Top 20 container lines

Top 20 container lines Highlights of 2009 results
' Top three continue to put distance between themselves and the pack,
   though MSC and CMA CGM gain on Maersk.
' APL breaks into the Top 5, but capacity gains are tempered by layups.
' Historic scrapping levels and order delays help offset new deliveries
   but capacity is still coming too fast, too soon.
' UASC new to the list as Wan Hai drops out.

      Does size matter?
      Perhaps in any other year the answer to that question, when it comes to the size of container shipping lines, would be an emphatic 'yes.' But in the shippers' market to end all shippers' markets, it makes much less of a difference.
      The biggest and most powerful lines in the world are all scrambling for cargo, all scrambling to redress the balance between overcapacity and demand to bring utilization and rates up. In many cases, they are in the same boat as mid-sized carriers or small regional ones. And so this year, the topic of which carriers are the biggest is probably secondary to which carriers are the healthiest.
      Size does bring its advantages in a down cycle, however. The biggest lines are often those best equipped to weather a storm, whether that means having dominant positions and large ships in key lanes, or simply having a horde of cash, willing investors or governments to cover any calamities.
      On the flipside, bigger lines are sometimes set up for a steeper fall. Lines that have grown through acquisitions or have huge order books may now find their businesses unwieldy or desperately short of liquidity for day-to-day operations.
      All that said, comparing this year's Top 20 list to that in 2008, the changes are few. Despite the wild fluctuations in capacity caused by the idling and scrapping of ships, not to mention the delivery of dozens of large vessels, the big names at the top have remained. Those in the remaining positions have found it hard to surge up the tables.
      Overall, capacity amongst the Top 20 grew 4.6 percent, perhaps less than was expected given the dire projections of new capacity coming online at a time when demand was weakening.
      The three largest lines, once again, are European heavyweights Maersk Line, Mediterranean Shipping Co. and CMA CGM. Together, those three account for roughly one-third of the global container fleet. MSC and CMA CGM are gaining on their Danish rival, with the Swiss line upping its capacity by more than 200,000 TEUs (or 16 percent) since August 2008, while French-based CMA CGM saw its capacity rise more than 60,000 TEUs (or 6.5 percent).
      During the same period, Maersk's capacity actually shrunk by 18,000 TEUs to 2.02 million TEUs. Also of note, CMA CGM became the third carrier to cross the 1 million-TEU capacity barrier.
      The lines that follow have little hope of catching the top three. According to maritime news service Alphaliner, Maersk has 371,000 TEUs of capacity on order, MSC has a whopping 623,000 TEUs, and CMA CGM another 505,000 TEUs. All told, that's more than 1.5 million TEUs of capacity. For comparison, that's nearly as much capacity as the next three biggest lines ' Evergreen, APL, and Hapag-Lloyd ' have in their current fleets.
      In fact, only COSCO Container Lines (currently seventh, in a tightly bunched group with Hapag-Lloyd and compatriot carrier China Shipping) appears poised to make a large jump in the table, as it projects to be fourth when its order book is fully delivered.
      Of course, therein lies the problem these days. Not only are carriers shelving capacity, but they are also attempting to delay or cancel orders for ships, with the rebound for container shipping not expected to come until 2012 or later. That makes deciphering where lines are in the pecking order a little more complex.
      For instance, Israeli carrier Zim joined in the ship-ordering binge of 2006 and 2007 by ordering a dozen vessels between 8,400 and 10,000 TEUs in size. It also has another nine 12,500-TEU ships on order for delivery beginning in 2013. Its 29 vessels on order are, on average, 8,400 TEUs in capacity.
      Those ships represent about 85 percent of Zim's current 285,000 TEUs of capacity. But the carrier is hemorrhaging money and has pulled services (about 21 percent of its fleet). Its net worth is thought to be near zero, and it is only being propped up by its parent company, Israel Corp., which has committed to invest roughly $500 million to stave off insolvency.
      The question is, how many of those ships will actually be delivered into Zim's fleet? News reports swirled earlier this year that Zim was trying to delay its orders, and while it successfully nixed a deal for six 1,700-TEU ships, that alone probably won't do it.
      Another example is Hanjin Shipping, which has 66 percent of its current fleet on order. Hanjin has 30 ships coming, at an average size of 9,000 TEUs. The Korean line has not indicated that it will delay or cancel any orders, and in fact enjoyed a steady 2008 in terms of profits. But 270,000 TEUs is a lot of capacity to integrate.
      Hanjin's capacity grew 7.3 percent in the last year, by about 10,000 TEUs, and that was enough to keep it at No. 10 on the list. If it's able to take all its deliveries, it looks set to climb up to sixth in time, passing China Shipping, NYK Line, and perhaps even Hapag-Lloyd and Evergreen.
      APL, meanwhile, saw the largest leap in fleet capacity over the past year, a near 20 percent increase to almost 532,000 TEUs. That allowed the Singapore-based line to jump from seventh in last year's list to fifth this year. But that growth is tempered by the line's practical decision to idle about a quarter of its capacity in the face of the economic crisis.
      APL has been one of the more aggressive lines in terms of laying up capacity, probably in part due to the extra capacity it has received in the past year. Yet even with its cost-cutting measures and fleet rationalization, the line was forced to invoke a rights issue (basically an initial public offering to current shareholders) to raise close to $1 billion in cash.
      Through July, 145 containerships, with a combined capacity of 600,000 TEUs, had entered the global shipping fleet, according to Clarksons Ship Register. That's 400,000 TEUs less than was expected, however, signaling that orders are being delayed successfully.
      On the other side of the equation, ship orders have all but dried up, including a nine-month stretch from fall when not a single boxship was ordered. That's helped reduce the ratio of ordered capacity to current capacity down to 41 percent, the lowest it's been since January 2004, said Alphaliner. The current global order book is 955 ships, representing 5.4 million TEUs.
      Back to ship order delays, Alphaliner reported one-third of that 5.4 million TEUs of capacity on order has been deferred, from eight months up to two years. Along with 170,000 TEUs of canceled capacity, that has lessened the impact of new deliveries this year.

Widdows

      But the vast majority of those ships aren't disappearing. They're merely being shoved into 2010 or 2011, where deliveries will also create excess capacity. At the beginning of the year, Ron Widdows, head of APL parent NOL, spoke of this capacity overhang as preventing the industry from clearly seeing its future.
      'There is a very large order book and the challenge is determining how much of this tonnage comes to market,' Widdows told the Singapore Business Times in February. 'With rescheduling there may be some alleviation of supply. But there is no question that there will be a supply overhang. The only question is how much.'
      Another drain on capacity this year has been scrapping, with 95 vessels, accounting for 185,000 TEUs, scrapped in the first half of the year, Alphaliner said. In July, scrapped capacity was forecast to reach 300,000 TEUs by the end of the year, or 10 times the typical amount. But by the beginning of August, the forecast had been increased to 350,000 TEUs.
      MSC has been near the top of the pack in terms of scrapping vessels. The second-biggest carrier has partially offset a raft of deliveries this year with the scrapping of 20 to 25 vessels, its founder said. The line has 12 ships between 11,000 and 14,000 TEUs of capacity set for delivery this year.

Aponte

      'The capacity will remain the same, but we will have less ships in the fleet,' MSC Chairman Gianluigi Aponte told the Financial Times in July. 'We will give back vessels we have on time charter, and we will be scrapping about the same amount of container capacity (as we take on).'
      MSC, like CMA CGM, has made the decision not to lay up any vessels during the demand downturn. It's a counter strategy to that of APL, Maersk Line, and Hyundai Merchant Marine.
      CMA CGM has been able to stay away from layups by returning a host of chartered vessels this year without replacing them. The line has forged links with Maersk and MSC for transpacific services, and Hapag-Lloyd and Hamburg S'd on Europe/South America links.
      OOCL, MOL and Evergreen are the other carriers who scrapped, or indicated they would scrap, significant amounts of capacity, though the list of carriers scrapping 20-year-old or older vessels grows by the day.
      Hong Kong carrier OOCL saw the biggest percentage drop in capacity since last year's feature, a 10.2 percent fall that also saw them passed by MOL.
      Evergreen is actively reducing its fleet capacity, since the Taiwanese line has no vessels on order. MOL has struggled on the business end the past couple years, and rumors even swirled in the first half of 2009 that the line was pondering selling off its container shipping unit. Those proved unfounded, but no one has scrapped more, in relation to current capacity, than the Japanese line.
      But the scrapping that's occurred may not be enough. Drewry Shipping Consultants, for example, have argued that more idling of vessels, cancellation of orders and scrapping needs to occur to account for the deliveries that are yet to come through 2013.
      'While scrapping has increased significantly since the fourth quarter of 2008, it will not alter the fleet enough to make a real difference and carriers will not start sending ships younger than 20 years to the scrap yards,' Drewry said in April.
      But MOL actually did scrap three ships younger than 20 years in the first half of 2009, so it appears anything goes.
      In the meantime, the Top 20 carriers are working their way through the order book. In last year's feature, the Top 20 had 726 ships on order, accounting for 4.97 million TEUs of capacity. By August of this year, the order book had dropped to 556 ships worth 4.12 million TEUs of capacity. That's a 17 percent drop, in terms of capacity.

Strange Bedfellows Redux. As mentioned in this year's 'Who's Making Money' (July American Shipper, pages 40-51), carriers are finding themselves involved in some odd relationships during the downturn.
      This new era of unusual partnerships is a subtle factor that tempers the true measure of a line's size and power. Gone are the days when lines strictly adhered to their alliances or one-off partnerships on niche trades. These days, everybody is collaborating with whomever they can find.
      That's had the effect of separating what constitutes active capacity and effective capacity. For example, OOCL told American Shipper that 11 percent of its capacity is laid up. Traditionally, OOCL has been part of the Grand Alliance with other Top 20 members Hapag-Lloyd and 'K' Line.
      However, in the last two years, the Grand Alliance has partnered with the New World Alliance on transpacific and Asia/Europe services. It's also taken on Zim as a Far East/Europe and transpacific operational partner. That inevitably cuts down on OOCL's opportunity to provide ships and so cuts down on the motivation to grow its fleet.
      The Grand Alliance operates ships on five loops between Asia and Europe but OOCL only provides three of the 43 ships on those services, according to ComPair Data. OOCL does provide all nine vessels on a Grand Alliance Southeast Asia/U.S. East Coast service via the Suez that stops in Cagliari, but that can hardly be considered a core Asia/Europe service.
      On the transpacific, OOCL provides 16 of 56 ships on eight services in which the Grand Alliance operates vessels. Looking more closely, all 16 are deployed on express services to the U.S. West Coast, and account for 16 of the alliance's 21 ships on those four express services. So, in essence, OOCL serves as the Grand Alliance's specialty carrier for fast transits between Asia and the U.S. West Coast.
      That as many as seven carriers operate ships or buy slots on one service, like the Grand/New World EUM/MED loop, means that opportunities are lessened for individual carriers to deploy actual capacity.
      OOCL, however, told American Shipper that extra-alliance partnerships help extend market coverage more than they discourage fleet renewal.

Shen

      'Teaming up with our actual Grand Alliance partners helps to provide better and more frequent services without a corresponding increase in capital investment, and fleet expansion is a joint alliance decision,' said Stanley Shen, investor relations director for OOCL parent company OOIL. 'But with 'external' partners this is not the case. With Zim, for example, (the Grand Alliance) wanted more access to the Black Sea market and it was a mutual benefit because Zim could swap space with us on other trades.
      'Of course, in a downturn there will be more cooperation with other alliances or carriers because it helps us to maintain services which might otherwise be unprofitable and have to be cut. There is no motivation anywhere to expand fleets at the moment purely because of the drop in demand.'
      Whether or not the new relationships have an effect on fleet expansion, it should be noted the OOCL example is but one of many.

New Addition. On a final note, there's a new entrant at the bottom of the list. As projected in the 2008 edition of 'Top 20 container lines (September 2008 American Shipper, pages 67-70), United Arab Shipping Co. has broken into the Top 20 on the back of a nearly 17 percent rise in capacity, to 153,000 TEUs.
      UASC is yet another line that is significantly leveraged into the future, with 18 ships representing 156,000 TEUs on order. That's more than double its capacity, more than any other carrier has on order relative to its current fleet.
      UASC displaced Wan Hai, 20th place in 2008, and now 21st thanks to a whopping 40 percent drop in capacity. No other lines look ready to break into the Top 20 for years to come, as both Wan Hai and 22nd place MISC Berhad appear to be downsizing operations in the face of the current demand downturn.
      A host of regional carriers makes up the rest of the 20s, and none have the financial muscle to make big capacity gains.