A

80

stellar yea

CONTAINERSHIP

AFTER AN INAUSPICIOUS START, 2010 EXCEEDED EVEN THE MOST OPTIMISTIC EXPECTATIONS FOR THE CONTAINERSHIP MARKET, AND CONTRASTED SHARPLY WITH THE DISASTROUS YEAR SEEN IN 2009.
The strong recovery in global trade allowed a return to profitable operations, while the risk of serious overcapacity has vanished.

MSC SOLA

Containership, 11,600 teu, delivered in November 2008 by South Korean shipyard Hyundai Samho to MSC

r
20

1 1
Annual Review

81

THE CONTAINERSHIP MARKET in 2010

After an increase of 9.2% in 2010, cellular containership capacity is expected to grow by an average annual rate of 8.7% over 2011 and 2012, based on BRS-Alphaliner projections, with net fleet increases of 1.25m teu in 2011 and 1.33m teu in 2012. Although the fleet increases over 2011-2012 will not reach the levels recorded in 2006-2008, when an average of 1.37m teu per year was added (+13.5% per year), the level of capacity growth remains a key concern for the industry. A large proportion of the new capacity added in 2010 was absorbed by the increased demand, driven by the rapid economic recovery. Throughput volumes at the worlds five busiest container ports grew by 18% on average in the first three quarters of 2010. However, the average growth at these ports slowed to 8% in the fourth quarter, with the trend towards slower growth is likely to seep into 2011. New ship deliveries and reactivations have led to a record increase in the active fleet. The active cellular containership fleet has grown by 21% in 12 months, from 11.55m teu in January 2010 to 13.95m teu in January 2011. The growth was fuelled by the introduction of 1.38m teu of new containership capacity that was delivered over 2010 and the re-activation of 1.18m teu of idle capacity. The total idled fleet has decreased from a peak of 1.51m teu in January 2010 to only 326,000 teu by end December. Although the recovery in demand has absorbed much of the capacity introduced in the first three quarters of 2010, the weaker growth in the fourth quarter has resulted in a reduction of average utilization levels. Average load factors on the main linehaul routes have dropped from a peak of 95%-100% in the May-August period, when shippers faced capacity constraints on the main trades out of the Far East, to an estimated 80%-85% in December. As for 2011, the cellular fleet is expected to grow by 8.5% to 9%, a reasonable figure which will help to maintain the global supplydemand balance, although the predominance of large ships in the orderbook may lead to an oversupply on the main east-west lanes. With no less than 47 ships of 10,000-14,000 teu and 27 units of 8,000-10,000 teu scheduled to be delivered, heavy cascading can be expected. Ships of 5,000-7,000 teu will be displaced to north-south trades, while some 8,000 teu units will also find their way onto such trades. This movement has actually started, with MSC introducing 8,000 teu ships onto its Europe-South Africa service, which is expected to be fully run with a set of seven 8,000 teu units by April 2011. Charter rates have grown steadily over the past months (apart during the traditional winter dip) and should continue to strengthen. The direction taken by box rates on the east-west lanes is closely linked to the US recovery and

A LARGE

PROPORTION OF THE NEW CAPACITY ADDED IN 2010 WAS ABSORBED BY THE INCREASED DEMAND.

As for 2011, the cellular fleet is expected to grow by 8.5% to 9%

CONTAINERSHIPS: FREIGHT RATE EVOLUTION 2000-2010

$/day

(12 month t/c rates)

4 000 teu 2 500 teu 1 700 teu 1 000 teu 500 teu

50 000 45 000 40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0
09/2000 09/2004

01/2010

05/2000

09/2001

05/2002

09/2002

05/2003

09/2003

01/2004

01/2005

05/2005

09/2005

01/2007

05/2007

09/2007

05/2008

09/2008

01/2009

01/2000

05/2001

01/2002

01/2003

09/2006

01/2008

01/2001

05/2004

01/2006

05/2006

05/2009

09/2009

Source : BRS Alphaliner

82

05/2010

09/2010

MAERSK BOGOR

Containership, 3,000 teu, delivered in May 2009 by South Korean shipyard Hanjin Busan to A.P. Moller Maersk, operated by Maersk Line

to the return of growth in Europe. On their side, Asian and other emerging economies will continue to drive the growth, in particular with increased intra regional trade and increased exchange between distant emerging economies, such as China and Brazil. However, emerging economies still rely on western economies for their export-led growth, although they are much less dependent on them than they used to be.

So some clouds still linger on the horizon. They include, paradoxically, foggy patches linked to a too-rapid growth, such as container shortages. There are already indications that container production is not able to keep up with demand, with prices rising and expected to stay high throughout 2011. Labour shortages are one of the causes, preventing factories from working two shifts instead of one. This could lead to bottlenecks but should not stop the recovery.

The fleet
At 1st January 2011, the cellular fleet stood at 4,849 cellular ships aggregating 14,277,000 teu, an annual progression of 9.2% (against only 5.6% during 2009). During 2010, deliveries of cellular tonnage reached 261 ships of 1,382,000 teu while 135 units representing 184,000 teu left the cellular fleet (of which 145,000 teu were broken up). The containership orderbook started to rise in October 2010 for the first time after 27 consecutive months of decline. The cellular ship orderbook stood at 3.85m teu, or 27% of the existing fleet, at 1st January 2011, down from the 4.7m teu observed in January 2010 (36% of the fleet) and well below the all-time high of 7.1m teu recorded in July 2008, when the orderbook reached 60% of the existing fleet due to an historical wave of orders of units of 10,000-14,000 teu. The orderbook still remains largely imbalanced, with 90% of the capacity on order concentrated on ships over 4,000 teu. The orderbook for ships above 4,000 teu represents 39% of the existing fleet, while the figure is just over 7% for ships under 4,000 teu.

Alphaliner - Cellular fleet as at 31st December 2010

Size ranges TEU 10000-15500 7500-9999 5100-7499 4000-5099 3000-3999 2000-2999 1500-1999 1000-1499 500-999 100-499 Total 31 Dec 2010 - Existing All ships teu 71 884 798 264 2 262 471 432 2 637 656 680 3 074 686 323 1 101 978 718 1 821 452 583 987 871 705 831 438 806 592 759 268 87 390 4 850 14 282 499 31 Dec 2010 - Orderbook All ships teu % Cht 146 1 859 592 47,9 % 86 748 413 22,1 % 68 444 809 36,8 % 92 409 680 25,9 % 40 143 690 74,7 % 44 115 697 63,8 % 28 49 882 57,1 % 59 65 791 67,9 % 24 20 526 77,4 % 587 3 858 080 41,4 % O/E 210,2% 33,1% 16,9% 13,3% 13,0% 6,4% 5,0% 7,9% 3,5% 27,0%

% Cht 19,0% 36,8% 42,5% 53,8% 53,6% 74,3% 65,9% 62,3% 65,8% 28,8% 51,1%

* % Cht => % chartered in teu terms

20

1 1
Annual Review

83

THE CONTAINERSHIP MARKET in 2010

THE

Another notable point concerning the future fleet supply is the significant reduction in forecast deliveries in 2011-2012, thanks to massive delivery deferrals, as well as order cancellations and conversions to other ship types. The wide adoption of Extra Slow Steaming (ESS) has also helped to keep busy a significant share of the large ships. These factors, combined with the strong recovery, have reduced the risk of chronic overcapacity that could have driven the industry into a potentially nightmarish scenario. The absence of orders between October 2008 and October 2009 and very limited ordering activity from October 2009 to June 2011 have of course also been an important factor. Some of the figures are summed up hereafter: The idle fleet peaked at 1.5m teu in December 2009 (11% of the existing cellular fleet). As trade growth rose in 2010 at an unexpectedly strong rate, this idle capacity started to decrease rapidly to 325,000 teu by the end of 2010 (2.3% of the fleet). The fear of a huge overhang of tonnage during the 2011-2013 period has vanished, not only because of the strong V-shaped recovery, but also because owners and carriers

have taken drastic measures, while the high fuel oil price prompted speed reduction programmes (extra slow steaming), keeping busy a substantial amount of capacity. Scrapping: from October 2008 to January 2011, an unprecedented 630,000 teu of cellular ships were physically removed from the fleet, mostly through scrapping (94%), while the balance (6%) consisted of ships converted for use in non-container transportation. These deletions represented 22% of the cellular tonnage capacity that entered the market during the same period. Deferrals: the impact of delivery deferrals has been substantial. Almost 1.5m teu of newbuildings has seen its commissioning postponed by 12 months and more, mostly through negotiated deferrals (especially for the big ships). This has helped to spread the surplus overhang over a longer period. Cancellations: since October 2008, the orderbook has lost 525,000 teu through straight cancellations or through the conversion of containership contracts into tankers or bulk carriers.

IDLE FLEET PEAKED AT 1.5M TEU IN DECEMBER 2009 (1 OF 1% THE EXISTING CELLULAR FLEET).

The impact of delivery deferrals has been substantial

Cellular Capacity in TEU (mln.)
15

CONTAINERSHIPS: IDLE VS ACTIVE CAPACITY

% Change (Year-on-year)
+30%

14

Idle capacity Active capacity YoY Change in active capacity %

+25%

13

+20%

12

+15%

11

+10%

10

0%

-5%

8 2010/02 2010/08 2010/09 01/2011 2010/04 2010/06 2010/01 2010/03 2010/03 2010/05 2010/07 01/2010 01/2012

-10%

84

Extra slow steaming

Extra Slow Steaming on the rise but could soon reach limit
The increase in fuel oil prices to reach $500 per ton, and the availability of surplus ships throughout 2010, has provided the impetus for carriers to expand the practice of Extra Slow Steaming (ESS - see inset). Apart from the savings in fuel costs, ESS provides a useful escape valve for carriers saddled with excess tonnage. The additional capacity absorbed by ESS has reached 625,000 teu or 4.4% of the cellular fleet. This adds to the roughly 10% of capacity kept busy through 1st step slow steaming (see inset), generalised since the fuel oil price hike of 2007. However, the potential for further ESS on long haul routes may soon reach its limit. As of January 2011, 93% of the Far East-North Europe loops and 80% of the Far East-Mediterranean loops have already adopted ESS, based on BRSAlphaliner estimates. If ESS was fully adopted on all Far East-Europe loops, this would only absorb an additional 60,000 teu. There is however still some room for ESS adoption on the transpacific route. Currently, 50% of the Far East-US West Coast loops and 76% of the Far East-US East Coast loops are in ESS. A full adoption of ESS on all transpacific routes could absorb a further 140,000 teu. The efficiency of ESS on the shorter Far East-US West Coast loops is however less compelling. These services are more sensitive to the fixed costs of deploying additional ships due to the shorter distance. It is furthermore expected that some of the niche carriers active on the transpacific routes will continue to run at faster service speeds in order to provide some competitive advantage over their larger competitors.

ADDITIONAL CAPACITY ABSORBED BY ESS HAS REACHED 625,000 TEU OR 4.4% OF THE CELLULAR FLEET.

THE

Slow Steaming Steps For large ships capable of commercial speeds of 24-25 knots, Alphaliner applies the following different steps in slow steaming 24 knots +/- 1 knot for full speed steaming 21 knots +/- 1 knot for slow steaming 1st step 18 knots +/- 1 knot for slow steaming 2nd step (Extra Slow Steaming - ESS) 15 knots +/- 1 knot for slow steaming 3rd step (Super Slow Steaming - SSS) For medium-size ships capable of commercial speeds of 21-22 knots, we apply the following different steps in slow steaming 21.5 knots +/- 1 knot for full speed steaming 18.5 knots +/- 1 knot for slow steaming 1st step 16 knots +/- 1 knot for slow steaming 2nd step (Extra Slow Steaming - ESS) 14 knots +/- 1 knot for slow steaming 3rd step (Super Slow Steaming - SSS) The speeds mentioned are the average sea speeds for a full rotation. Different legs can be run at different speeds. For example, a Europe-Asia loop can be run at 21 knots in the westbound direction and at 15 knots eastbound. Such a loop is considered as an 18 knot loop.

20

1 1
Annual Review

85

THE CONTAINERSHIP MARKET in 2010

ZIM CONSTANZA

4,200 teu, delivered in August 2010 by Chineses shipyard Jiangsu Yangzijiang to Zim Integrated Shipping

Carriers
Top 20 carriers added 14% of new capacity in 2010
The top 20 container carriers have increased their combined operated capacity by 14% during 2010, a growth spurred by the strong recovery in freight volumes. The total capacity operated by these top 20 carriers has reached 12.3m teu on 1st January 2011, compared to 10.8m teu in January 2010 and 10.6m teu in January 2009, according to BRS-Alphaliner records. The overall share of the top 20 carriers as a percentage of the global liner fleet has risen from 79% to 83% in 2010, as the large carriers capacity additions outpaced the overall increase in liner capacity. The total liner capacity (both cellular and non-cellular vessels) grew by 8.6% in 2010 to reach 14,80m teu at 1st January 2011. The total cellular fleet stood at 4,849 ships of 14,28m teu at the same date, up 9.2% in nominal capacity terms compared to 12 months earlier. Over the same period, the top 20 carriers also reduced their idled capacity from 740,000 teu or 6.9% of their operated capacity at 1st January 2010 to only 136,000 teu at 1 January 2011, or 1.1% of these carriers operated fleet. 18 of the 20 carriers increased their operated capacity, with only NYK and K Line logging a decline. Amongst the winners, MSC recorded the largest increase, having added 375,000 teu to its fleet, a 25% increase. In relative terms, the strongest gains were made by CSAV with a 74% growth in 2010 as its fleet climbed from 333,000 teu to 579,000 teu. CSAV jumped from 13th to 7th position in the BRS-Alphaliner carrier league. Amongst the three major carriers, APM-Maersks lead has been eroded as its two nearest competitors continued to gain ground. Maersks market share has dropped from 18.2% in September 2005, when it completed the acquisition of P&O Nedlloyd, to 14.5% currently. Second-placed MSC has increased its share from 8.2% to 12.6% during the same period, while third-placed CMA CGM saw its market share climb from 4.9% to 8.2%. It has been a remarkable year of recovery for most of the top carriers. Four carriers that were on the brink of insolvency in 2009 - CMA CGM, Hapag-Lloyd, CSAV and Zim - all staged comebacks and have continued to gain market share through capacity additions. Hapag-Lloyd and CSAV have also ordered additional containerships at the turn of the year, and these carriers appear set to continue their growth path in the next few years.

86

Alphaliner Top 25 as at 31st December 2011

Total existing Orderbook

#
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Operator
APM-Maersk Mediterranean Shg Co CMA CGM Group Evergreen Line Hapag-Lloyd APL CSAV Group COSCO Container L. Hanjin Shipping CSCL MOL NYK Line Hamburg Sd Group OOCL K Line Zim Yang Ming Marine Transport Corp. Hyundai M.M. PIL (Pacific Int. Line) UASC Wan Hai Lines TS Lines HDS Lines MISC Berhad CCNI

TEU
2 147 831 1 863 449 1 209 530 603 766 596 774 584 780 579 296 544 857 476 955 457 162 399 337 386 838 370 851 353 523 328 327 322 735 322 091 286 875 263 558 216 799 184 811 84 457 73 821 68 117 58 213

Ships
578 450 400 158 136 146 155 139 104 140 97 98 116 79 78 94 79 55 142 55 87 41 22 28 24 344 459 272 176 131 201 62 313 228 150 82 29 87 71 76 155 108 65 39 122 37

TEU
784 286 771 000 000 180 589 526 142 400 616 192 200 104 576 769 802 460 606 078 700 0 0 17 080 0

Ships
54 40 26 20 10 22 8 38 22 16 14 5 16 8 12 14 17 5 14 10 14 0 0 2 0

IT

HAS BEEN A REMARKABLE YEAR OF RECOVERY FOR MOST CARRIERS.

The overall share of the top 20 carriers has risen to 83%

TOP 7 CARRIERS : MARKET SHARE EVOLUTION

(BASED ON OPERATING CAPACITY)

$/day

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

01/06 01/07 01/08 01/09 01/10

APM-Maersk MSC CMA CGM Evergreen Hapag-Lloyd APL CSAV

Alphaliner

10/11

20

1 1
Annual Review

87

THE CONTAINERSHIP MARKET in 2010

The second hand market for containerships

It was a quasi-return to normal for the containership second hand market, with more than 200 vessels sold, thanks mainly to the two most active sectors during the year: the 900-2,000 teu ships, and vessels over 3,000 teu. This latter category has exploded, evolving from 20 ships sold in 2008, to six ships in 2009, and finally to a total of 54 vessels in 2010.

Second hand sales in 2010

Less than 900 teu 900 teu to 2,000 teu 2,000 teu to 3,000 teu More than 3,000 teu Total 2004 82 83 42 58 265 2005 49 53 22 19 143 2006 30 36 24 43 133 2007 44 85 51 45 225 2008 58 incl (18 mpp) 54 22 20 154 2009 43 64 19 6 132 2010 33 92 25 54 204

Who sold?
Germany (with 74 ships) and Japan (25 ships) were the two most active countries. CP Offen 13 APMMaersk 10 CMA CGM 9 Ofer Group 8 NYK 5 Bockstiegel Wagenborg 4 4 Herman Buss 4 Icon Capital 4

THE GROWTH OF THE FAR EAST WAS CONFIRMED WITH 66 CONTAINERSHIPS ACQUIRED DURING THE PERIOD.

The weak activity in the 2,000-3,000 teu sector was explained by a simple lack of available vessels in this size

Financial difficulties, as well as a lack of cash, prompted some shipowners to sell, notably in Germany and Japan, while we should not forget the French giant CMA CGM, which found itself in a difficult situation in 2009 but which finally regained the confidence of its trading partners thanks to an active sales policy, an improving freight market, and the arrival of a new financial partner. German owners are still facing the same problems as last year, with a paralyzed KG market whose problems weigh heavily on the German shipping banks. Some predict a serious purge in 2011 among the German shipowners, some of whom have long been dependent on the banks for their survival.

Other owners simply took advantage of the renewed enthusiasm in the market to sell their older tonnage, as was the case for Maersk, which disposed of its Panamax vessels during the year for double the amount that it had been asking in late 2009. On the buyers side, the presence of Greek and American investors served to animate the market, and compensated somewhat for the absence of the German KGs. These buyers were notable for being more flexible and quicker to act than the Germans were in their time.

Who bought?
Technomar 14 Chartworld 4 Euroseas/Euromar 8 PT Pelayaran Meratus 5 Costamare 6 Zodiac 5 Metrostar 5 MSC 5 Aeolos (Embiricos) 5 Hongyuan 5

88

CMA CGM LAPEROUSE

Containership, 13,800 teu,delivered in September 2010 by South Korean Daewoo to CMA CGM

Nearly 60 ships changed hands during the year destined for Greek purchasers (either on own account or on behalf of affiliated US stocklisted companies). At the same time, the growth of the Far East was confirmed with 66 containerships acquired during the period. The market in 2010 was without doubt enlivened for many by the aforementioned (non-operating) investors, rather than the operators themselves. The various fundraising efforts undertaken called for the purchase of ships with strong charter and/or capital gain potential, which explains the absence of the funds in the market for smaller vessels (less than 900 teu), which proved economically less attractive. Prices achieved in 2010 were on average 20% to 40% higher than in 2009, although average charter rates remained woefully inadequate and far from justifying such a price increase. This is despite the fact that rates also experienced a similar increase (up until the summer of 2010, after which they fell again). The 1,700 teu segment perfectly illustrated this phenomenon, with five year old vessels selling at around $25m, at a time when average charter rates did not exceed $7,000-$8,000 per day. Once again, only the reasoning of the investor, willing to bet on the future, played a part.

The weak activity in the 2,000-3,000 teu sector was explained by a simple lack of available vessels in this size. The "rarity" of such ships justified prices such as the 38m paid for the CMA CGM Telopea, built in 2007. This compares to the 24m paid by the seller (Zeppenfeld) in September 2009. The caution, and sometimes complete absence, of the traditional maritime banks (who are still occupied with their internal problems and the financing of ships still to be delivered) was offset by the activity of the US investment funds controlled or orchestrated by the traditional Greek owners, and by Asias financial strength. Other factors must also be balanced with the return of optimism. In 2010 the total number of ships scrapped reached less than half the number demolished the previous year (94 ships compared to 190 in 2009). Needless to say, it is a mathematical requirement to see more ships leave the market to make room for the new units ordered. Meanwhile let us add to that the return to service of almost all the laid-up ships and, finally, the danger of a massive return to the shipyards by shipowners. It is necessary, therefore, to remain cautious about the strength and sustainability of the current trend.

20

1 1
Annual Review

89