Top 20 container lines
HIGHLIGHTS OF 2010 RESULTS
' Top carriers augmented their fleets by 11% since August 2009,
while operated capacity on major lanes increased 12%.
' Capacity injected into Asia/Europe double that of the transpacific.
' Lines shifted emphasis to chartered capacity, with a few exceptions.
' CSAV shot up the list based on an aggressive ship chartering strategy,
while NYK posted largest reduction in fleet size.
The past 12 months have been the container shipping industry's bounce-back year.
Volumes have recovered, as have rates. But so too has capacity. The world's top 20 ocean carriers added more than 1.2 million TEUs of fleet capacity since August 2009, according to analysis by American Shipper.
Cries have rung out from shippers throughout 2010 that capacity is at a premium and that carriers are to blame for withholding capacity. But the numbers tell a somewhat different story. While the top 20 carriers collectively added 11.3 percent worth of fleet capacity in the last 12 months, 12.1 percent of operated capacity has been collectively added by them on the primary east/west trades (the transpacific, transatlantic and Asia/Europe) in that same period, according to American Shipper research affiliate ComPair Data.
But the capacity added in the main east/west trades ' the ones that affect the greatest number of global shippers ' has not evenly matched the overall growth in fleet capacity. According to ComPair Data, operated capacity grew 11.6 percent on the westbound transpacific but 22.7 percent from Asia to Europe.
Overall, however, carriers have put into service more capacity on the main trades than they have added through vessel deliveries and charter hires. That doesn't necessarily jive with shipper concerns over lack of space.
Shippers could well fire back that carriers were withholding a substantial amount of capacity one year ago, and that's true. The idled containership fleet neared a record 12 percent at the turn of 2010. But as of mid-July, the pendulum had swung fiercely back, with only 2 percent of the global fleet shelved.
The reintroduction of services since spring, and the significant increase in vessel deliveries in July, has shone a light on another issue ' a shortage and imbalance of ocean freight containers, chronicled by American Shipper's August cover story ('Boxed out,' see www.AmericanShipper.com/links).
More than 200,000 TEUs of capacity were delivered during July alone, and more than 1 million TEUs of capacity have come online since Jan. 1, according to the maritime news service Alphaliner. That's more than 7 percent of the global fleet, and another 500,000 TEUs are due to be delivered through the rest of 2010.
On the surface, this seems to be great news for shippers. More capacity has ostensibly meant lower rates in the past. But carriers have shown a greater resolve to individually and collectively control capacity this year. Perhaps lessons have been learned from 2009, or perhaps carriers are just cautious about a recovery that may or may not stick.
In any case, in the past an influx of so many vessels would have surely meant a glut of operated capacity. Not so this year. A 12 percent increase of operated capacity against a 11 percent increase of physical capacity represents a reasonable supply/demand balance.
There's one more important factor, of course, and that's actual demand.
According to Drewry Shipping Consultants' Container Forecaster, global container volume is forecast to rise 8.6 percent in 2010 to 145.4 million TEUs. In the first quarter of the year, for which numbers are real and not forecast, volume grew 15.1 percent. But that growth is expected to have tapered off to 9.8 percent in the second quarter, and slow further still to 5.9 percent in the third quarter and 4.5 percent in the fourth.
Global projections from another analyst, IHS Global Insight, tell a similar, if somewhat more optimistic story. IHS Global Insight forecasts global container trade to rise 9.2 percent in 2010 ' with a 10.6 percent rise in trade on the main east/west trade routes ' dropping to 6.8 percent growth in 2011.
Even if you take a midpoint between the Drewry and IHS Global Insight forecasts ' about 9 percent ' carriers in the past 12 months have still added capacity faster than demand has grown. At least on a global level.
Yet, it's hard to ignore that shippers have found space constraints on a trade-by-trade level. Nor has capacity been introduced in a gradual manner that perfectly tracks demand growth.
Carriers have largely reacted to ' rather than anticipated ' better-than-expected demand in certain markets. For instance, capacity soared by huge amounts on the Asia/Europe trade lane from January to May 2010. That's not unusual for the Asia/Europe lane, perpetually more turbulent than the transpacific because of the prevalence of shorter-term service contracts and ' since October 2008 ' a lack of a coordinating body for carriers.
Uneven Capacity Growth. In the past year, the top 20 lines' operated Asia/Europe capacity rose 22.7 percent to 337,092 TEUs weekly. That's compared to an 11.6 percent increase in operated capacity on the eastbound transpacific, which is nearly right in line with the top 20's overall increase in offered capacity ' 12.1 percent ' on the main east/west routes (see Table 2).
Demand grew 23.4 percent from Asia to northern Europe in the first quarter of 2010, according to Drewry. It was projected to have grown 3.1 percent in the second quarter and is forecast to grow 0.9 percent in the third quarter and actually drop 1 percent in the fourth quarter.
On the eastbound transpacific, demand grew 16.3 percent in the first quarter, is projected to have grown 8.5 percent in the second, and is forecast to grow 6.3 percent in the third quarter and 4.3 percent in the fourth quarter.
Slot utilization, as measured by Drewry, was much better in the first quarter but is only projected to be marginally better (or worse) in the remaining quarters on both the headhaul Asia/Europe and transpacific lanes.
Those efforts to pump in capacity, particularly between Asia and Europe, are beginning to have deleterious effects for carriers. Reports in late July suggested rates are coming down as peak season approaches and that announced peak season surcharges aren't sticking as carriers would have liked.
The Shanghai Containerized Freight Index ' far from a flawless measure ' said the rate for one TEU from Asia to northern Europe was $1,895 on July 23. That's a drop of nearly 13 percent from mid-March, when shippers in North America and Europe complained of having their cargo rolled due to tight capacity. The Shanghai index suggests rates on the transpacific have been dropping of late too.
There's another angle that obscures the amount of capacity carriers have introduced, and that's the effect of slow steaming, a measure carriers introduced to cut down on fuel consumption that also had the benefit of reducing ship emissions and soaking up excess capacity.
In theory, as a transpacific service goes from five to six ships and increases its round-trip voyage time from 35 to 42 days, the weekly capacity, as measured by ComPair Data, doesn't change. But what does change is the amount of fleet capacity a line can employ. This gets at the difference between what ComPair Data measures (the amount of weekly capacity available to shippers in any given trade route or port pair) versus what raw databases of fleet capacity measure (that is, how many container slots and vessels a carrier has).
Before the advent of slow steaming, a shipper could reasonably expect that if a line received a ship, that ship would be put into service and that capacity on that trade would grow. Now, it's not always a certainty that a new ship provides extra weekly capacity. Rather, slow steaming has expanded the amount of gross capacity on the water at any given time, but has not augmented by the same factor the amount of capacity available to shippers.
Yet ComPair Data accounts for this, and that's why it's not fair to argue that carriers have merely used slow steaming to account for added fleet capacity while not adding operated capacity. As shown in the accompanying tables, carriers have added fleet capacity while also adding actual capacity that shippers can see.
Structural Change? So the next question is whether 2010 represents a year of structural change in the industry or whether carriers were simply able to effectively manage capacity this year alone. That is, have the proverbial lessons of 2009 been learned, or will bad habits reemerge next year?
There are signs that lines have begun chasing the hot market ' a familiar pattern in years past.
Mediterranean Shipping Co., the world's second-biggest carrier, pumped in a massive 78.5 percent of operated capacity into the Asia/northern Europe trade. Maersk Line grew its allocated weekly capacity between Asia and northern Europe by 10.8 percent in the last 12 months, while CMA CGM, in comparison, has been downright austere, raising Asia/northern Europe capacity 5.2 percent.
As the three biggest providers of capacity between Asia and northern Europe, a collective 22.8 percent increase represents a massive influx of space for shippers, and that will inevitably affect rates, not even taking into account what other lines do (the remaining 17 lines raised their collective capacity 15.2 percent).
But these increases can also be taken as signs that carriers are retreating to their positions of strength. For MSC, Asia/Europe is the key lane. For a carrier like APL, the transpacific is more vital. And APL's transpacific capacity has risen markedly ' by 42 percent from Asia to North America ' to an extent that it is now the largest provider of capacity between Asia and the U.S. West Coast after being the fifth-largest in August 2009.
COSCO Container Lines, part of the CKYH Alliance that owns the top position on the transpacific, saw allocated capacity increase nearly double from Asia to North America the last 12 months. That increase is partially offset by the fact that the transpacific capacity of CYKH partners 'K' Line, Yang Ming and Hanjin collectively dropped 2.1 percent, but the alliance as a whole still grew its capacity 14.8 percent.
On the Asia/Europe lane, CKYH's capacity grew 6.6 percent last year. But COSCO's dropped 21.6 percent, while Hanjin's grew 71.2 percent on that lane. Clearly, Hanjin has begun playing a more prominent role in CKYH's Asia/Europe plans the past year while COSCO has taken on a greater transpacific role for the alliance.
Table 3 shows another example in the Grand Alliance. As member OOCL pulled a significant amount of transpacific capacity to the West Coast (55 percent), its partner Hapag-Lloyd raised its capacity there by 109 percent, while the other member, NYK Line, also added a fair share. But all in all, the alliance only grew transpacific capacity 0.4 percent in the last 12 months.
These inter-alliance machinations shouldn't obscure the fact that the top 20 lines, as a whole, grew allocated transpacific capacity 11.6 percent, including 16.1 percent to the U.S. West Coast. As the Grand Alliance held steady and Europe's big three largely pulled transpacific capacity, the New World Alliance took advantage. APL, Hyundai Merchant Marine and MOL collectively added 44 percent capacity from Asia to North America, including a 47.6 percent increase to the West Coast.
Lightening Asset Load. A somewhat under-discussed aspect of the container shipping industry in the last 12 months has been the large shift from owned fleets to chartered vessels (see Table 4).
While much has been made of the top 20 lines' massive orderbooks, the reality is that those lines' owned fleets have grown marginally in the past year ' around 273,000 TEUs ' while their chartered fleets have grown substantially ' by around 941,000 TEUs.
What's more, the growth rate of chartered fleets in the past 12 months screams out that carriers actively wanted to reduce their asset load even as scores of huge new ships arrive. Chartered capacity rose 17.9 percent,
compared to a 5 percent hike in owned capacity.
Indeed, nine of the top 20 lines actually reduced their owned fleet size in the last 12 months, compared to six that reduced their chartered fleet.
This aspect of the industry shows most clearly where lines diverge in strategic thinking. In 2009 and 2010, lines like OOCL, Zim, Hyundai and 'K' Line have focused on growing their owned fleets and decreasing their chartered fleet. MSC, Hapag-Lloyd, COSCO, Hamburg Sud, CMA CGM and PIL have taken a balanced approach to fleet growth, increasing both owned and chartered fleets. The other half of the top 20 overwhelmingly shed owned capacity and took on huge amounts of chartered capacity.
The carriers that reduced their owned fleets and increased their chartered fleets no doubt did so to take advantage of a glut of capacity held by non-operating ship owners eager to see some return on their assets in a down market.
Many carriers returned vessels in the depths of the 2009 recession but only some took full advantage of lower rates at the tail end of 2009 to inject tonnage back into their fleets. In many ways, the extreme pain of 2009 looks like a long-term gain for some lines.
No carrier rose up the top 20 list faster than Chilean line CSAV, and no line employed chartered capacity at quite the same rate in the past 12 months. CSAV took on more than 295,000 TEUs of chartered capacity in that time, roughly one-third of all new chartered capacity among the top 20. To put that in perspective, the line had 270,000 TEUs of total capacity 12 months ago.
At the same time, CSAV dumped 47 percent of its owned capacity since August 2009. This extreme strategy of relying on chartered capacity is no doubt influenced by the line's financial troubles the past few years. According to American Shipper's annual Who's Making Money report (see www.AmericanShipper.com/links), it is one of only three lines in the top 20 to lose money each of the last two years, and it has lost $753 million the last five years combined. During that time the other carriers surveyed by American Shipper averaged five-year profits of $192 million.
In other words, CSAV would not appear to be in the kind of position to increase its fleet size by 95.5 percent in the last year. But through aggressive use of chartered ships, it has.
By ambitiously adding chartered capacity, the line has also seemingly minimized the impact of its ordered vessels. Last year, the line's order book represented nearly 30 percent of its existing fleet (including chartered and owned vessels). This year, the order book has been reduced marginally, but that coming capacity represents only 12 percent of its existing fleet.
Clearly, CSAV is eyeing the revenue-producing opportunities a larger fleet can provide to help steer it into the black this year and help fund its future deliveries.
On the other end of the spectrum is NYK, which decreased its overall fleet by 9.5 percent, reducing both its owned and chartered capacity. At the beginning of 2010, the Japanese line said its goal was to become asset lighter in the container shipping industry, and it is well on its way to achieving that goal. Only OOCL operates less chartered capacity, and NYK's order book (by capacity) is now the smallest among the top 20 (after Evergreen recently announced its first ship order in nearly a decade).
And here's a way to measure that lines are not merely capitalizing this year on higher volumes. NYK in late July upped its profit and revenue forecast. While revenue was expected to rise only 5 percent over that forecast in April, profit was projected to increase by 98 percent. The forecast covers the whole NYK Group (including divisions outside of liner shipping), but NYK's liner division first quarter profit margin (April through June) was 33.6 percent.
The implications are clear. Liner carriers are putting to good use the cost reductions they achieved in 2009. As rates have risen, costs have held steady and the revenue is helping carriers move well into the black. That NYK is the line that withdrew the most capacity in the past 12 months speaks to the fact that a reduced asset sheet could very well benefit carriers currently outside the top six or seven.
Fleets Will Grow. Of course, the carriers in that top tier see fleet investment as the way forward. Collectively, the top seven lines have more than 1.8 million TEUs of capacity on order (or an average of 257,000 TEUs per carrier) while the remainder of the top 20 have 1.3 million TEUs on order (103,000 TEUs per carrier).
A healthy portion of the top 20 lines are doubling down on owned capacity, with eight lines slated to increase their fleets by one-third or more. And that excludes the top two lines ' Maersk and MSC, which together have 1.3 million TEUs on order ' because their existing fleets are already so large.
Yet it's also important to remember that not all ordered ships will be delivered ships.
A hint of how canceled orders reduced the gap between excess capacity and demand in the past year comes from United Arab Shipping Co., whose order book dropped from 18 ships, representing 156,035 TEUs of capacity, in August 2009 to nine ships, representing 117,900 TEUs of capacity, in August 2010, all while UASC's owned fleet stayed exactly the same in those 12 months.
In other words, the Gulf-based carrier shed more than 38,000 TEUs of future capacity while not taking a single delivery in the last year. The line did, however, grow in that time because it increased chartered capacity from 39,000 TEUs to 94,000 TEUs.
Average ordered capacity among the top 20 dropped 22.9 percent in the last year, from 206,051 TEUs in August 2009 to 158,906 TEUs in August 2010, due to deliveries and cancellations.
As mentioned earlier, vessel deliveries have ramped up in the summer. At some point, it's hard to question the carriers' commitment to providing capacity when the industry has taken delivery of a record amount of capacity in July at the same time that the global idle fleet fell to 2 percent. In fact, only three carriers, according to Alphaliner, still have any appreciable amount of capacity shelved ' Maersk, Hanjin and Zim.
Given that most of the world's containerships are in service (albeit some employed only via slow steaming) and given that shippers are nevertheless still bothered by capacity suggests that the container shortage addressed in last month's American Shipper is largely to blame.
This doesn't shift the burden from carriers, who are responsible for providing a supply of containers just as they are for vessel space. But what it does suggest is that once the container shortage is rectified ' a far easier and shorter term problem to solve than lack of vessel space ' the capacity situation will largely be resolved.
It will then fall to carriers to decide if they will continue to manage capacity as they did in early 2010 ' by controlling supply and easing rates higher ' or whether they will fall into the familiar patterns of injecting capacity into hot trades until rates subside and then search for the next big thing.
One last note: the word consolidation has been conspicuous by its absence in this report, and that's largely because no major acquisitions seem in the offing. While the biggest carriers stress the need for fewer players, the market doesn't appear to have the appetite for a blockbuster deal. That's mostly because lines are counting on higher revenue this year to wipe away the massive losses of 2009, and thus don't have the financial clout to absorb a major competitor.
