Container Shipping Market 2016 Outlook

International Council of Containership Operators – the “Box Club”
Tokyo
16 September 2015
Container Shipping Market

2016 Outlook
The worldwide reference in liner shipping
Web: www.alphaliner.com  E-mail: hjtan@liner-research.com

ALPHALINER Containership Market Outlook
www.alphaliner.com – the worldwide reference in liner shipping © Alphaliner 1999-2015 – Contents not to be reproduced without permission
Where are we heading on current cycle?

• Excess supply bias pushes down freight rates (in real terms)
• Carriers forced to respond through cost control
2011-2014 : Carriers response
2009-2010 : GFC disruption
1,600  Slow steaming
1998-2008 : Rates in secular decline  ULCS
1,400 Long Term Freight Rate Trend (in real terms)  Alliances 2015 : Bunker price falls
- Significantly altered
CCFI Index (Jan 1998=1,000)
1,200 carriers’ cost

economics
1,000 - Initial freight rate
inertia
800 - Followed by rate
FO $/ton decline
600
CCFI (Aggregate)
Fuel Adjusted Freight Index  But slow steaming not
400 reversed (yet)
 ULCS ordering continues
200  Alliance framework
retained
0
2000
2003
2005
2007
2009
2012
2014
1998
1999
2001
2002
2004
2006
2008
2010
2011
2013
Box Club : Sep 2015 © Alphaliner 2015 Page 2

Theme 1 : Capacity growth % in 2016 at record low

Annual Containership Capacity Growth 2000-2016(F)
Net Fleet Additions % Annual Capacity Growth
© Alphaliner
16.0%
1,800
Capacity in TEU Thousands
13.8%
13.2%
12.8%
1,600
12.3%
2015 deliveries highest in

1,400 absolute TEU terms
10.1%
9.1%
9.7%
1,200
9.3%
9.1%
8.9%
7.9%
1,000
5.5%
6.3%
6.0%
5.8%
5.4%
800 2016 deliveries lowest in %
600 y-o-y growth terms
400
200
Net Fleet Additions include adjustments for scrapping and delivery slippage
• 2015F deliveries : 1.8 million TEU (with low scrapping rate of 0.14 million TEU)
• 2016F deliveries : 1.4 million TEU (with higher scrapping rate of 0.30 million TEU)
Box Club : Sep 2015 © Alphaliner Page 3
But pressure from new vessel deliveries will remain
What is due in 2016 (vs 2015)

• 37 ships of 14,000-20,000 teu (50)
• 51 ships of 8,800-11,000 teu (83)
• 91 ships of 1,000-5,000 teu (104)
Capacity growth resumes in 2017 2014 A 2015 F 2016 F 2017 F

Deliveries Deliveries Deliveries Deliveries
In 2017, 57% of all
TEU size range No. TEU No. TEU No. TEU No. TEU
deliveries are > 13,300 teu
13,300-21,000 30 469,905 50 835,634 37 592,195 39 701,288
Others >13,300
43% TEU 10,000-13,300 35 386,315 14 143,834 26 282,610 28 318,080
57%
7,500-10,000 33 294,856 69 633,084 25 230,720 2 18,800

All ships > 7,500 teu 98 1,150,576 133 1,612,552 88 1,105,525 69 1,038,168
All ships < 7,500 teu 105 316,298 104 247,448 91 205,455 73 191,261

New ships supply & cascading pressure

• Latin America supply growth not
sustainable
• Limit reached on what can be taken
out of Asia-Europe
– 2M (2 strings removed but 20Ks to
come : 2016 for MSC/2017 for Maersk)
– O3 (1 string removed but 14Ks for
UASC to come)
– CKYHE (Evergreen 14Ks in 2016 & 20Ks
for COSCO/Evergreen from 2017)
– G6 (MOL/OOCL 18Ks in 2017)
• More than enough capacity for
Transpacific where required
• Intra-Asia/Middle-East trades have taken the largest capacity increase in 2015

 35 new Intra-Asia services launched in first half of 2015
• Strong growth in transatlantic (westbound) – but this trade accounts for only 4%
of global containership demand
Delivery schedule by carrier : 2015 vs 2016/17

• Relatively low deliveries in 2016 with MSC & Evergreen having largest orderbook;
• MSC could scrap up to 150,000 teu of its older ships (including charters)
• But carriers already looking ahead to 2017/18 : More ULCS due
Open for charter

Theme 2 : Idle capacity at 4 year low

• Idle containership capacity at lowest levels since 2011, despite record level of new
ships delivered in 2015
• % of capacity idle have remained below 2% since May 2014 (breached in Aug)
• Does this suggest supply overhang is under control?
1,400,000 Total Idle TEU 14%

Idle fleet as % of total fleet
1,200,000 12%
Idle fleet as % of total fleet

1,000,000 10%
800,000 8%
Idle capacity in TEU
600,000 6%
400,000 4%
200,000 2%
0 0%
2011
2009
2010
2012
2013
2014
2015

But significant surplus capacity remains

• 4-5% of surplus capacity (up to 900,000 teu) were employed in 2015 due to:-
 USWC port congestion : up to 80 ships (500,000 teu) were employed as extra loaders in 1Q
 Diversion to USEC absorbed up to 30 ships (160,000 teu)
 4 surplus Asia-Europe strings absorbed up to 40 ships (350,000 teu)  blanked sailings & lower utilisation
 Low bunker costs & port congestion (eg Manila) have added up to 100 ships on Intra-Asia (250,000 teu)
 Excess Latin America capacity from alliance revamps (100,000 teu) from July
1,600,000
Overhang still not cleared
1,400,000 Additional capacity from reversal of slow steaming
1,200,000
Surplus LTAM capacity
1,000,000
Additional intra-Asia demand
Idle capicity in TEU
800,000
600,000 Surplus Asia-Europe capacity
400,000
Diversion to US East Coast
200,000
US West Coast congestion
0
2009
2010
2013
2014
2011
2012
2015

Theme 3 : Vessel orderbook remains low
• Orderbook has remained steady at 18-23% since 2012

• Owners avoiding the excesses of the mid-2000s when orderbook reached >50%
• Impact of IMO Tier III Nox on orders after 2016
But demand for new ships not fully fulfilled

Demand for following size segments:-
• Ultra Large Class : 18,000-20,000 teu 18k vs 14k debate
• Intermediate ULCS : 14,000 teu still unresolved
• Neo-panamax : 8,000-12,000 teu
Newbuilding prices
expected to remain
low

Impact of expanded Panama canal

• FE-USEC via Panama
 Ship size stagnant since 2008 (4,500-4,600 teu)
 While ship size on Suez route has increased
from 5,000 teu to 8,000 teu
FE-USEC services
Via Panama Via Suez
as at Sep 2015
No. of strings 16 9
No. of ships deployed 169 111
Weekly capacity 73,000 TEU 70,000 TEU
Average vessel size 4,570 TEU 7,780 TEU
• Potential shortage of neo-panamax ships

• 16 existing Panamax all-water strings to be replaced by 8-10 neo-panamax strings
► Requirement for 80-100 neo-panamax ships for FE-ECNA
► Plus additional 20-30 neo-panamax ships for FE-Carib/Eur-ECNA-WCSA
► Total of 100-130 neo-panamax ships required
• Upgrades for 9 current Suez all-water strings (~5 strings to be shifted to Panama)
► Additional requirement for ~50 neo-panamax ships

Potential shortage of neo-panamax ships

• Only 7 out of 205 neo-panamax (19 row) ships are deployed on FE-USEC service currently
• Initial New Panama deployment to use 17-18 row ships (6,000-8,000 teu)
Row-Bay matrix of current and ordered fleet 6,300-14,000 teu

40' bays 17 bays 17-18 bays 19-20 bays 21 bays 22 bays 22 bays
Container LOA (m) 299-300 m 301-320 m 321-340 m 341-360 m 361-366 m 367-370 m
Rows across
Beam (m)
17 rows across 43 22 165 40 12 0

42-43 m beam 2 0 2 0 0 0
6,300-7,800 teu 6,700-7,900 teu 8,000-9,600 teu 8,600-9,600 teu 9,500-9,700 teu
18 rows across 23 15 98 34 16 0
45-46 m beam 0 0 1 0 0 0
7,500-8,700 teu 8,100-8,600 teu 8,400-9,600 teu 9,900-11,000 teu 11.300-11.600 teu
19 rows across 75 0 35 0 95 0
48-49 m beam 66 0 35 0 6 0
8,600-10,600 teu 10,000-11,000 teu 12,500-14,000 teu
20 rows across 0 0 0 0 41 38
51-52 m beam 0 0 0 0 33 16
13,300-14,500 teu 13,800-15,000 teu
Current ships Units on order Total Legend

sub neo-Panamax (17-22 bays/17-18 rows) 468 5 473 No. of current units
neo-Panamax (17-22 bays/19 rows) 205 125 330 No. of units on order
potential neo-Panamax (22 bays/20 rows) 79 49 128 Nominal TEU size range

Theme 4 : Scrapping rate will increase

• Scrapping rate fell in 2015
 Only 95,000 teu deleted in 2015 (to Sep)
 Older fleet received new lease of life –
but for how long?
• Older Panamax ships to be scrapped

 Only 4 panamax ships > 4,000 teu
scrapped in 2015 (vs 28 units in 2014)
 No over-panamax ships scrapped in
2015 (vs 16 units in 2014)
 ~40 panamax ships expected to be
retired in 2016 but the rate of scrapping
is still unclear especially as scrap prices
have fallen to 6 year low
• But impact of scrapping remains limited

 Deletions forecast at 300,000 teu in
2016 (1.5% of fleet)

Theme 5 : Consolidation plays

Capacity share by trade (Top 1/Top 5 Carriers) Aug 2015
(Top 1/Top 5 with COSCO/CSCL Merger)
Intra-Europe : 33%/70%%
Transatlantic : 29%/86% FE-Europe : 20%/60%
20%/66%
Transpacific : 11%/44% ME/ISC : 14%/44%
11%/47% 14%/45%
Africa : 33%/84%
Intra-Far East : 8%/32%
15%/37%
LTAM : 19%/73%
Oceania : 16%/57%
16%/59%
• No single carrier control >35% of individual tradelane

• Consolidation moves remain difficult
• Potential COSCO/CSCL impact limited – fragmentation remains (apart from China domestic trade)

Looking forward 2016-17

COSCO/CSCL
O3 launched could trigger Demand growth
2M launched another alliance remains uncertain
reshuffle
How will spot rates move?
Uncertainty drives
up contract rates
Contract rates likely Carriers hold the key
to head down
USWC congestion
Another round of ULCS +
Shift to USEC
Bunker fuel Carriers rely on NPX vessel orders?
prices fall void sailings to
Over-supply manage capacity
drives down New phase of 18-20K teu
spot rates vessel deliveries
New services Increase in panamax
launched scrapping
Idle ships Shortage of neo-
reactivated panamax (NPX) ships
Record level of new New Panama
vessels delivered Canal locks
2015 2016 2017

3 key market drivers in 2015 will be absent in 2016

• Bunker price
 Cost saving windfall
 Increased vessel demand –
especially on intra-Asia
 Allowed lower breakeven
utilisation level
2016 contract rates
 Fuel adjusted freight rate
likely to be lower
increased in 1Q 2015 even
though CCFI was flat
• US West Coast port congestion

 Impact on vessel demand from extra loaders & shift from West Coast to East Coast
 Fear of congestion impact on contract rate negotiations (Transpacific in May 2015)
• Alliance re-alignment
 Fear of disruptions was a factor in contract rate negotiations (Asia-Europe in Jan 2015)
 CSAV & CCNI integration – impact on South American trades

Cyclical recovery will depend on demand growth

Annual Demand Growth by Trade
17.3%
16.8%
20%
FE-Europe FE-US
15%
7.5%
6.0%
5.9%
5.5%
10%
3.9%
3.1%
1.3%
0.8%
5%
0%
-5%
-4.5%
-4.9%
-10%
-15%
-14.8%
-15.3%
-20%
2009 2010 2011 2012 2013 2014 2015
(to Jul)
• Supply pressure remains in 2016

• Any recovery will have to be demand-driven
 Recovery on both the Asia-Europe & Asia-North America trade is critical
 Capacity pressure coming in the larger sizes
 4%-5% demand growth (headhaul) is needed to absorb additional capacity

End Please send any queries to hjtan@liner-research.com
Alphaliner clients include the following:
- Shipping lines - Investment Banks

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International Council of Containership Operators – the “Box Club”

Container Shipping Market

The worldwide reference in liner shipping

Web: www.alphaliner.com  E-mail: hjtan@liner-research.com

Where are we heading on current cycle?

1,200 carriers’ cost

Box Club : Sep 2015 © Alphaliner 2015 Page 2

Theme 1 : Capacity growth % in 2016 at record low

2015 deliveries highest in

But pressure from new vessel deliveries will remain

What is due in 2016 (vs 2015)

Capacity growth resumes in 2017 2014 A 2015 F 2016 F 2017 F

7,500-10,000 33 294,856 69 633,084 25 230,720 2 18,800

Box Club : Sep 2015 © Alphaliner Page 4

New ships supply & cascading pressure

• Intra-Asia/Middle-East trades have taken the largest capacity increase in 2015

Delivery schedule by carrier : 2015 vs 2016/17

Open for charter

Theme 2 : Idle capacity at 4 year low

1,400,000 Total Idle TEU 14%

Idle fleet as % of total fleet

Box Club : Sep 2015 © Alphaliner Page 7

But significant surplus capacity remains

600,000 Surplus Asia-Europe capacity

Box Club : Sep 2015 © Alphaliner Page 8

Theme 3 : Vessel orderbook remains low

• Orderbook has remained steady at 18-23% since 2012

But demand for new ships not fully fulfilled

Box Club : Sep 2015 © Alphaliner Page 10

Impact of expanded Panama canal

• Potential shortage of neo-panamax ships

Box Club : Sep 2015 © Alphaliner Page 11

Potential shortage of neo-panamax ships

Row-Bay matrix of current and ordered fleet 6,300-14,000 teu

17 rows across 43 22 165 40 12 0

Current ships Units on order Total Legend

Box Club : Sep 2015 © Alphaliner Page 12

Theme 4 : Scrapping rate will increase

• Older Panamax ships to be scrapped

• But impact of scrapping remains limited

Box Club : Sep 2015 © Alphaliner Page 13

Theme 5 : Consolidation plays

• No single carrier control >35% of individual tradelane

Box Club : Sep 2015 © Alphaliner Page 14

Looking forward 2016-17

2015 2016 2017

Box Club : Sep 2015 © Alphaliner Page 15

3 key market drivers in 2015 will be absent in 2016

• US West Coast port congestion

Box Club : Sep 2015 © Alphaliner Page 16

Cyclical recovery will depend on demand growth

• Supply pressure remains in 2016

Box Club : Sep 2015 © Alphaliner Page 17

End Please send any queries to hjtan@liner-research.com

Alphaliner clients include the following:

- Shipping lines - Investment Banks

Box Club : Sep 2015 © Alphaliner Page 18

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