iron ore imports slowed from 15% to 3%. Coal imports slumped by an even more dramatic 30%. Container trade was affected badly too. China is the dominant force on many of the world’s most important container trade lanes and is involved in over half of the key intra-Asia trade. Uncertainty in the Chinese economy in 2015 took a heavy toll on this and intra-Asian trade growth slumped to 3% from 6% in 2014. Going into 2016, there was plenty of apprehension about Chinese trade, and its impact on seaborne volumes overall.

Back In Action

However, things turned out to be a lot more positive in 2016 than most observers expected. China once again underpinned growth in bulk trade, with iron ore imports surprising on the upside, registering 7% growth on the back of producer price dynamics, and coal imports bouncing back by 20%. Crude oil imports into China also registered rapid growth of 16%, supported by greater demand for crude from China’s ‘teapot’ refiners.

In containers, growth in intra-Asian trade returned to a robust 6%, and the Chinese mainlane export trades fared better too, with Far East-Europe volumes back into positive growth territory and the Transpacific trade seeming to roar ahead. Overall, total Chinese seaborne imports  grew 7% in 2016, up from 1% in 2015, with Chinese imports accounting for around 20% of the global import total. Growth in Chinese exports remained steady at 2%.

Thank Goodness

Despite all this, seaborne trade expanded globally by just 2.7% in 2016. Thank goodness Chinese trade beat expectations. Of the 296mt added to world seaborne trade, 142mt was added by Chinese imports, equal to nearly 50% of the growth. Unfortunately, this was counterbalanced by trends elsewhere, with Europe remaining in the doldrums and developing economies under pressure from diminished commodity prices.

Rooster Booster?

So, 2015 illustrated that a maturing economy and economic turbulence could derail Chinese trade growth. But China is a big place, and 2016 shows it still has the ability to drive seaborne trade and that the world hasn’t yet found an alternative to ‘Factory Asia’. 2017 might see a focus on other parts of the world too, with hopes for the US economy, India to drive volumes, and developing economies to potentially benefit from improved commodity prices. But amidst all that, China will no doubt still have a big say in the fortunes of world seaborne trade. Have a nice day.

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After another year of extremely difficult market conditions, many would forgive liner sector players for an air of resignation. However, despite a challenging freight market, charter rates remaining firmly in the doldrums and a major corporate casualty, looking back 2016 may well be seen as the year in which the container shipping sector really started to tackle its problems head on.SIW1255

Sustained Struggles

The container shipping sector has spent much of the post-financial crisis era under severe pressure and, as many expected, 2016 proved no real exception. Box freight rates in general remained weak, and the SCFI Composite Index averaged 18% lower in 2016 than in 2015. However, by late in the year it did appear that spot freight rates might be bottoming out on some trade lanes.

Against this backdrop, charter market vessel earnings remained extremely challenged, at bottom of the cycle levels. The one year rate for a 2750 TEU ship averaged $6,000/day in 2016, 37% lower than in 2015. ‘Old Panamax’ types fared even worse, averaging $4,979/day in 2016, 58% down on 2015, with the opening of the new locks at the Panama Canal impacting vessel deployment patterns.

Fundamental Traction?

Nevertheless, sector fundamentals did appear a little more positive in 2016. Demand conditions improved, with global volumes expanding by an estimated 3% in the full year to 181m TEU. Volumes on the key Far East-Europe trade returned to positive growth and the rate of expansion on intra-Asian trades accelerated back to more robust levels. However North-South volumes and trade into the Middle East remained under severe pressure from the impact of diminished commodity prices, though volumes into the Indian Sub-Continent grew strongly.

Meanwhile, containership capacity growth slowed significantly in 2016, reaching just 1.2% in the full year. Deliveries fell dramatically to 0.9m TEU (from 1.7m in 2015) and demolition accelerated rapidly to a new record of 0.7m TEU.

Still A Surplus

However, given the level of surplus built up in the post-Lehman years, and in particular the impact of the delivery of substantial capacity, much of it in the form of new ‘megaships’, the improved supply-demand balance seen last year was not enough to generate any significant improvement in market conditions. At the end of 2016, around 7% of total fleet capacity stood idle. The financial collapse of major Korean operator Hanjin was a further illustration of the acute distress facing both operators and owners.

Getting To Grips?

So, further recalibration still appears to be necessary to generate better markets. However, 2016 might also be seen as the year in which the sector finally started to lay real foundations for a better future. Demolition hit a new record, and financial distress and regulatory requirements are expected to drive further recycling. The ordering of newbuild capacity dropped to just 0.2m TEU in 2016, a dramatic halt.

Meanwhile, further significant steps in the consolidation of the sector were taken in the form of merger and acquisition activity involving major operators; the top 10 now deploy 70% of all boxship capacity, a figure set to rise to around 80%. Building blocks only these factors may be, but many will hope that at last container shipping is starting to build towards something more positive than the gloomy conditions that perpetuated in 2016.

Last year saw a huge amount of change in the under pressure container shipping sector. In particular, the ongoing consolidation of the sector in one form or another grabbed the headlines. To put this into context, it’s interesting to see how the level of consolidation relates to other parts of shipping, how it has developed over time and how it might progress looking forward.

Solid In A Fragmented Field

It’s quite clear that the shipping industry is a fairly fragmented business. On the basis of start 2017 Clarksons Research data, 88,892 ships in the world fleet were spread across 24,267 owners. That works out at less than 4 vessels per owner. Although 145 owners with more than 50 ships accounted for almost 12,000 of the vessels (and 29% of the GT), it’s still not that consolidated. The liner shipping business however is one the more consolidated parts of shipping, as well as being home to some of the industry’s larger corporates. At the start of the year, the 5,154 containerships in the fleet were owned by 622 owner groups, about 8 ships per owner, but, perhaps more pertinently, were operated by 326 carriers, about 16 ships per operator. Each of the top 8 operators deployed more than 100 ships. But despite the less fragmented nature of the sector, recent market conditions have led to another round of consolidation in the box business.

All Change At The Big End

The three largest operators (by deployed capacity) at the start of 2017 were European: Maersk Line (647 vessels deployed) followed by MSC (453) and CMA-CGM (454). Of the remaining carriers in the top 20 all but three were based in Asia or the Middle East. However, what’s really interesting is that out of the 20 largest carriers back in late 2014, 4 are now gone. CSAV was acquired by Hapag-Lloyd, NOL/APL by CMA-CGM and the two major Chinese lines merged. And of course in late summer 2016, the financial collapse of Hanjin Shipping marked the sector’s biggest casualty in 30 years.

Long-Term Liner Trends

Against this backdrop, the graph shows  that the latest wave of box sector consolidation is actually part of a long-term trend. Back in 1996 the top 10 carriers deployed 45% of capacity and at the start of 2017 that figure stood at 70%. The coming year is set to see Hapag-Lloyd complete its merger with UASC, and Maersk Line’s planned acquisition of Hamburg-Sud is also awaiting necessary approvals. The second half of last year also saw the three major Japanese operators declare their intention to merge containership operations in a joint venture due to be established this year and start operations in 2018. The ‘scenario’ based on these changes would see the top 10’s share at 79%, nearly twice as much as 20 years ago.

Tracking The Top Table

So, the container sector is one of the more consolidated parts of shipping, and both the long-term trend and recent developments point towards ongoing consolidation. Many hope this will help the recalibration of market fundamentals and eventually support improved conditions. In the meantime, we’ll be publishing the ranking of the top containership operators every month, so watch this space.

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In the shipping world, ‘Santa’s Sleigh’ is the big containership fleet, which carries the goods from manufacturers in Asia to the retailers in Europe and North America in good time for consumers to prepare for the holiday season. How full the ‘sleigh’ appears to be each year gives an interesting indication of the health of the containerised freight sector.

A Tricky Sleigh Ride

Broadly, the containership sector has generated a huge potential surplus of capacity since the global financial crisis. By the end of 2016, despite the recent surge in demolition activity, 9.1 million TEU of capacity will have been added to the fleet since the end of 2008, equal to growth of 84%. During the same period box trade has grown by around 34%. For those who deliver the world’s consumer goods, this has required a huge balancing act, managing surplus supply through slower speeds, and idling of capacity. The difficulty of this has created huge volatility in freight rate levels. Meanwhile, from early 2014 freight rates seemed to have been moving sharply downhill. Goods for the holiday season are usually moved to retailers with plenty of time to spare in the peak shipping season from May to October, but nonetheless overall movements in mainlane trade and capacity deployed (see graph description) give us a good idea of how full ‘Santa’s Sleigh’ might have been.

Last Christmas

Following the acute drop in freight rates in 2014, things were looking tricky for the bearers of gifts by the end of 2015. Spurred by ‘mega-ship’ deliveries and 8% growth in the boxship fleet, mainlane running capacity grew by 5% in 2015. But trade had hit the buffers. Although there was annual peak leg volume growth of 6% on the Transpacific, peak leg Far East-Europe volumes slumped by 3% on the back of a sluggish Europe, collapsing Russian volumes and destocking by retailers (perhaps not enough folk had been well-behaved enough for Santa to pay a visit?). At one point Far East-Europe spot freight rates hit $205/TEU, catastrophically low levels for the liner companies.

Wonderful Christmastime?

But things have eventually started to look a tiny bit brighter. Disciplined capacity management (cascading and idling) allied to slower deliveries has seen mainlane capacity drop 3% this year, whilst peak leg mainlane volumes look set to be up 2% with Far East-Europe growth back in positive territory. With the collapse of Hanjin, there’s one less sleigh driver, potentially allowing others to fill up more. Mainlane freight looks like it might have bottomed out; Asia-USWC spot rates jumped from an average of $1,459/FEU in Q3 2016 to $1,732/FEU in Q4 to date.

The Best Kind Of Present

How do things look for ‘Santa’s Sleigh’ in 2017? Well, with more capacity to come, any gains will be very hard won (and for the charter owners there’s still plenty of capacity idle). But it looks like there should be further cargo growth, so the challenge for Santa will once again be to maintain an appropriate amount of space for all the gifts. If he does that, the sleigh might feel fuller next year. That would be a nice present for the liner industry.

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Back in 1951, in his ‘farewell’ speech, US General Douglas MacArthur famously noted that “old soldiers never die, they just fade away”. In the containership market today, the aged soldiers are to be found in the ‘old Panamax’ sector. Charter rates rest at rock-bottom rates and the fleet is in steady and perhaps terminal decline, with scrapping at record levels. Is the battle now lost?

Old Workhorses

In the 1990s and into the 2000s, Panamaxes (as they were correctly known then) were the classic ‘workhorse’ of the containership fleet. Designed with dimensions to transit the (now old) locks at the Panama Canal, in their heyday they proved extremely popular with the number of units of 3,000 TEU and above able to pass through the canal peaking at 969 in 2012, boasting back in 1996 a 32% share of containership fleet capacity. At the peak of the charter market in 2005, the one year timecharter rate for a 4,400 TEU Panamax reached $50,000/day. Although designed with canal transit in mind, Panamaxes became deployed widely. At the start of 2016, 17% were deployed on the Transpacific (mainly through the canal to the USEC) but 17% were deployed elsewhere on the mainlanes and 28% on north-south trades.

Battling On

These old soldiers have battled away bravely. In the 2000s ‘wide beam’ ships, of similar box capacity but with shallower draft, came into prominence but the ‘old Panamaxes’ held their own. The last orders for vessels of over 3,000 TEU of ‘old Panamax’ dimensions were actually placed in 2012. Even with heavy scrapping in 2013, the ‘old Panamaxes’ received a spur when increased numbers began to be deployed on parts of the intra-regional trade network, with their share of deployment there rising to over 30% in 2014, supporting a relative pick-up in earnings, with the one year charter rate for a 4,400 TEU vessel bouncing back from rock-bottom levels to over $15,000/day by early summer 2015.

Beating A Retreat

However, this may have been the last hurrah for the ‘old Panamaxes’. In June 2016 the new locks at the Panama Canal opened, allowing much larger ships to transit on the key Asia-USEC trade. Over 150 ‘old Panamaxes’ were deployed on that trade back then and today the total is down to about 70. Slow growth on north-south trades isn’t helping either, denying an easy retreat from the battlefield. This has led to the onset of major scrapping, with 55 sold for demolition this year, and 217 since the start of 2012. Rates have crashed (to levels below those for smaller ships) and asset prices have also hit the depths with a 10 year old at $6m, basically down to scrap value.

Leaving The Battlefield?

So, although plenty of ‘old Panamaxes’ are out there battling on, things are only going one way at the moment. The fleet has fallen from 969 units in 2012 to 796 at the start of October. If vessel deployment opportunities globally increase, a ‘rising tide’ might even support some of these ships, but in general a decline now appears to have set in. Like old soldiers, they may not all die at once, but it does look like many more ‘old Panamaxes’ are still set to fade away. Have a nice day.

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Checking The Basket

Annual projections of seaborne trade can be useful demand side indicators. However, often it is difficult to get a real understanding of short-term trade trends. A year ago (SIW 1189) we looked at a ‘basket’ approach, which took monthly seaborne trade flows for a range of commodities, to help show year to date global seaborne trade trends. Although monthly data can be difficult to use, is not comprehensively available, and is generally subject to a lag of several months, the same monthly ‘basket’ approach examined a year ago remains a helpful indicator of short-term seaborne trade trends.

Promising Contents?

The graph shows the ‘Trade Index’ (see description for details) up to June 2016. Clearly monthly data can be very volatile; in January the index stood at -1%, but four months later it reached 7%. Furthermore, the index has picked up compared to 2015 average levels, averaging 2.1% in Q1 2016 and 4.3% in Q2. Some of this trend is accounted for by a rise in dry bulk trade which fell last year, with China’s dry bulk imports growing 6% y-o-y in 1H 2016, following a 2% drop in 2015 (although risks remain over the sustainability of this improvement). An increase in box trade growth has also been apparent, with expansion in Asia-Europe trade back in positive territory and growth in intra-Asian trade picking up.

Elsewhere, seaborne crude and products trade, which were two of the fastest growing elements of total seaborne trade in 2015, expanded firmly in 1H 2016. This was underpinned by robust growth in crude imports into China (16%), India and the US, despite the disruptions to Nigerian crude exports in recent months.

Half Full Or Half Empty?

Taking a wider view, even since the financial crisis there have been clear peaks in the index. The peak in early 2011 was partly on the back of strong growth in Chinese dry bulk, oil and gas imports and box exports from Asia. The index picked up again in 2012, supported by several months of strong growth in iron ore and coal trade to Asia. The next peak was in late 2013, when once again coal imports into Asia grew robustly and expansion in intra-Asian and Asia-Europe box trade was very strong. Today, you might conclude, if you’re a ‘basket half full’ type, that we’re heading steadily upwards again. But, if you’re a ‘basket half empty’ person, you might note that the peaks each time have been short-lived and have been getting lower.

Is There Something In It?

So, our index appears to be on the up,  although still at a relatively moderate level in historical terms, and with a volatile track record behind. There’s something in the ‘basket’ for both the optimist and the pessimist! Have a nice day.

 

 

During July 2016, the containership fleet reached a landmark 20 million TEU in terms of aggregate capacity. To many it only seems like yesterday when the boxship fleet passed the 10 million TEU mark, back in April 2007. It took less than 10 years to double in capacity to reach the new milestone. Sprightly fleet growth indeed, but how rapid is it when compared to other parts of the world fleet?

Compound Crazy

Albert Einstein once called the impact of compound growth the ‘most powerful force in the universe’, and containership fleet capacity is a great example of this power. Total boxship capacity doubled from 5m TEU in size (in April 2001) to 10m TEU (in May 2007) in 6.2 years, and since then it has doubled in size again from 10m TEU to an astounding 20m TEU across just a further 9.3 years.

This rapid growth of the containership sector is a fairly well known story. In many respects the box sector is still a youthful part of the shipping world; since the inception of container shipping in the 1950s, the fleet has grown quickly from humble origins as trade has flourished. At the same time the fleet has upsized at a phenomenal rate. The average size of containerships in the fleet stood at 1,807 TEU in April 2001 and increased to 2,425 TEU in May 2007. Today, with behemoth boxships of over 19,000 TEU on the water, the average size of units in the fleet is 3,832 TEU, and the average size of those on order is even larger at 8,030 TEU.

Maturing Slowly

In contrast, some other shipping sectors can seem more ‘mature’, growing at a gentler rate. Tanker fleet capacity took almost 21 years to double to reach its current size of 540.9m dwt. In relative terms, the trade is indeed fairly mature, with average growth in volumes of 2.2% per annum over the last 20 years in combined crude and products trade. But interestingly, this is a sector now seeing rapid capacity growth, with an uptick in trade growth in recent years driving tanker ordering. In the last 19 months tanker fleet capacity has grown by 6.5%.

Bulk Bulge

However, the bulkcarrier fleet comfortably illustrates that the boxship sector has not been alone in experiencing rocketing growth. Although the vessels themselves may not have seen the same upsizing as boxships, bulker capacity expansion has been extraordinarily fast in recent times. Astonishingly, it took just 8.6 years from January 2008 to double to its current capacity of 784.1m dwt (though it had taken around 21 years before that to double previously). Nevertheless, bulker capacity expansion has slowed now, as dry bulk trade growth has hit the buffers.

Boom Time

So, the latest instance of a rapid doubling of fleet capacity is not a one-off. The explosion of boxship capacity has indeed been rapid, but in a world where shipbuilding output was hitting all-time highs not long ago, such growth has been a wider phenomenon. The overall world fleet has increased by 55% in dwt terms in the period since the onset of the global financial crisis in September 2008 alone. That’s a robust compound annual growth rate of 5.1%! Have a nice day, Einstein!

SIW1236 Graph of the Week