c a p i t a l a d v i s o r s
April, 2009
Containerized Sea
Freight Demand:
Drivers and Outlook
2
Primary Containerized Ocean Freight Flows in 2008
EuropeNorth America
Latin
America
Africa
Asia
Middle
East
Intra-Asia
3...
3
Demand-pull is the most meaningful way to think about global container
flows
Key Points
Demand-pullConcept
1 IMF estimat...
4
Households are the most important component of the demand-pull
concept
Source: U.S. Census Bureau, European Commission, ...
5
Households make consumption and other financial decisions based not
only on ―money‖ but also on ―confidence‖
Key Points
...
ForecastForecast
6
1 Numbers in parenthesis are our estimated likelihood for each event.
Source: Bureau of Economic Analys...
7
A significant portion of the U.S. fiscal stimulus package is ―back-end weighted‖
and mid- to long-term focused—the real ...
8
(Production) markets in Asia are primarily driven by external demand
Key Points
Source: Bureau of Economic Analysis, Eur...
9
We expect a restoration of absolute ―peak‖ demand levels by 2012 in
North America and Europe
VolumeForecastinKeyFronthau...
10
We expect global flows to rebound in the 2011-2014 period
GlobalVolumeForecast
1 Under our ―Slow Recovery‖ scenario.
So...
11
The global volume distribution by trade lane suggests that ―North-South‖ and
―South-South‖ lanes cannot make up for con...
12
World trade has consistently recovered after global downturns in
economic activity over the past 35+ years
TradeGrowth,...
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MergeGlobal - 2009 Containerized demand in main markets presentation final

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2009 Containerized demand in main markets

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MergeGlobal - 2009 Containerized demand in main markets presentation final

  1. 1. c a p i t a l a d v i s o r s April, 2009 Containerized Sea Freight Demand: Drivers and Outlook
  2. 2. 2 Primary Containerized Ocean Freight Flows in 2008 EuropeNorth America Latin America Africa Asia Middle East Intra-Asia 31% 69% 42% 58% 56% 55% 64% 3.4 Asia 6.9 North America 20.1 3.4 69% Other Consumer Spending 64% 2008 GDP Trillions of US$, current prices 16 51%49% 4.5 Source: IMF World Economic Outlook , Bureau of Economic Analysis, Eurostat, The Economist, MergeGlobal analysis and estimates Global containerized sea freight flows are concentrated in three regions Freight Flows Millions of FEU 6.3 DestinationOrigin 1.5 1.4 1.0 1.2 1.0 0.8 GlobalContainerizedFreightFlows 6.3 3.2 6.3
  3. 3. 3 Demand-pull is the most meaningful way to think about global container flows Key Points Demand-pullConcept 1 IMF estimates as of October, 2008. Source: IMF World Economic Outlook , Bureau of Economic Analysis, Eurostat, The Economist, MergeGlobal analysis and estimates  Global economic activity is disproportionately concentrated in North America, the European Union and Asia  The consumer-driven portion of economic activity is even more concentrated in North America and Europe  Not surprisingly, global container flows are primarily driven by the fronthaul lanes from Asia to North America and Europe  These two lanes effectively drive supply, pricing and, ultimately, profitability in the container shipping industry  This presentation will thus focus on the 2 most important markets and how they influence industry- wide decision making 39% 61% 31% 69% 16 NA 42% 58% 23 Europe 49% 51% 15 Asia 8 Rest of the world Other Consumer Spending 87% World GDP by Area: 20081 Trillions of US$, current prices 15% 15% 16% Into NA 18% Into EU Into AsiaInto RoW 36% Intra- Asia 2008 Intercontinental and Intra-Asian Containerized Flows FEU (55 mil total) 17% 23% 18% Into NA 25% Into EU Into Asia Into RoW 17% Intra-Asia FEU-Km (605 bil total) 70% From Asia: 68% From Asia: 81% From Asia: 80% From Asia:
  4. 4. 4 Households are the most important component of the demand-pull concept Source: U.S. Census Bureau, European Commission, MergeGlobal analysis and estimates Domestic Production Import Substitution Supply Residential Food Non-food Consumables Services Transportation Household Expenditures Income Savings Fixed Assets (e.g., housing) Credit Investments Household Capacity to Spend Demand FEUs per household North America 9 Mil FEU 126 Mil HH .07 Europe 10 Mil FEU 187 Mil HH .05 TheKeyRoleofHouseholds Import FEUs per household
  5. 5. 5 Households make consumption and other financial decisions based not only on ―money‖ but also on ―confidence‖ Key Points 1 At current prices, excluding food. Source: Census Bureau, Office of Federal Housing Enterprise Oversight, Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve, MergeGlobal analysis  Much of the current discussion about timing the bottom of the recession has centered around consumers’ and businesses’ incomes, balance sheets and, crucially, access to credit  However, sustained household consumption stems from both money and confidence, which are interrelated but in ways that are not always clearly understood  Money and confidence can only be assessed in a multifactorial way: – Retail sales – Unemployment – Housing starts – Home prices – Savings rate – Household net worth – Others (e.g., consumer prices) Tracking the Confluence of Money and Confidence in North America -12% -7% -2% 3% 8% Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Retail Sales1 YoY% , monthly through February 2009 4% 5% 6% 7% 8% 9% Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Unemployment Rate Monthly through February 2009 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Housing Starts Millions (SAAR), monthly through Feb. ’09 -12% -7% -2% 3% 8% 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 Home Prices, National Average YoY% , quarterly through 4Q08 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 National Savings Rate 4-quarter moving average, through 4Q08 -20% -10% 0% 10% 20% 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 Household Net Worth YoY% , quarterly through 4Q08 AssessingtheStateofHouseholds
  6. 6. ForecastForecast 6 1 Numbers in parenthesis are our estimated likelihood for each event. Source: Bureau of Economic Analysis, Eurostat, MergeGlobal analysis and estimates 3.0% 4.5% 3.5% 2.5% 1.5%1.0% -1.5% -3.8% -6.2% -0.5% 2.8% 0.9% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 4.5% 3.5% 2.5% 1.8% -1.2% 2.1% -1.5% -4.0% -6.2% -0.5% 2.8% 0.9% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 4.5% 3.5% 2.0% 1.0% -0.2% -1.0% -2.2% -4.5% -6.2% -0.5% 2.8% 0.9% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 2.5% 1.5%1.0% 0.0% -0.5% -1.0% -2.5% -5.0% -6.2% -0.5% 2.8% 0.9% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 U.S. Quarterly Real GDP Growth Under Four Different Scenarios: 1Q08-4Q10F Seasonally adjusted at annual rates (SAAR)1 Upside Surprise (15%) False Start (20%) Slow Recovery (40%) New Normal (25%) Forecast Forecast Highly volatile periods are best analyzed as "shapes" rather than point estimates 1.8% 1.5% 0.5% 0.0% -0.5% -1.5% -3.4% -5.8% -1.1% -0.4% 2.1% 1.0% Europe Near-termMacroeconomicScenarios
  7. 7. 7 A significant portion of the U.S. fiscal stimulus package is ―back-end weighted‖ and mid- to long-term focused—the real stimulus to the world economy will come from the collapse of commodity prices Key Points Source: Wall Street Journal, IMF, MergeGlobal analysis  Planning and executing expenditures for $790 billion (as approved by U.S. legislators) necessarily carries with it a time lag that could be longer than the time it takes for the economy to bounce back ―on its own‖  Moreover, by our count, at least a fifth of the package is devoted to long-term research and development (R&D) and infrastructure projects, the impact of which is unlikely to be felt before the end of 2009  In reality, the true stimulus to the world economy will likely come from the share-of- wallet impact of falling commodity prices almost across the board—notably oil  Wal-Mart (with February same-store sales up 5.1% year-over-year) has already started showing ―glimmers of hope‖ towards what we expect to be a consumer-led recovery 9% R&D and non-maintenance infrastructure 20% 38% Tax credits and tax relief Aid to individuals and states 32% Other U.S. 2009 Fiscal Stimulus Package Breakdown Total Package: $787 Billion 50 75 100 125 150 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 World Commodity Prices: January 2008 – February 2009 January 2008 = 100 Commodity food and beverage Commodity fuel Agricultural raw materials Commodity metals The―Real‖EconomicStimulus
  8. 8. 8 (Production) markets in Asia are primarily driven by external demand Key Points Source: Bureau of Economic Analysis, Eurostat, IMF, MergeGlobal analysis and estimates  As the manufacturing epicenter of the world economy, Asia directly responds to demand changes in the main consumption markets of North America and Europe (up or down)  The bulk of Intra-Asian freight flows are associated with the transportation of components and subassemblies feeding (primarily Chinese) export- oriented factories  Recent commentary of a ―decoupling‖ of Asian economies from Western markets is, we believe, premature  The ―shape‖ of recovery in North America and Europe over the next 12- 24 months will thus be the primary driver for trade and broader economic activity in Asia 0% 2% 4% 6% 8% 10% 12% '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Developing Asia Industrialized Asia EU27 US Annual Real GDP Growth by Area: 1999-2008 AsiaRespondstoExternalDemand -10% -5% 0% 5% 10% 15% 20% 25% '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Westbound Asia-Europe Eastbound Transpacific Intra-Asia Containerized Sea Freight Annual Volume Growth by Trade: 1999-2008
  9. 9. 9 We expect a restoration of absolute ―peak‖ demand levels by 2012 in North America and Europe VolumeForecastinKeyFronthaulTrades 1 Under our ―Slow Recovery‖ scenario. Source: MergeGlobal analysis and estimates 3.2 6.3 ’08 0.9 1.6 3.1 6.0 ’09 1.0 1.7 3.1 6.1 ’10 1.1 1.8 3.3 6.5 ’11 1.2 2.0 3.4 7.0 ’12 1.2 2.1 3.6 7.3 ’13 1.3 2.1 3.7 7.6 ’14 0.8 1.1 2.3 4.4 ’02 0.9 1.2 2.5 4.9 ’03 1.0 1.4 2.8 5.6 ’04 1.0 1.7 3.1 6.1 ’05 3.4 1.9 3.3 6.8 ’06 1.1 1.9 Primary Food 1.1 Intermediate Consumer 8.8% 4.8% 6.8 ’07 1.0 1.7 Industrial Eastbound Transpacific Containerized Volumes: 2002-20141 Millions of FEU Forecast Consumer 12.6% 6.8% 1.7 4.7 ’04 0.8 1.5 1.8 5.1 ’05 1.0 1.7 2.0 5.7 ’06 1.1 2.1 2.4 6.8 ’07 1.1 1.2 2.2 2.8 1.4 2.6 7.4 ’12 1.3 3.6 9.2 2.4 3.2 8.4 ’14 Primary ’13 2.1 2.5 6.9 ’08 1.1 2.0 2.4 6.6 ’09 1.0 2.0 2.4 6.6 ’10 1.1 Food 2.5 6.8 ’11 0.6 1.1 1.3 3.8 ’02 2.0 1.3 1.5 4.3 ’03 0.8 1.4 Industrial Intermediate 0.7 Westbound Asia-Europe Containerized Volumes: 2002-20141 Millions of FEU Forecast Underlying U.S. GDP Growth Projection 2.6% 3.5% 3.1%3.0% 1.0% -2.8% ’09 ’10 ’11 ’12 ’13 ’14 3.4% 2.5% 2.8% 1.8% 0.5% -2.5% ’09 ’10 ’11 ’12 ’13 ’14 Underlying EU27 GDP Growth Projection Peak Peak
  10. 10. 10 We expect global flows to rebound in the 2011-2014 period GlobalVolumeForecast 1 Under our ―Slow Recovery‖ scenario. Source: MergeGlobal analysis and estimates World’s Intercontinental and Intra-Asian Containerized Sea Freight Traffic: 1998-20171 Millions of FEU Forecast 83 79 76 73 68 63 58 55535554 50 46 42 39 36 3333 30 28 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 9.2% 7.7% 5.7% -3.6% 2.9% 5.6% 8.0% 8.5% 7.1% 4.2% 3.9%2.5% 5.4% Annual %
  11. 11. 11 The global volume distribution by trade lane suggests that ―North-South‖ and ―South-South‖ lanes cannot make up for contractions in the Big 3 (AS, NA, EU) in ’09 (not to mention that many of those lanes are themselves connected to the Big 3) LaneVolumeDistribution Source: MergeGlobal analysis and estimates 1.2 1.0 6.93.2 1.6 1.5 EU->NA 1.4 1.0 1.03.46.36.9 NA->AS NA->EUAS->NA EU->ASAS->EU All other To-From AS, NA and EU: 64% ASME NALA LANA EUME LAEU World’s Intercontinental Sea Freight Traffic by Lane: 2008 Millions of FEU
  12. 12. 12 World trade has consistently recovered after global downturns in economic activity over the past 35+ years TradeGrowth,GDPGrowthandGlobalization Source: IMF, MergeGlobal analysis -4 -2 0 2 4 6 8 10 12 14 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 World Trade Volume World Real GDP AnnualPercentChange(%) Trade Avg. GDP Avg. Real World GDP and Trade Growth: 1970-2007 Key Points  Global trade has recovered from economic contractions in the past and will do so again this time around (most likely within the next 18-24 months)  Claims of a ―reversal‖ of globalization are overblown, in our view: – Deep international linkages are difficult to reverse – Shippers’ supply chain design and implementation decisions typically carry long-term implications – Asian economies have based their export-led growth models over the decades not only on labor cost arbitrage but, crucially, on a highly capable production base
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