The global container shipping industry faces a tough recovery in 2010 after the decline in global trade volumes this year, according to a forecast by Business Monitor International (BMI), the London-based global industry research and analysis firm.
To gauge the magnitude of the recovery that lies ahead for the container sector, BMI uses its global port container throughput indicators for 2009. Since final figures for the year have yet to be released, BMI makes its assumptions using its forecasts, which were reviewed after the first six months of 2009 with H1 2009 data being added to its forecasting matrix.
Port throughput in the Middle East has fared slightly better, the report said.
“Using the UAE port of Jebel Ali, the region’s busiest container port and a transhipment hub for other Middle East countries, as a bellwether, BMI notes that the port is one of the few expected to post throughput growth in 2009, with 6.6 per cent growth forecast. It should be noted, however, that in 2009, despite positive growth, container throughput at Jebel Ali will have slowed yoy, as the port posted 25 per cent and 21.2 per cent growth for 2007 and 2008 respectively,” it said.
Asia’s container throughput has felt the knock-on effect of many major consumer markets going into recession at the end of 2008 and in 2009. Factory output dropped as orders from consumer markets in Europe and the US dried up. The port of Singapore boasts the largest container throughput and is a major transhipment hub for Asian states shipping to Europe and the US.
“We estimate that the downturn in 2009 will have had a negative impact on the port’s throughput, with box volumes falling 17.8 per cent yoy,” the report said.
Another major container hub for Asia that caters to the transhipment needs of China, the port of Hong Kong, is also forecast to post throughput declines in its container cargo, with BMI estimating a yoy drop of 18.85 per cent. Mainland Chinese ports are expected to fare no better, with the port of Shanghai, second after Singapore in terms of container throughput, expected to post a yoy throughput decline of 16.45 per cent in 2009.
Negative growth
Emerging Europe has been one of the areas worst hit by the downturn, as once-developing consumer markets have shrunk on the back of the global economic downturn. Using Russia, the main economy in the region, as a bellwether, BMI predicts that throughput at the country’s main container port of St Petersburg will decline by 39.72 per cent in 2009. This is on the back of a forecast total trade decline of 34.62 per cent for the country in 2009.
African ports’ container throughput is also facing negative growth, as although the country’s raw material sector and dry bulk shipping sector has been propped up by Chinese demand for commodities such as coal, Africa’s demand for manufactured goods has plummeted. At the port of Durban, South Africa’s largest container port in terms of volume, BMI forecast box throughput to drop by 13.58 per cent.
The US, where the economic crisis began, has been struggling with consumer confidence as unemployment has increased. This has had a knock-on effect at the country’s container facilities as slackening demand from consumers has meant a decline in the import of manufactured goods.
The country’s two main west coast ports of Los Angeles and Long Beach are, in BMI’s opinion, expected to suffer the brunt of the downturn. The ports are America’s import gateways for Chinese and Asian goods, and the general decline in the retail sector means that we expect container volumes at Los Angeles and Long Beach to decrease by 11.39 per cent and 23.21 per cent respectively, the report said.
Although still expected to post a decline in box volumes, America’s main east coast port of New York and New Jersey is not forecast to witness such a steep fall in throughput as its west coast peers, with BMI forecasting a yoy drop in throughput at the port of just 2.2 per cent in 2009 as the facility is less exposed to the import market and is diversified by catering for exports as well.
In Latin America the situation is the opposite way around. The region’s main west coast port, the Pacific facility of Valparaso in Chile, is forecast to witness a decline of 12.91 per cent compared to the Atlantic port of Santos in Brazil, where BMI believes box volumes will fall by 22.93 per cent yoy in 2009. The reason for this is that Chile’s trade volumes are expected to fall by 14.9 per cent, compared to Brazil’s yoy decrease of 24.3 per cent.
Shipping lines’ financial results are another good bellwether to assess the current decline, the report said.
“Over the quarter the majority of the top 10 global shipping lines have announced their H1 results, in the case of Japanese operators their Q1 FY 2009-2010 results. All lines have suffered losses, with the Paris-based consultancy AXS Alphaliner reporting that liner companies’ losses had hit $6 billion (Dh22bn) for the first half of 2009,” it said.
“BMI witnessed the extent of these losses on a daily basis as we covered each of the top 10 container lines’ financial results announcements. We note that European-based liners have been hit hard. Despite having a diversified portfolio, AP Moller Maersk reported a net loss of $540 million. The company’s hardest-hit operating unit was its container line division, Maersk Line, which posted a $961m loss after its revenue plummeted 30 per cent yoy. France’s CMA CGM posted a loss of $515m, and Germany’s Hapag-Lloyd recorded declines in its revenues, which fell 24.3 per cent yoy in H1 2009,” it said.
Asian lines have suffered the same fate. China’s leading container line, Coscon, was its parent Cosco’s worst-performing division, with a loss of $631.7m during H1 2009 as revenues fell by 45.8 per cent yoy to $803m. China Shipping Container Line also posted a net loss of $500 for the first half of 2009 after the company’s total revenue fell by 51.5 per cent yoy.
Taiwan’s Evergreen Line, South Korea’s Hanjin Shipping and Singapore’s NOL joined the losses club over the period as Evergreen posted a $60m loss in Q2 2009, marking the third straight quarterly loss for the Taiwanese container line.
Hanjin Shipping fared no better, recording an operating loss of $342m for H1 2009. The company’s positive result of total container volumes increasing by 22.7 per cent in Q2 2009 on Q1 2009’s figure was overshadowed by the fact that revenue per twenty-foot equivalent unit (TEU) was considerably dented as freight rates continued to plummet. NOL posted a $391m loss in H1 2009 as the company’s revenue declined by 37 per cent, the report said.
Container shipping companies’ bottom lines have been battered by rate decreases and the fall of cargo volumes. This decline in traffic can be seen in the number of TEUs carried in H1 2009. NOL has witnessed the largest decline in containers shipped, with its TEU volumes for H1 2009 declining by 24 per cent yoy, the next largest percentage drop yoy is Cosco, which carried 21.9 per cent fewer containers in H1 2009 than in the same period in 2008.
Maersk Line, despite posting hefty losses, managed to hold on to more clients, with its container volumes decreasing by just seven per cent yoy. From this it could be assumed that Maersk Line slashed its rates in order to attract clients, which would explain its comparatively low container volume percentage change yoy compared with its H1 2009 financial loss.
Japan’s two top lines, NYK and MOL, registered container volume declines yoy of 28 per cent and 23.2 per cent respectively in the Q1 FY 2009-2010 period, the report said.
Route sharing
Service shares and route rationalisations have allowed competitors to pull together and pool their resources by reducing capacity, but at the same time offer clients the same services and allow shipping firms to remain active in various markets, the report said.
The negative impact of the downturn on companies’ routes can be seen in the development over the quarter of the New World Alliance (APL, Hyundai MM and MOL) along with Maersk Line, which co-operate on Tran-Atlantic routes, cutting their capacity on this trade route by a third.
The fact that a partnership of the four main container lines have had to cut capacity on this route emphasises the tough environment those within the shipping industry face.
BMI expects route sharing to continue into 2010 and we expect companies’ co-operation on services only to end when trade volumes pick up substantially. The fact that the US has now emerged from recession is good news for operators on the Trans-Atlantic route.
BMI expects shipping lines to continue to lay up vessels. The strategy of idling ships is a short-term strategy that allows companies to reduce capacity and cut running costs.
“The tactic has been popular among major shipping lines throughout 2009 as it is not as final as scrapping and allows companies to cut costs but ensure that lines will still have capacity to call upon when trade volumes improve. More lay ups are, however, needed if the container shipping sector is to tackle overcapacity,” it said.
As trade volumes look set to improve in 2010 shipping lines will no doubt be tempted to bring their vessels out of lay up and try to catch cargo volumes before their competitors.
However, BMI warns against bringing back idled ships at the first sign of an upturn in the market; the lay up strategy has not only been effective in reducing companies’ costs during the downturn but has also helped the container shipping sector as a whole by creating upward pressure on freight rates by reducing the overall supply of ships in circulation. A flood of vessels on the market would plunge rates once again.
Scrapping has been on the increase in 2009 as ship owners send their older vessels to the break-up yards. An increase in scrapping is an obvious outcome of a downturn in the shipping market, the report said.
BMI believes that scrapping will continue in 2010, but not perhaps at the same pace as was seen in 2009. A recovery in trade volumes is being predicted, which BMI believes will mean that owners will choose lay up over scrapping in the hope that their vessels will once again start to make money.
New vessel orders
In such a climate it is understandable why just one new box ship order has been placed in 2009, the report said. “The order originated from a company that is not involved in the container shipping sector, the Abu Dhabi National Tanker Company. The shipping company, which operates in the liquid bulk shipping market, placed an order for two 1,060 TEU vessels in October with the South Korean shipyard Hyundai Mipo Dockyard, and the vessels are due for delivery in 2011,” it said.
BMI believes that this news highlights the tough situation in the container shipping market, and demonstrates how stagnation looks unavoidable in the mid term as fleets stop expanding.
BMI does not expect new orders to pick up in 2010. “Shipping lines and owners have enough ships in lay up that they will wish to bring on to the market before they start considering expanding their fleet through newbuilds,” it said.
2010: Recovery time?
BMI believes that global trade will begin to pick up in 2010. “The US came out of recession in Q3 2009 and in 2010 we expect the country’s consumer confidence to begin returning. This will have a knock-on effect on manufactured goods inventories. In 2010 our country risk desk estimates that the US’ total trade will grow by three per cent and exports by four per cent. These increases will affect throughput at the nation’s ports,” it said.
BMI forecasts that container throughput will increase at the US’ main West Coast ports of Los Angeles and Long Beach by 2.23 per cent and 5.84 per cent respectively.
“The country’s main east coast port of New York and New Jersey is predicted to register a y-o-y throughput growth of 2.8 per cent, which will override our projected decline in throughput in 2009 of 2.22 per cent and will see the facility handling its pre-downturn box volumes,” it said.
The report also forecasts that China’s exports will improve by a massive 10.96 per cent in 2010, as along with America other major Chinese-goods-importing nations in Europe – France and Germany – have also emerged from recession, with the expected implication that consumer confidence and therefore consumer buying will begin to recover. The yoy growth in China’s trade will have a positive affect on China’s container port throughput with Shanghai’s throughput predicted to increase by 2.55 per cent yoy.
“However, we warn that despite predicted trade growth and positive growth in throughput at many major ports worldwide the container shipping sector still faces a gloomy 2010 as overcapacity still haunts the market. Despite a concerted effort by container line operators through scrapping, laying up and deferring newbuild vessels to try to decrease overcapacity in the market, BMI fears that an equilibrium between supply and demand has yet to be reached,” it said.
More worrying is that even though companies have managed to defer some of their orderbooks there is still a huge amount of vessel capacity on order that will at some point over the mid-term (2010-2014) be realised and come online.
The container sector’s considerable newbuild orderbook is a ticking time bomb, as it appears unlikely that trade volumes that would demand such a fleet are likely to arise in the mid term, the report said.
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