Archives for posts with tag: containership fleet

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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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