Uploaded byIrakli Kandelaki
Shipping industry challenges and the way forward
The shipping industry has been unprofitable for five consecutive quarters, triggering industry consolidation. Maersk Line plans to acquire Hamburg Sud to grow its scale and enable cost advantages. While demand for shipping is improving, supply continues to outpace demand, keeping freight rates low. Digitalization of transactions through Maersk's website has improved the customer experience, but challenges remain for the financially strained industry unless freight rates recover substantially.
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Shipping industry challenges and the way forward
- 1. SHIPPING INDUSTRY CHALLENGESAND THE WAY FORWARD Irakli Kandelaki, Georgia Country Manager, Maersk Line
- 2. Slide 2 The challenge:the shipping industry has been unprofitable for five consecutive quarters… 5 quarters5 quarters 4 quarters 2.1% 3.0% 2.0% -0.3% -17.1% -17.6% -15.9% -13.1% 0.7% 12.6% 17.1% 7.4% 1.9% -5.0% -6.8% -10.5% -10.1% 2.2% 5.5% 0.3% -1.9% 0.6% 2.7% -0.9% 0.9% 2.5% 4.9% 3.8% 7.1% 4.3% 0.3% -4.6% -6.1% -7.3% -9.6% -3.5% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 08Q2 08Q4 09Q2 09Q4 10Q2 10Q4 11Q2 11Q4 12Q2 12Q4 13Q2 13Q4 14Q2 14Q4 15Q2 15Q4 16Q2 16Q4 Industry EBIT-margin, (%) Note: Industry includes global top 20 carriers where financials are available including Maersk Line; *16Q4 is estimated industry EBIT-margin Source: Company Reports and Alphaliner *
- 3. The lack ofa sustainable profit level has triggered an acceleration in industry consolidation… Consolidation wave is rolling again – 8 top 20 players disappeared in last 2 years Wave 1 Wave 2 96 98 00 02 04 06 08 10 12 14 16 18 Wave 3 31%27% 36% 43% 45% 57% Announced, not closed top-5 market share Disclaimer: The proposed acquisition of Hamburg Süd is subject to regulatory approvals and due diligence 53% 66% top-5 market share longhaul trades
- 4. Maersk Line toacquire Hamburg Sud Road ahead: Disclaimer: The proposed transaction is subject to regulatory approvals. None of the information provided in this presentation should be construed in any way as a representation or undertaking with regard to the position to be adopted by Maersk Line
- 5. Summary fleet statistics Worldrank (% of world fleet) 1 / 16.0% 9 / 2.7% 1 / 18.7% Capacity (‘000 TEU / Vessels) 3,322/ 633 561/ 108 3,883/ 741 Chartering (Vessels / Ratio) 377/ 47% 62 / 44% 439 / 46% Vessel age (TEU Weighted) 9.2 yrs 5.9 yrs 8.7 yrs Orderbook, TEU / vessels 365,880 / 26 30,640 / 8 396,520 / 34 Orderbook, % of existing capacity 11% 5% 10% Source: Maersk Line as of 30 September 2016, Hamburg Süd 2015 key figures (container ships) and Alphaliner as of 24 April 2017 If approved,this acquisition will grow our scale to further enable cost advantages ... + Disclaimer:Theproposed transaction is subject to regulatory approvals. Noneof theinformation provided in this presentationshould beconstrued in any way as a representationor undertaking with regardtotheposition to beadopted by MaerskLine
- 6. There has beena tremendous amount of shuffling MAERSK LINE REMAINS A STABLE PARTNER AT THE TOP Source: Alphaliner, capacity as of May 16, 2016, SeaIntel Sunday Spotlight Issue 262 8th 13th 16th 6th 11th 14th 10th 15th THE Alliance 3rd 4th 5th 9th 12th Ocean Alliance 1st 2nd 2M Alliance 2M Alliance Ocean Three CKYHE G6 Alliance CKYE TA G6 OA G6 TA 2M 2M O3 OA O3 TA CKYE OA LEGEND
- 7. Market freight rateshave continued to be a challenge in 2016 600 700 800 900 1,000 1,100 1,200 1,300 1,400 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 CCFI composite index (2003 = 1000) -28%
- 8. Estimate Supply / demandgap is still not contracting, but demand is improving 8.1% 6.2% 4.7% 0.7% 2.3% 3.9% 4.7% 6.3% 5,4% 2.3% 2.9% 2.9% 3.2% 4.0% 4.1% 4.1%3.5% 1.9% 0.0% 0.1% 1.7% 2.4% 2.5% 5,2% 4,7% 3.7% 3.1% 2.3% 3.3% 3.5% 3.7% 3.4% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Global effective capacity Global headhaul demand Growth y/y In Q1-17 effective capacityis expectedtooutgrow headhauldemandgrowthby 0,7%. Increased number of roundtrips and change in deployment mainly increased effective capacity in H2 2016, compared to nominal capacity 7.3 7.9 8.7 8.5 7.3 5.6 3.3 1.5 0,8 1.1 1.9 3.33.1 3.6 3.6 3.4 Norminal supply growth (%)
- 9. Key conclusions Container demand will growonly modestly in the coming years. Many carriers are already financially strained. It is hard imagine that all remaining shipping lines will survive without a fundamental rate level recovery. Shippers and customers need a reliable partner for their transportation solutions and we believe that Maersk Line is the obvious safe choice in a very unstable period!
- 10. Our customers askfor more efficient interactions – digitised transactions is the answer of shippers say that Maersk Line’s website enables them to offer better service to their customers of our customers say that they have grown their business via the Maersk Line website of our bookings are now done online It is easy to become a Maersk Line customer Spot prices and quotes instantly Book instantly at the quoted price and pay online immediately Immediate booking confirmation Maerskline.com offers additional services Immediate online issue resolution My invoice is always correct 1 2 3 4 5 6 7 Our ambition: 7 Customer outcomes through digitalization:
- 11. The future Maersk: astrong container shipping, logistics and ports company Our unique position in Transport & Logistics gives us a solid starting point to build on * The Maersk Liner Business includes also Safmarine, Seago Line, SeaLand, Mercosul Line and MCC Transport.
- 12. Maersk: The globalintegrator of container logistics, providing global supply chain solutions with a great customer experience
- 13. QUESTIONS? Thank you forattention! Contact Details: E-mail: irakli.kandelaki@Maersk.com Tel.: +995 577 96 02 02 LinkedIn: Irakli Kandelaki, Country Representative at Maersk Line
Editor's Notes
- #2 presentation about current challenges in global container shipping Industry and how we see the way forward.
- #3 2016 was probably the most challenging year in Container Liner Shipping. The industry has been unprofitable for five consecutive quarters. Starting from quarter 4 2015 and the whole 2016. We also saw one bankruptcy. If we look at this graph, where line shows Industry EBIT margins, so industry profitability, there is a cycle of profitable and unprofitable periods. Container shipping was making losses for 5 quarters in a row from quarter 4 2008 and the whole 2009. After again in 2011 industry was in red for 4 consecutive quarters. What happens is that when demand is growing well and margins are good, with optimistic forecast, this leads to strong vessel ordering, creating overcapacity and leading to declining freight rates. Low freight rates lead to shipping lines making losses.
- #4 The lack of sustainable profit levels lead to accelerated industry consolidation. We have 8 top 20 players disappearing in last 2 years. If we look back in history: First strong wave of consolidation was in late 90-s. When P&O merged with Nedlloyed, NOL with APL and after Maersk acquired Safmarine and SeaLand. Second wave was in years 2005-2008. Where biggest event was Maersk acquisition of P&O Nedlloyd, also there was Delmas takeover by CMA. 3rd wave and the biggest wave is happening now. We have Hapag-Lloyd merging with CSAV and UASC, Chinese carriers going together, CMA with APL, Japanese carriers’ merger and Maersk Line intended acquisition of Hamburg Sud. Currently top 5 carriers have around 45% of global container market share. If all currently planned mergers and acquisitions are approved and happen Top 5 will have 57% share.
- #5 Last Year Maersk announced that because of continuous overcapacity in the industry our preferred way of growth is mergers and acquisitions VS ordering new ships and growing market capacity even more. - On 1st December 2016 public announcement was made on Maersk Group desire to acquire Hamburg Sud. - On 14 March Sale and Purchase agreement was signed, which was approved by boards of both companies on 28th of April. Announced purchase price is 3,7 billion Euro. - On Apr 10 European Commission approved merger – subject to conditions. Still subject to further approvals it is expected that transaction will be completed by end of the year. Until then, Hamburg Süd and Maersk Line will continue business as usual as separate and independent companies.
- #6 Currently Maersk Line is world’s largest container carrier and Hamburg Sud is 9th largest. If approved this acquisition will grow Maersk liner business scale and further enable synergies and cost advantages. There will be more direct port pairs, lower transit times and increased sailing frequency. Container capacity will increase to nearly 3.9 million TEU, which is almost 19% of total world capacity. Fleet vessel age will also improve from 9.2 years to 8.7 years. Which means that HSUD has very new fleet compared to industry average.
- #7 Industry consolidation is an important trend and alliances are part of this. In general, we welcome consolidation – M&A as well as alliances. The container shipping industry is fragmented and consolidation will enable carriers to create economies of scale and to optimize networks. This will in the long-run benefit customers. Currently there is a lot of re-shuffling of alliances. You can see same from this complicated graph. Recently 2 new alliances started operations which is Ocean Alliance and The Alliance. 2M alliance which consists of industries 2 biggest players Maersk and MSC is already there for years with proven operational setup. Our alliance delivers leading schedule reliability in the Asia-Europe trade and with our network improvements, the new East-West Network is composed to perform even better. That said, in the short-term, creation of new alliances is disruptive for customers. For example, when a container shipping company moves from one alliance to another both alliances need to redo their networks. There will be an implementation period in which capacity and products change. In the long run alliances benefit the industry and customers.
- #8 The main problem of the industry is low freight rates. If we only look at last 2 years 2015 and 2016 freight rates declined more than 28%. Because of overcapacity and supply demand imbalance. There was a massive rate decline in 2015 and first half of 2016, around 38% drop in 18 months, now we start to see little bit of improvement for the last 3 quarters.
- #9 This complicated graph shows Increase in global effective capacity VS increase in headhaul demand. Horizontal blue line shows global headhaul demand growth percentage and darker vertical bars show global effective capacity growth percentages per quarter. For example in Q1 2017 (red circled area) effective capacity change outgrew demand growth by only 0,7%. Demand growth was high at 4,7%. Looking at last 2 years 2015 and 2016 capacity was growing faster than demand in every quarter. In Q2 2017 it is expected that demand growth will be higher than capacity growth first time since beginning of 2015, which if true is very positive for the industry. Estimated that demand growth will be 1.4% higher than capacity growth.
- #10 So basically to summarise what we have discussed: - Container Demand will grow only modestly in the coming years; - Market is tougher than ever before and many carriers are having financial difficulties; - Without fundamental rate recovery it is difficult to imagine that all remaining container shipping lines will survive; - International trade participants need reliable and financially stable partner for transportation and Maersk Line is the obvious safe choice in turmoil times.
- #11 When analysing current needs of customers, they ask for more efficient interactions and our answer is modern digitised transactions. We believe that shipping should not be more complicated than making transactions in internet bank or ordering products in online shops. For example internet banking is quite advanced in Georgia and I do not remember last time I actually physically went to the bank – as all transactions are done online and mostly by mobile these days. Shipping also can be as easy. We have already heavily invested in digitalisation and continue investing in new digital products to change customer experience for the better. Through close partnership, understanding customer needs and digitalisation Maersk Line aims to create efficiencies, reduce cost and grow customer business. By driving this, currently: - 97% of our bookings are now done online; - 73% of our customers say that they have grown their business via the Maersk Line website; - 81% of shippers say Maersk Line’s website enables them to offer better service to their customers.
- #12 On 22nd September last year we announced the Future Maersk. Group was divided into 2: Energy division and Transport and Logistics division. Maersk Transport and Logistics division consists of 5 companies shown on the slide. It is: - Maersk Line – the world’s biggest container carrier; - APM Terminals – one of the largest container terminal operator; - Damco – which is Innovative Freight Forwarding and Logistics Service provider company; - Svitzer – doing different port services like towage, salvage, etc. And MCI – Maersk Container Industry – that produces containers – with main focus on reefer container technology. More integration of these businesses unlocks more immediate synergies across our brands improving efficiencies and costs. https://www.youtube.com/watch?v=Mv9tuWkWDv8
- #13 So together we aim to become the global integrator of container logistics, providing global supply chain solutions with a great customer experience. Maersk will provide Simple solutions to customers complex supply chain needs; We will elevate the customer experience through digital innovation; And offer the industry’s most competitive container transport network to every market in the world.