6 Carrier Earnings Impact ‘09 Carriers posted losses of over us$15 bil. ‘10 Carriers estimated profits of approx us$13 bil. Faster recovery than forecasted but still - $2 bil.
7 Lessons Learned Rate volatility encountered in 2009-2010 was not good for carriers or customers Forecasting will play an increasingly important role in the customer – carrier relationship Carriers must manage vessel schedules much more dynamically to align supply with demand Surprisingly there were no carrier casualties during this recent downturn All stakeholders in the supply chain were impacted (ship owners, ship operators, rail, truck, terminals, labor, BCO, NVO, shippers and consignees) Tested partnerships on both sides under duress
8 Current Market Environment Global trade forecasted to grow 7-8% with a 9.5% projected increase in capacity in 2011 supply closely aligned with demand A year of stronger earnings has invited a number of smaller new entrants to the carrier market Carriers have not announced Winter schedules to date and have been reluctant to withdraw capacity prior to the pre Lunar New Year surge Adequate supply of equipment and vessel space for both imports and exports for current demand New build vessel orders have increased as carriers try to secure any remaining discounts (60% of new orders larger than 13,000 TEUs)
9 Next Generation Container Ship 20,250 TEU Ultra Large Container Ship (ULCS) LOA: 1,443 feetBeam: 194 feet 220,000 Tons21 knots 8 above deck 11 below2 Prop What is the right size vessel? Fuel Cost vs. Unit Cost
10 Bunker – On the Rise (Again) Fuel price volatility will continue = shared risk thru floating bunker surcharges
11 Emerging Trends in 2011 Expect to see stable but more moderate growth of 7-8% during the next few years Terminal, rail and roadway infrastructure concerns that were regular concerns will begin to resurface Expect to see carriers announcing void sailings and winter schedules in February/March Lunar New Year Impact will effect equipment availability for exports in late Feb/early March Weak dollar continues to promote strong export market – anticipate equipment & space issues to resurface in the U.S. by April Australian flooding has wiped out an estimated 60% of agricultural exports increasing demand for US agri exports to Asia
12 Emerging Trends in 2011 Fuel volatility will continue – floating bunker will remain a shared variable cost exposure More distribution center growth on USEC due to rising fuel costs & last mile of supply chain & in preparation for Panama Canal expansion in 2014 Escalating costs as market rebounds (raw materials, manufacturing costs & transportation costs) Increased interest from customers for multi-year contracts – longer term partnerships & stability Carriers exiting the chassis business & transferring control/ownership to truckers and pool managers Carrier alliance churn and expansion as larger new build vessels are introduced to the market Hub & spoke deployments = more transshipments Reduced sailing frequency options Extended port times = pressure on terminals & infrastructure
13 Emerging Trends in 2011 Increased regulatory monitoring & legislation that could begin to change customer/carrier relationships Shipping Act - carrier anti-trust immunity Contracts with increased service definition FMC playing increased role for mutual contract compliance Increased pressure for a national transportation policy that incorporates & synchronizes all modes across city and state boundaries Origin sourcing diversification PRC inland Non – PRC (less dependency/risk with China) Terminal utilization factors increasing with challenges to keep pace with mid-term volume growth forecasts Improved carrier / customer relationships and reduced strain as market stability is restored
14 What Lies Ahead? www.hmm21.com I believe we will return to calm seas & smoother sailing in 2011 With the impact of “The Great Recession” seemingly behind us, what is the new challenge awaiting the industry?
15 What Lies Ahead? www.hmm21.com I believe we will return to calmer seas & smoother sailing in 2011
16 Q & A Thank You January 26, 2011 David Arsenault Vice President Hyundai Merchant Marine