Container Market Outlook• An industry only 50 – 60 years old.“In April 1956, a refitted oil tanker carried fifty-eight shipping containers fromNewark to Houston. From that modest beginning, container shipping developedinto a huge industry that made the boom in global possible”“The BOX” by Marc Levinson• The demand for container trade is depending upon the demand on domesticfinished goods Vs the demand of Bulk commodities which is depending upon theinvestment activity on infrastructure works and industrial manufacturing.• In accordance with OECD household final consumption expenditure represents ingeneral around 60% of GDP. This figure is 56% for EU and 70% for USA, both beingthe main destinations of consumer finished goods.• Traditionally the growth in container trade has been a multiple of the world GDPgrowth.1
The industry has been adversely affected by a heavy delivery schedule of container ships. In 2012, a total of 207 vessels with an aggregate capacity of 1.25 million TEU were added to the market, reflecting an 8.2% increasein capacity. Heavy supply additions have persisted in 2013, however, supply growth is expected to decline in 2014 and beyond. At present the order-book stands at 20% of existing fleet.3Container Shipping - Supply0100200300400500600Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q42005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015TEU (000s) DeliveriesActual Deliveries Forecast DeliveriesSource: Alphaliner
4Container Shipping - Supply0100200300400500600Jan2009Mar2009May2009Jul2009Sep2009Nov2009Jan2010Mar2010Jun2010Aug2010Oct2010Dec2010Feb2011May2011Jul2011Sept2011Nov2011Jan2012Mar2012May2012Jul2012Oct2012Dec2012Vessel countIdle Vessels22232425262728293031-50,000100,000150,000200,000250,000300,000350,000400,000450,0002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTDAverageAgeTEUScrapping Scapped Other Deletions Average Age (Scrapped Units) A significant number of vessels are idle with 5.0% of thetotal fleet as of April 15. Scrapping is increasing to mitigate the impact ofovercapacity in the market and to eliminateinefficient vessels. The average age of scrapped vessels hasdecreased from 30 yrs in 2008 to 22 yrs in 2013. Over 400,000 TEU expected to be scrapped in2013 (~2.4% of fleet).Source: Alphaliner
Freight Rates - SCFI6Weekly Comprehensive index0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $15/1/201012/2/201012/3/20109/4/20107/5/20104/6/20102/7/20106/8/20103/9/20101/10/201029/10/201026/11/201024/12/201021/1/201125/2/201125/3/201122/4/201120/5/201117/6/201115/7/201119/8/201116/9/201121/10/201118/11/201116/12/201113/1/201217/2/201216/3/201213/4/201211/5/20128/6/20126/7/201210/8/20127/9/201212/10/20129/11/20127/12/20124/1/20131/2/201326/4/2013USD/TEUThe cost to transport one TEU from the production to consumption (Freight Rate) continued to fallinto Q1 2013 . Shipping lines have been unable to achieve rates above break-even due to capacityoversupply. They seem to engage again into a price war for market share.
The Margins in the Liner Industry7Struggling to break even.Source: Danaos Corporate Research
The Message• “Container industry is like a bus service: an industry that allows pricing to be dictated by thepassenger may soon find itself with a few services left.”Flemming Jacobs former NOL president and AP Moller-Maersk partner– i.e. The Liner companies should restore pricing power.• “Now with container trade growth of 4% - 5% there is no need to order new ships at this timeand there probably won’t be a need until 2015 or 2016.”Soren Skou Maersk Line Chief Executive• We can only but agree with both statements. They describe in a few words the depressedpresent state and the gloomy outlook of the container industry. On the basis of thefundamentals we are not optimistic that we shall see a meaningful improvement in charterrates for the next 18 months.8