Market Commentary - May 2013

Alan Murphy

CEO & Partner

Welcome to the May monthly commentary. The purpose of this commentary is to provide a brief overview of some of the main trends and developments we have seen in the past month – as well as other odds and ends which we feel compelled to share.

Certainly one of the most important developments in the past month has been the rapid decline in spot rates on particularly the Asia-Europe trade. From 29 March to 3 May rates dropped by as much as 344 USD/TEU, bringing the total drop to 627 USD/TEU in just 7 weeks.

The situation is slightly more benign in the Transpacific trade – at least when the magnitude of the rate decline is considered. However, in reality we see that the partially successful GRI on the Transpacific was entirely eliminated in just 3 weeks.

As we have begun to systematically monitor the weekly capacity on offer 12 weeks into the future, it is clear that both carriers and shippers are facing troubled times. Despite rates having fallen by 41% since New Year, carriers are poised to increase capacity from Asia to East Coast South America by more than 20% - seemingly a recipe for continued rate declines.

Additionally – and in line with our previous expectations – we continue to see carriers place new orders for ultra-large container vessels. The latest order is for 5 x 18.400 TEU at HHI for CSCL. Given that these vessels are purpose-built for the Asia-Europe trade, it is exceedingly likely that one of CSCL’s partners will soon follow suit with a similar order.

It is in this troubled minefield of overcapacity combined with new fuel-efficient vessels that carriers need to make profits in the coming years. Cumulatively the carriers have lost almost 7 billion USD in the past 4 years – and clearly such a trend cannot continue indefinitely. Who will then stand to be the winners of what appears to be a protracted war of attrition? Based on developments in the past decade, the winner(s) will need a solid combination of 3 factors:

1) Access to additional capital

2) Access to a fleet predominantly made up of new fuel efficient vessels

3) An operational as well as organizational setup resulting in the lowest unit costs in the market

Looking at 2012 annual accounts, clearly some carriers appear to be off to a better start than others, however this is not a sprint, it is a marathon – and the winners may not yet have emerged from the pack.

“Hidden” value pool in feeder markets

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In this new whitepaper we analyze the value pool for the feeder cargo in Europe associated with demand fluctuations, imbalances, schedule reliability and risk profiles. We arrive at the conclusion that these hidden value pools are as important as the more traditional value pool related to pure operational network costs. The hidden value is assessed to be 250 million USD annually.

The sources of “hidden” value

Weekly demand fluctuations result in both under-utilization of vessels as well as cargo overflow. Trade imbalances result in under-utilization of vessels. Schedule unreliability and buffer-time in the schedules result in loss of cargo value for the shippers.

Pooling cargo from multiple carriers will reduce cargo fluctuations and imbalances. Multiple weekly services will reduce the impact from schedule unreliability.

The effects can all be quantified and analyzed. By comparing on one hand a situation where every deep-sea carrier operates independently and on the other hand the full aggregation of cargo flows, we can calculate the magnitude of this hidden value pool. The hidden value pool for Europe has a magnitude of 250 million USD annually.

Lessons for the industry

In addition to the quantification of the hidden value pools, each individual carrier further has to evaluate their risk profile in terms of own services with fixed costs versus outsourced services at variable cost. The value of this will differ across carriers depending on the stability of their cargo flows. But – crucially in the wake of the Hanjin collapse – it also has ramifications for cash flows, as charter costs are often due for payment much earlier than the credit terms associated with feeder services.

For the deep-sea carriers this implies that when they are evaluating their feeder strategies, they need to take these “hidden” effects into their calculations. The data also shows that for most carriers, the best way to tap into the hidden value pool is to aggregate feeder cargo. Once this is done, a decision can be made as to where to use own services and where to use feeder services. However, solely focusing on the traditional visible value pool related to the direct costs of operating a service, leaves a large value pool untapped.


Ramifications of Hanjin's demise and status on the Hanjin fleet

 

In issue 278 of the SeaIntel Sunday Spotlight we provide an extensive analysis of the impact Hanjin’s demise will have on the industry, and discuss the short and long term ramifications.

Ramifications of Hanjin’s demise

Hanjin’s demise is a completely unprecedented situation, as we’ve never had a carrier the size of Hanjin potentially go under. However, it is not only the Hanjin situation which is unprecedented. Within the last 21 months we have now seen the removal, or planned removal, of five global top-20 carriers: CSAV, APL, CSCL, UASC and Hanjin. Such rapid consolidation amongst the main players will change the competitive landscape of the industry.

In the short term the Hanjin situation gives rise to volatility and market turmoil. However, in the longer perspective, such consolidation is what the industry has been repeatedly aiming for in order to create stability.

The main unknown presently is whether the significant round of consolidation is over for now, or whether more is to come.

Hanjin Vessels: What is happening?

We analyse each trade lane where Hanjin vessels are deployed, and identify the carriers engaged in Hanjin-operated service, either as operators or as slot charterers. We assess the state and position of the Hanjin fleet as of on Monday 14:00 CEST, September 5th. We find that while 43 vessels are currently en route to their scheduled destination, 39 vessels are currently either circling or anchored outside of a port where they were supposed to call. Seven vessels may have been arrested by creditors.

Hanjin’s fleet – Owned and chartered

Only a handful of interesting vessels in Hanjin’s owned fleet, and several are likely headed straight for scrapping. Four charter owners have high exposure, but marketable vessels, while Conti will likely struggle to find new contracts for their Hanjin vessels.

Process Optimization

SeaIntel Maritime Analysis provides clients with detailed process mapping projects, ranging from single-day engagements to enterprise-wise process mapping projects encompassing more than 100 processes using multi-disciplinary teams with key industry experience.

Our focus is one of providing people with hands-on experience who have subsequently been trained as process consultants, often as lean green belt or lean black belt. Our teams are thus intimately familiar with the business realities facing the client during day-to-day operations, and are able to facilitate and design processes from a practical rather than theoretical approach.

Please contact us if you wish to discuss specific engagements.

Welcome to our redesigned website

We are very excited to announce the launch of the re-designed SeaIntel.com with several new features and services:

  • User Registration: We have opened SeaIntel.com up for User Registration, making it possible for both Customers and visitors of SeaIntel.com to manage their subscriptions, sign up for new services, manage their account information, and many other functions. User Registration is free, and to sign up, all you need to provide is your name, a valid email address and a password.

  • Sharing of purchased subscriptions and reports: At SeaIntel, we believe in knowledge sharing, and thus we have never supported “per-user” subscriptions. All our publications are sold as “company-wide”, so all SeaIntel products can ALWAYS be shared with your colleagues. We do not only allow company-wide sharing, but actively encourage it, and with the new website we have made company-wide sharing much easier, as you can share your purchases with a single click. 

  • Free Services for Registered Users: We have expanded our Free Services offering, and offer them without any conditions to Registered Users of SeaIntel.com. An overview of the currently available Free Services can be found by clicking on Free Services in the Main Menu.

    Over the coming months we will be expanding our free services offerings and we welcome suggestions for relevant free service offerings. If you wish to remain updated on the free service offerings, we recommend signing up for the free SeaIntel Monthly Newsletter.

  • Online shop for SeaIntel publications:

    Most SeaIntel Maritime Analysis products can now be purchased online in our shop, and over the coming months we will be updating and expanding the online shop offerings, with new analytical reports, new specialised newsletters, SeaIntel market data, and much more. If you wish to remain updated on the SeaIntel products and service offerings, we recommend signing up for the free SeaIntel Monthly Newsletter.

We welcome any and all suggestions for improvements, feature additions, additional content, etc. Any suggestions can be sent to info@seaintel.com or by using the contact form.

Welcome to our new website!

Alan Murphy, CEO & Partner


Newsletters and Reports

SeaIntel Maritime Analysis issues a range of newsletters and reports, all focused on two core parameters:

  • The provision of unbiased data relating to developments in the container shipping industry

  • Analysis of developments within the container shipping sector, aimed at providing readers with a solid understanding of the “why” underlying pertinent developments.

We are constantly expanding the range of newsletters and reports, and currently we offer the following:

SeaIntel Sunday Spotlight: The leading analytical newsletter in the container shipping industry. It provides innovative analytical angles to market trends, as well as uncovers new information of relevance in the container shipping industry. Used by the majority of container lines as well as a range of forwarders, BCOs, ports and banks it provides a factual basis for the discussion of industry developments.

Monthly Report: A brief highlight of the main developments seen in the industry over the past month. This report is available free of charge to registered users on www.seaintel.com .

Global Liner Performance Report: The industry’s only comprehensive measurement of container lines’ schedule reliability, covering more than 10.000 monthly port calls, across 32 trades and 60 container carriers. Also includes measurements on the timeliness of actual container delivery based on more than 1 million daily container status messages from INTTRA. Indispensable detailed information when managing supply chains with a focus on reliability.

eCommerce Offerings Report: The only comprehensive report in the industry concerning eCommerce functionalities offered by the 51 largest global container carriers. These carriers control 92% of the global container trade.

Environmental Benchmark Report: The industry’s first benchmark report ranking the 20 largest container carriers according to their environmental performance. The carriers are ranked on a 1-5 scale based on 11 different parameters including vessel performance, carbon footprint calculators and voluntary usage of low-sulphur fuel above legal requirements.

Review of Market Intel Setup

SeaIntel Maritime Analysis has extensive expertise and experience in the organization and development of market intelligence departments in major shipping companies, and are able to provide consulting assistance to companies seeking to optimize their own intelligence efforts.

Our core competency areas are:

  • Organizational review and design for market intelligence
  • Assessment of skillsets required in relation to the purpose of the market intelligence organization
  • Development of training sessions to improve skill sets to match the required levels
  • Identification of relevant data sources
  • Development of simple in-house tools to facilitate usage of market intelligence
  • Process mapping of market intelligence
  • Establishment of internal service level agreements between the market intelligence department and internal users of intelligence and analysis

Mystery Shopper

In the current tough market conditions, the key to success is whether your organization can bring in new customers, and not simply maintain existing business. Often the key to a sale is to be quick in providing a quote – not necessarily to be able to provide the lowest quote.

Do you know which experience new prospective customers get when they contact you?

Are you sure, that the experience is what you intend it to be? If not, then we would like to give you the real picture from a new customer point of view.

SeaIntel Maritime Analysis has previously made several tests within the shipping industry, where we approached carriers and forwarders as a new customer who would like a quote for a simple port-port shipment between major ports. The number of answers we got was illuminating with 25-33% of large carriers and forwarders providing quotes – but 90% of smaller forwarders responding.

The “Mystery Shopper” program is performed anonymously.

Test of 5 locations including evaluation report is EUR 699 and 20 locations including evaluation report is EUR 2499

Contact us for a specific tailor made solution.