Container shipping: Successful turnaround - Deutsche Bank Research

Fuel consumption cut by
slow steaming
Speed-dependent (knots) fuel
consumption, tonnes per day
14
12
10
8
6
4
2
24 20.1 17.3
Ship with lot capacity of 8,000 TEU
Ship with lot capacity of 6,000 TEU
Number of laid-up ships
has dropped sharply
Number of laid-up container ships
worldwide during the crisis
0
08 09 10
Number of ships, right
TEU share of total fleet, %, left
250
200
150
100
50
700
600
500
400
300
200
100
Source: AXS-Alphaliner, VDR 14
0
Source: Drewry 13
Order books for big ships
well filled
Fleet and orders on hand according to
ship size class (million TEU), July 2010
Up to 1,999 TEU
2,000 to 4,999 TEU
5,000 to 7,999 TEU
8,000 to 9,999 TEU
10,000 TEU and
over
0
0 2 4 6
Existing fleet Order book
Source: Drewry 15
Current Issues
laying-up costs of several thousand dollars per day. At its peak
some 12% of the global container shipping fleet was idle.
In the end, the reduced lot capacity has helped average freight and
charter rates to pick up again over the last few months – starting
from a very low base of course. Ultimately, however, the key driver
of the latest price increase was the growing demand for shipping.
Overall, the level of charter rates is still low anyway on a long-term
comparison.
Further increase in capacity inevitable …
This means that besides the growth in global demand for container
shipping services it is primarily the ongoing capacity developments
that are of special significance for the future earnings of the shipping
lines. Further capacity increases can be expected over the short and
medium term. Already over the last few months the number of laidup
ships has fallen dramatically and is currently just around 2% of
the global fleet. With the economy picking up, the market for ship
financing has shaken off the paralysis induced by the months-long
crisis. Around the world, capital is once again flowing into the
financing of container ships. In 2010 more new orders were placed
for container ships after 2009 had brought hardly any new orders;
last year’s orders were still some 40% lower than in 2008.
Overall, the order books still contain a considerable number of
orders placed in the pre-crisis years. Particularly container ships
with a lot capacity of over 10,000 TEU are coming onto the market in
greater numbers, even though it remains to be seen whether they
can also be fully financed. In this segment the ordered capacity in
mid-2010 was equivalent to nearly 400% of the available fleet in this
size category (total fleet: 30%). These ships are ideal for the busy
“expressway” routes, for example, between the Far East and Europe
and North America, and they dock mainly at the big container ports.
… but the likelihood of sufficient rates is higher
All things being equal, the capacity expansion in big container ships
will ramp up price pressure primarily in that segment, but ultimately
across the entire sector. However, most of the big container ships do
not compete directly with smaller ships that mainly provide feeder
services or operate on less busy routes and where the volume of
orders is not nearly so large. In addition, the market entry of ultralarge
ships brings with it the need for smaller feeder vessels. This
makes it very likely that individual routes and certain sizes of ship
will encounter temporary bottlenecks that will probably result in
higher prices.
The friendly economic environment should, however, also allow the
sector as a whole to generate adequate average profits over the
next few years. Also, market observers like Drewry expect that the
demand for container shipping will grow faster than the supply of
new capacity over the next few years. And slow steaming is an
option for flexibly adjusting capacity to potentially lower demand.
Slow steaming could even become the rule rather than the
exception for individual shipping lines and on particular routes since
many ships have been equipped or refitted accordingly in recent
years. Operating at slower speeds usually also boosts reliability
(meeting delivery deadlines). Of course it is also clear that when
demand rises sharply and rates are high that shipping lines will
always seek to increase the number of round-trips per ship.
Overall, the problem of overcapacity has thus eased currently. And
on the demand side, too, the risks are modest at present: we expect
6 March 28, 2011