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DHL Global Forwarding, Freight

OCEAN FREIGHT
MARKET UPDATE
September 2017

1
Contents

TOPIC OF THE MONTH


1H 2017 results – Carriers OOCL, Hyundai Merchant Marine, Yang Ming, Maersk, & Hapag-Lloyd

HIGH LEVEL DEVELOPMENT

MARKET OUTLOOK
Freight Rates and Volume Development

ECONOMIC OUTLOOK & DEMAND DEVELOPMENT

CAPACITY DEVELOPMENT

CARRIERS

DID YOU KNOW ?


? Global container volumes growth in H1

DHL Global Forwarding | OFR Market Update | Sep 2017 2


Topic of the Month – H1 2017 Results
Carriers OOCL, Hyundai Merchant Marine, Yang Ming, Maersk, & Hapag-Lloyd
PROGRESS AND NET LOSSES

OOCL MAERSK

OOCL posts $21m net losses on its container shipping and logistics business. The first half of the year marks a strong recovery for the carrier. Operating
However, operating profits are a positive $22m (up at $31m when adding profits are at a firm $364m, whilst net profits top at $339m, after five
JVs and other affilitated companies) – this marks a significant improvement consecutive negative quarters.
over 2016’s $203m operating loss. This improvement is driven by a 22% increase in freight rates, whille
Volumes are up +6.8%, whilst the average revenue per box grew by 7.8%. volumes only went up 2% at 5.4mTEUs – Maersk favors profitability over
market share.
HYUNDAI MERCHANT MARINE The cyber attack is expected to have a $200 to 300m impact on the carrier’s
It is yet a ninth consecutive negative quarter for the South Korean carrier, financials, mainly in Q3, due to the extra operating costs of July (shutdown +
and this despite a 46% growth in volume (ca. 1mTEU vs. 0.7mTEU in 2016). rebuilt of the IT infrastructure).
Revenue only grew by 33% due to downtrading routes. HAPAG-LLOYD
As a consequence, HMM records $83m operating loss, with a negative
-8.6% operating margin. The results for Q2 mark significant improvements over that of Q1. Revenue
progressed by 12% at €2.4m (also a 28% year on year increase over
YANG MING 2Q2016).
Net profit skyrocketed to €14m, when the carrier scored a €63m net loss in
The carrier performs below the results of its other Taiwanese counterparts, as
1Q2017.
it records $15m in net loss. That being said, it is a large improvement over
Volumes are up 21% compared to 2Q16’s, at 1.8mTEUs. Freight rates only
2016’s $148m net loss.
grew 4%. All the data mentionned here does include the contribution of UASC,
Yet, it pales in comparison with both Evergreen’s and Wan Hai’s positive
as the merger completed on 24th May.
results for this half year.
Source: Alphaliner, Drewry, Investopedia

DHL Global Forwarding | OFR Market Update | Sep 2017 3


High Level Market Development – Supply and Demand

CAGR 2’500
ECONOMIC 2017F 2018F 2019F 2020F 2021F WORLD
(2017-2021)
OUTLOOK 1) CONTAINER 2’000
EURO 1.8% 1.8% 1.7% 1.7% 1.8% 1.7% INDEX (WCI)2) 1’500
GDP GROWTH
BY REGION 1’000
MEA 2.6% 3.4% 3.7% 4.1% 4.0% 3.8%
500
AMER 2.1% 2.6% 2.5% 2.4% 2.4% 2.5%
0
ASPA 4.8% 4.6% 4.6% 4.5% 4.7% 4.6% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
15 16 17

SHANGHAI 1’200
DGF World 3.0% 3.1% 3.1% 3.1% 3.2% 3.1%
CONTAINERIZED 1’000
FREIGHT INDEX 800
SUPPLY VS 10.0 (SCFI)3) 600
DEMAND Demand Growth
400
GROWTH 4) 8.0 Supply Growth 200
0
6.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
% Growth 15 16 17
4.0
BUNKER 800
2.0 PRICE 600
INDEX 5)
0.0 400
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
200
Source: 1)real GDP, Global Insight, Copyright © IHS, Q2 2017 . All rights reserved; 2) Drewry Container Forecaster –
BIX 380
Forecast global supply-demand balance; 3) Shanghai Shipping Exchange, in USD/20ft container and USD/40ft container for 0
US routes, 15 routes from Shanghai, 4) Global Insight, Drewry, 5) Bunker Index, in USD/metric ton, Bunker Index MGO (BIX BIX MGO Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
MGO) is the Average Global Bunker Price for all marine gasoil (MGO) port prices published on the Bunker Index website,
15 16 17
Bunker Index 380 CST (BIX 380) is the Average Global Bunker Price for all 380 centistoke (cSt) port prices published on the
Bunker Index website

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Market Outlook September 2017 – Major Trades

Rates are stabilizing – at a high level


EXPORT REGION IMPORT REGION CAPACITY RATE EXPORT REGION IMPORT REGION CAPACITY RATE
AMNO = + AMNO = +
EURO AMLA
AMLA - ++ ASPA - =

ASPA = - EURO = +

MENAT = - MENAT = =

SSA = = SSA = +

AMLA = + ASPA = +
AMNO ASPA
ASPA = = AMNO = +

EURO = = AMLA + -

MENAT = = EURO = +

SSA = = MENAT = =

OCEANIA = +
Strong Moderate No Moderate Strong
KEY ++ + = - --
Increase Increase Change Decline Decline
Source: DGF

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Market outlook on smaller
Market Outlook August 2017 – Ocean Freight Rates Major Trades trades available in the
back-up

OCEAN FREIGHT RATES OUTLOOK

ASPA – EURO Pre Golden week rush expected where carriers are looking into a mid SEP rate increase. Some carriers have deployed extra loaders.
EURO – ASPA & FAK level with slight decrease to gain spot shipments; long term pricing not impacted
MEA

ASPA – AMLA Space to AMLA continues to be tight. There will be 6 extra loaders to Brazil and Argentina in Sept to cater to rollover cargo and also the
rush for Golden Week. Rates have tapered down but still at considerable high level. Pre-booking of up to 21 days in advance is crucial.

ASPA – AMNO Space continue to be tight especially ex SPRC to PSW. Some carriers have deployed extra loaders to clear backlog for direct customers.
2 scheduled GRIs on Sep 1st & Sep 15th 2017.
EURO – AMNO Well utilized vessels and lifting still strong in Aug. Short term rates will remain unchanged the rest of the quarter, trend is stable but
increasing.

ASPA – MENAT Space and Rates have been stabilized in August into EMED and Middle East, but Carriers are still limiting our low paying cargo on board on
a certain volume on weekly basis.
Port congestion in Kuwait has extended to Shuaiba port. The congestion situation will not be improved in a short period of time.
South Africa rates have increased drastically over the months, and Carriers are now trying to go for another increase of USD500/TEU in
September.

ASPA – ASPA GRI to be implemented on 1st Sep for ASPA to IPBC has been announced. Please continue to place bookings at least 2-3 weeks in
advance as space is still tight. Chittagong continues to be congested.

Source: DGF

DHL Global Forwarding | OFR Market Update | Sep 2017 6


Economic Outlook & Demand Development

Q2 GDP GROWTH: SLOW AND STEADY

Stronger Q2 GDP growth v. Q1at 2.1%. Solid results from ES, AT, FR, and BE. Soft slowdown in DE (0.7 to 0.6% GDP growth Q1 vs. Q2)
UK GDP increased 0.3% in Q2 – projected to reach a total 1.4% growth in 2016, and 1.0% in 2018.
EURO
 UK’s PMI increases (+2 in August), both in services and manufacturing industries.

US: stronger Q2 GDP growth v. Q1 (2.6% annualized), driven by personal consumption


AM
 US PMI (+2.1) also show an improved hiring trend.

JP GDP grew 1.0% quarter on quarter / 4.0% annualized in Q2. Growth is supported by consumer spending, while net exports fell for the first
time since 2015.
AP CN: strong y/y GDP growth in Q2 at 6.9%. However, industrial production, retail sales and construction deceleration tend to weaken.

 CN is threatening to end scrap and waste import


 JP’s PMI shows signs that there is a risk for softened or even negative growth in Q3

IN: Government introduced the goods and services tax (GST), creating short-term disruptions in the economy for the coming months. The
EMERGING planned long-term benefits of the tax include reduced logistics costs, more transparency in the tax system, and e-commerce facilitation.
MARKETS RU: gradual recovery, although agressive enforcement of US sanctions on European energy infrastructures could undermine it.
BR: reduced political turmoil and lower inflation make for better economic outlook.
Source: Global Executive Summary, IHS Markit, Aug 2017. The Purchase Manager Index is an IHS proprietary metric that polls purchasing managers to understand if they are to order more or less in the future, hence giving a representative estimation
of the global business sentiment. Assessed monthly, a PMI at 50 is considered neutral, expanding above 50, and shows business shrinking below 50.

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Capacity Development

CAPACITY DEVELOPMENT

Extra loaders are being deployed on various long-haul routes since late July as carriers take advantage of strong cargo demand. The additional capacity has been
added to the Asia - South America, Asia - West Africa, Far East - USEC and Far East - Europe routes. At the same time carriers push for rate increases especially
on the Asia-Europe and Transpacific routes.

Strong cargo demand is so far well absorbed by the available tonnage and has had little impact on the idle fleet.
Maersk Line, Hamburg Süd and CMA CGM will join services on the Europe - ECSA trade. The new services will replace Hamburg Süd’s cooperation with MSC
who in turn have announced a weekly joint service with Hapag-Lloyd on that trade.

Increasing volumes and raising spot rates on the Far East – West Africa trade have prompted COSCO and GSL (Gold Star Line, an associate company of Zim) to
launch an extra loop, offering sailings on a fortnight basis on that trade.

Source: Alphaliner, carriers

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Carriers

MAERSK SELLS MAERSK OIL

A.P. Møller-Maersk (APM-M) has announced on 21 August the sale of Maersk Oil to the French oil and gas major Total S.A. for a total enterprise value of $7.45 Bn.
The sale will completely terminate the energy business of the group – a first step towards the transformation in a fully-fledged transport and logistics company.
This marks a strategic change in the group’s strategy – Maersk Oil was established in 1962 and became the second largest source of the group’s revenue, with a
14% share.

The three remaining energy-related business units of APM-M will be separated from the group by the end of 2018, in line with a strategy that already led to the
acquisiton of Hamburg-Süd.

Source: Alphaliner, carriers

DHL Global Forwarding | OFR Market Update | Sep 2017 9


Did You Know ?

GLOBAL CONTAINER VOLUMES GROWTH IN H1

Average global container growth, 1H ’17: 6.7% (est.)


 Global Q2 growth: 7.4%
 Global Q1 growth: 5.9%

Growth is on track to reach an annual six-year high

South Asia ports are driving the growth (+9.3% in H1), while Middle East
regions lag behind (still posting growth at +3.1%)

At the country level, China (+8.4%) and the US (+8.2%) post the highest
growths.

At port level, Ningbo, Guangzhou and Hong Kong enjoy a double-digit


growth, respectively at +14.4%, +11.7% and 10.5%.

Source: Alphaliner

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BACK-UP
11
Market Outlook September 2017 – Ocean Freight Rates Additional Trades (1/2)

Ocean Freight Rates Outlook

EURO – AMLA from the end of September capacity will drop by 20% on the SAEC trade, as 3 services will be consolidated into 2 services. As vessels are
already very well utilized (around 90 – 100%), this will end up into considerable rate increases as of October / Q4.

EURO – SSA unchanged stable, well utilized vessels

US – MENAT Space is tight from USEC & USGC Ports but better this month.
Bookings are 2-3 weeks out carriers with larger ships (Such as MSC) is in better shape.
It appears that current rates will stay the same until end of September or October.

US – SSA Space is available to all destinations in South & West Africa.


E.Africa is tighter due to routing via congested transshipment ports.
Rates are stable and there is no increase in the horizon for now.

US – AMLA GRI from US to WCSA implemented by direct carriers. All other lanes US to ECSA, Caribbean and CENAC remain static. Services to WCSA
remain over-subscribed, all other trades space open.

AMLA Exports FCL market is facing extreme space issues from the ECSA. Rates have doubled and tripled in some cases on certain trade lanes.
Situation could last through December 2017. Bookings should be placed 2-4 weeks out to ensure space.
Space ex SAWC tight to the US and along the WCSA.
Carriers seeking shorter validity on typical yearly negotiated contracts
Space to EURO in AUG onward from SAEC could be reduced by 1 sling, more information to follow

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Market Outlook September 2017 – Ocean Freight Rates Additional Trades (2/2)

nothing to be highlighted Freight Rates Outlook


EURO MED - AMNO Nothing to be highlighted

EUR MED – AMLA Nothing to be highlighted

EURO MED – ASPA Stable, nothing to be highlighted


EURO MED – MENAT Stable, nothing to be highlighted

EURO MED – SSA Nothing to be highlighted

ASPA-SPAC Space situation from North Asia, especially China and South East Asia to Australia and New Zealand remain tight in August and
September. Scheduled GRI in September for all southbound trades.

Source: DGF

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Market Outlook – Volume Outlook in Main Trade Lanes, 2017 Estimate & Growth
Forecast 2017/20 in %
2017e, in mTEU 2017e-2021e CAGR, in %

N O R T H N O R T H
A M E R I C A A M E R I C A
I n c l . 3.5 mTEU +1.2% 7.6 mTEU +0.7% I n c l .
M E X I C O F A R E A S T M E X I C O

1.7 mTEU +0.9% 11.9 mTEU +1.6% 15.8 mTEU +0.9%

3.5 mTEU 2.0 mTEU


+1.3% +0.7% 1.7 mTEU +1.3% E U R O P E 7.0 mTEU +0.9% 7.0 mTEU +0.9%
L A T I N L A T I N
I n c l . M E D
A M E R I C A 0.2 mTEU +3.0% 4.5 mTEU +2.8% A M E R I C A
INTRA ASIA
excl. Oceania

35.1 mTEU +3.1%

GLOBAL CONTAINER TRADE 2017e 138.5 mTEU +2.3% CAGR 2017e-2020e

 Mid-term growth is mainly driven by Asian tradelanes.


Source: Drewry

DHL Global Forwarding | OFR Market Update | Sep 2017 14


Global Capacity Development all Trades

Highest scrapping level ever Average age Idling remains high 3.0% Returning Net capacity growth remains low
capacity
[TTEU] well
absorbed Net capacity growth 2017E
27 28 28 1,480 1,359 1,324 7.7%
24 23 23 23 by
19 20 demand
+239%
602 -1.8%
809 779
(May 2017)
[TTEU] 654 595 2.7%
444 381 356
351 332 -3.3%
193 205 228
131 75

2009 2010 2011 2012 2013 2014 2015 2016 Apr 17 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Scheduled Post-ponements Scrapping Net capacity
YTD 2009 2010 2011 2012 2013 2014 2015 2016 capacity growth growth

Very few deliveries expected post 2017


Orders placed by year [TEU m] Vessel deliveries by year [TEU m]
3.2

+33%
2.2 1.7
2.0 15,300 TEU 1.5
1.8 1.4 1.4 1.4 1.3
1.2 1.2 1.3 1.2
1.2 1.1 0.9

0.6 0.4
0.1 0.2
0.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Apr17 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E
YTD
Source: Alphaliner (May 2017), carrier views

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Carrier Mergers, Acquisitions and Alliances

M E R G E R S A N D A Q U I S I T I O N S

United Hyundai
China OOCL CMA Hapag Hamburg Maersk Yang Hanjin
Cosco Evergreen APL Arab Merchant MSC K Line MOL NYK
Shipping TBC CGM Lloyd Süd Line Ming Shipping
Shipping Marine
     
HYUNDAI
EVER OCEAN NETWORK YANG
CHINA COSCO SHIPPING CMA CGM HAPAG-LLOYD/UASC MERCHANT MAERSK LINE MSC Bankrupt
GREEN MARINE EXPRESS (ONE) MING

A L L I A N C E S
F O R M E R A L L I A N C E S P R E S E N T A L L I A N C E S

CMA CGM MAERSK LINE OOCL


MAERSK LINE CHINA SHIPPING MSC OCEAN CMA CGM
2M OCEAN 3 2M
MSC UNITED ARAB HMM (strategic ALLIANCE CHINA COSCO SHIPPING
SHIPPING COMPANY cooperation) EVERGREEN

HAPAG-LLOYD HYUNDAI COSCO


HAPAG-LLOYD/UASC
MOL MERCHANT EVERGREEN K-LINE
G6 MARINE CKYHE THE ALLIANCE ONE
NYK HANJIN YANG MING
OOCL YANG MING
APL SHPPING

Source: Carriers

DHL Global Forwarding | OFR Market Update | Sep 2017 16


Drewry’s Altman Z-Score as at June ‘17

Asset Book Value of Liabilities Liabilities Retainted


Company Period Period End Unit Net Sales EBIT Asset Total Z-Score
Current Equity Total Current Earnings
AP Moller-Maersk 3 months 31-Mar-17 mn US$ 8,963 1,784 38,380 11,494 560 37,820 11,406 4,988 2.40
OOIL (parent of OOCL) Annual 31 Dec 16 mn US$ 5’298 -138 9,405 2’566 4’519 4’885 1’313 4’457 1.89
CMA CGM 3 months 31-Mar-17 mn US$ 4,620 -260 18,812 5,940 5,029 13,783 6,006 4,637 1.72
Wan Hai 3 months 31-Mar-17 mn NT$ 13,877 14 72,584 27,233 32,757 39,827 15,164 9,876 1.65
Hapag-Lloyd Holding 3 months 31-Mar-17 mn EUR 2,132 4 11,206 1,573 4,940 6,266 2,386 3,090 1.54
NYK Group Annual 31-Mar-17 bn Yen 1,924 -18 2,045 575 592 1,452 458 202 1.36
K Line Group Annual 31-Mar-17 bn Yen 1,030 -46 1,045 381 245 800 223 56 1.28
Pacific International Lines Annual 30-Dec-15 mn US$ 3’732 146 5’830 1’215 1’979 3’851 1’493 1’184 1.26
MOL Group Annual 31-Mar-17 bn Yen 1,504 3 2,218 481 684 1,534 383 355 1.23
China Cosco1) 3 months 31-Mar-17 mn RMB 20,101 566 120,574 46,136 38,531 82,044 35,473 8,576 1.22
Evergreen Marine Corp 3 months 31-Mar-17 mn NT$ 33,839 658 181,027 51,096 52,104 128,923 40,113 5,298 1.15
Yang Ming 3 months 31-Mar-17 mn NT$ 30,255 -1,241 131,765 22,782 16,615 115,150 40,935 -2,554 0.69
Zim 3 months 31-Mar-17 mn US$ 655 25 1,723 512 -110 1,833 562 -1,901 0.09
Hyundai Merchant Marine 3 months 31-Mar-17 bn Won 1,302 -566 3,830 1,666 749 3,081 1,091 -2,221 -1.08
• Weak operating performance of all carriers, together with the weak balance sheet position of some carriers, have resulted in generally poor Z-scores for all carriers involved in
container shipping. None of the companies were able to reach the ‘safe zone’ Z-score of 2.99 or more.

• The Z-score is a statistical analysis to predict a company’s probability of failure in the next 2 years, using data from the company’s financial statement.
• A Z-score ≥ 2.99  company is “safe”.
• A Z-score between 1.8 and 2.99  exercise caution (“grey zone”).
• A Z-score ≤ 1.8  higher risk of the company going bankrupt (“distress zone”).
All indications based on these financial figures only.
Source: Drewry Sea & Air Shipper Insight, June 2017; 1) parent of Cosco Container Lines; Z-score is calculated as follows: T1 = (Current Assets - Current Liabilities) / Total Assets, T2 = Retained Earnings / Total
Assets, T3 = Annualized EBIT / Total Assets, T4 = Book Value of Equity / Total Liabilities, T5 = Annualized Sales / Total Assets, Z-score bankruptcy rating = 1.2*T1 + 1.4*T2 + 3.3*T3 + 0.6*T4 + 1.0*T5

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Acronyms and Explanations
2M - Carrier Alliance: Maersk / MSC OCRS - Operational Cost Recovery surcharge
AMLA - Latin America OWS - Overweight Surcharge
AMNO - North America PH - Philippines
AR - Argentina PNW - Pacific North West
ASPA - AsiaPacific Ppt. - Percentage points
BR - Brazil PSW - Pacific South West
CAGR - Compound Annual Growth Rate RR(I) - Rate Restoration
CENAC - Central Amercia and Caribbean SAEC - South America East Coast
CKYHE - Carrier Alliance: Cosco, K-Line, YangMing, Hanjin and Evergreen SAWC - South America West Coast
CNC - CNC Line (Cheng Lie Navigation Co. Ltd.) SOLAS - Safety of Life at Sea
DG - Dangerous Goods SPRC - South People’s Republic of China – South China
DWT - Dead Weight Tonnage SSA - Sub-Saharan Africa
EB - Eastbound SSL - Steam Ship Line
ECSA - East Coast South America T - Thousands
EURO - Europe TEU - Twenty foot equivalent unit (20‘ container)
FMC - US Federal Marine Commission TP - Trans Pacific
G6 - Carrier Alliance: APL, Hapag Lloyd, Hyundai, MOL, NYK and OOCL TSA - Trans Pacific Stabilization Agreement
GRI - General Rate Increase ULCS - Ultra Large Container Ship
HJS - Hanjin Shipping USGC - US Gulf Coast
HMM - Hyundai US FMC - US Federal Maritime Commission
HSUD - Hamburg Süd USEC - US East Coast
HWS - Heavy Weight Surcharge USWC - US West Coast
IA - Intra Asia VGM - Verified Gross Mass
IPBC - India Pakistan Bangladesh Colombo VLCS - Very Large Container Ship
IPI - Inland Point Intermodal VSA - Vessel Sharing Agreement
ISC - Indian Sub Continent WB - Westbound
MENAT - Middle East and North Africa WCSA - West Coast South America
mn - Millions YML - Yang Ming Line
MoM - Month-on-Month YoY - Year-on-Year
NOO - Non-operating (vessel) owners YTD - Year-to-Date
Ocean 3 - Carrier Alliance: CMA, UASC, China Shipping

DHL Global Forwarding | OFR Market Update | Sep 2017 18

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