Saturday, February 15, 2014

CONTAINER SHIPPING -2013 was a bad year (CIMB)

2013 was a bad year

Container freight rates performed poorly in 2013, despite starting the year on a strong note. From 2Q13 onwards, spot SCFI rates on all the key routes started to fall below year-ago levels, and it was not until the 4Q that some of the slide was addressed, as carriers worried about their start-of-2014 contract renewals.
On average, CCFI rates (which averages both spot and contract rates) from China to North Europe and the Mediterranean fell 11-12% yoy during 2013, while China-Middle East rates fell 17% yoy. Fortunately, the rates on the all-important transpacific trade (China-US West Coast/East Coast) rates remained largely flat.

The rates that were disclosed by NOL, OOIL and CSCL were also very poor, especially from 2Q13 onwards. The spot SCFI rates were also extremely volatile, with rate restorations via General Rate Increases (GRI) or Peak Season Surcharges (PSS) eroding quickly over the weeks following the initial increases. In total, and net of the subsequent rate erosions, all of the GRI and PSS attempts during late-2012 to late-2013 were a complete failure.

From November/December 2013 onwards, the GRI attempts appear to hold up much better, as is the case at the start of every year when carriers prepare to negotiate their annual contracts. There is also the pre-Chinese New Year peak, which appears to be frontloaded this year since the Lunar New Year will be celebrated on 31 January. However, we cannot be sure if rates will hold up this well in February and March, not at least until trade restarts during the spring.

4.2 2014 will be another tough year
We think that this year will be another tough year for container shipping carriers, because nominal supply is expected to grow faster than demand, which could make it more difficult for carriers to control effective supply.

Nominal supply is simply the sum total of the teu capacity of vessels that are capable of being deployed on the container trades. It comprises the current available ship capacity after adding newbuilding deliveries and subtracting scrapping/demolition. Effective supply is nominal supply modified by the actions that carriers take to adjust the actual containership slot capacity available to customers. These actions include slow steaming, skipped sailings and temporary/permanent vessel idling.

Based on our calculations in the table below, average nominal fleet growth is expected to exceed trade growth in 2013 and 2014. Our trade growth forecast is based on the IMF projection of global GDP growth of 3.6% in 2014 and container trade growth of 5.4% (implying a trade-to-GDP multiple of 1.5x).

Even with the acceleration in container trade growth expected in 2014, it will still be 0.7% pts lower than the average nominal fleet growth of 6.1%.

On the assumption that carriers actively manage the effective capacity via more idling (due to skipped sailings) and more slow steaming, the average effective capacity in 2014 may grow 5.8% yoy, slower than the average nominal fleet growth of 6.1% calculated earlier.

However, unless carriers idle and slow steam more vessels than we estimate in our model, the average effective capacity growth of 5.8% this year may still be higher than the container trade growth forecast of 5.4%.

This means that carriers will have a hard time trying to balance the demand and supply dynamics of the global container trades. In our base case, we think that there will be at best a small rate recovery on average for 2014 from the depressed 2013 levels despite effective capacity rising faster than container trade growth, if carriers hard-line their rate hikes due to desperation.

Further upside in rates is only possible if there is a clear change in carrier behaviour towards less irrational price discounting, more skipped sailings and/or suspensions of entire loops and more ship idling. Based on recent history, this will be very difficult for the industry to achieve.

Carrier behaviour is impossible to model in an Excel spreadsheet but it can mean the difference between a good year and a bad year. For instance:
• In 2009, the effective fleet actually shrank 2.6% yoy despite the nominal fleet rising 9.2% as carriers significantly increased the idle fleet and continued to slow down the speed of their ships. This set the stage for the dramatic freight rate rally in early 2010 when restocking demand returned.

• In 2010, effective fleet growth surged 11% yoy despite the nominal fleet rising only 8.3% as ships previously idled were reactivated by carriers to service the resurgent trade. When trade growth slowed down in 2011 after a bumper 2010, rates collapsed to very low levels by late-2011.

• As carriers‟ operating losses escalated over 2011, carriers took action by increasing the idle fleet from 2H11 onwards and keeping it at elevated levels during 1H12. As a result, the effective fleet growth in 2012 once again fell below nominal fleet growth rate. Container trade growth in 2012 once again exceeded the effective fleet growth – repeating what we saw in 2010 – allowing average freight rates to rise significantly in 2012 from the very low rates seen in 2011.

In 2013, average freight rates have weakened materially from 2012 levels for two reasons:
1. Although the effective supply growth was likely be slower than the nominal supply growth, anaemic container demand growth has been even slower than the former, exposing an unfavourable 1.7% pt gap between the two.

2. Container shipping companies panicked and despaired over the poor prospects ahead, slashed their freight rates and competed with each other to gain market share.

As for 2014, we see the unfavourable gap between effective supply growth and container demand growth narrowing but unlikely to close completely, suggesting another tough year for freight rates. Nevertheless, as freight rates in 2013 have been such a disaster, container carriers‟ behaviour may yet change and so we project a small average rate increase for 2014 vs. 2013. Material freight rate increases or decreases will be dependent on how container carriers choose to compete against each other. There is a reasonable chance that average container freight rates in 2014 will be higher than they have been in 2013 simply because the low 2013 rates have been intolerable to many carriers already experiencing losses. Nevertheless, the rate volatility that we have witnessed in 2013 will likely continue to be a feature in 2014.

4.3 Record net deliveries expected for 2014
In terms of deliveries, net of scrapping, we expect a record of 1,280,000 teu of nominal capacity to be delivered in 2014, as the charts below indicate, the highest since 2010.

Deliveries for future years is also building because of the very active newbuilding contracting activity. Newbuilding orders for the container shipping sector have been very strong in 2013 although freight rates were poor. For 2013, 1,823m teus were ordered, exceeding the pre-global financial crisis years of 2004-06 and coming very close to the size of orders placed in 2011.

These newbuilding orders have been driven by carriers‟ desire to get their hands on the largest and most fuel-efficient tonnage as they seek a lower unit cost structure to survive and hopefully thrive in a low freight rate environment.

As a result, a lot of the orders since 2011 have been concentrated in the very large containership (VLCS) segment of above 10,000 teus. Orders for ships above 10,000 teus make up 49% of the present orderbook, with the most popular sizes in the 18,000+ teu range and the 12,000-13,999 teu range. Ships between 14,000 teus and 17,999 teus are also very popular newbuilding candidates. Ships below 10,000 teus account for the remaining 51% of the present orderbook, with the most popular orders concentrated in the 8,000-9,999 teu range.

Financing is surprisingly available. With the demise of German KG funding that was responsible for a large part of the pre-GFC orderbook and the financial strain felt by the container shipping companies (operators) themselves, other independent financiers have stepped in to oil the containership newbuilding order flows. Independent owners currently account for 60% of the orders that have been placed since 2011, with operators accounting for the remaining 40%. As at 1 July 2013, operators accounted for 51% of the outstanding global fleet so, clearly, independent owners will increase their market share of the containership fleet as the newbuilding orders are delivered.

Te P3 alliance and the unaligned carriers (CSCL and UASC) have actively ordered 16,000, 18,000, and 19,000 teu ships, and what stands out is that the G6 and CKYH alliances do not have any orders for ships in the range of 16,000-18,000+ teus, which could hurt their competitiveness in the Asia-Europe trades.

At the moment, the G6 and CKYH alliances are focused very much on the 13,000-14,000 teu orders. The G6 carriers will operate 40 ships in this range after all their orderbook is delivered while the CKYH carriers will operate 50 such ships.

However, 18,000 teu ships have a unit cost that is 22% lower than equivalent 13,000 teu ships (Maersk claims 30%), which could mean the difference between a decent operating profit and a major operating loss in an environment of weak freight rates.

We believe that the CKYH and G6 alliances may have to each order 10 x 18,000 teu ships (or 10 x 16,000 teu ships, or a mixture of both), for a total of 20 ships, in the near future. As many carriers in the alliances may already be financially stretched, the orders may be placed via independent owners that have been responsible for financing much of the MSC and CMA CGM orderbooks in the past year or two.

4.4 Valuation and recommendation
Because of the strong prospects for additional containership ordering, we stay Neutral on Container Shipping on the back of continuing oversupply and an ultra-competitive freight rate environment. OOIL remains our only Add in the container shipping space on valuation grounds and on its internal strengths, though immediate investor interest may be limited. We have Hold calls on SITC and NOL, while CSCL is a Reduce.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 24/01/14

No comments:

Post a Comment

Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock