1. Containership Industry Review
Confidential
Containership Industry Review
 Q4 2006
Prepared by Group Research & Development (GRD)
January 2007

2. Table of Contents Section 0 : Executive Summary
Section 1 : Economic Outlook
Section 2 : Demand & Supply Balance
Section 3 : Freight Rate
Section 4 : Capacity Supply
Section 5 : Newbuilding Market Trend
Section 6 : Industry/Market Development

3. Executive Summary
World growth in 2006 at 4.0% will see an improvement over 2005 (3.5%) . Following that, it is expected to slow to 3.2% in 2007, before picking up modestly to 3.4% in 2008.
Two of the largest engines of global growth, the US and China, are showing strains, with the US economy entering into a potential slowdown and the Chinese economy taking measures to cool the economy.
Against this backdrop, global trade demand is expected to moderate while remaining healthy in 2007:
US personal consumption is likely to moderate arising from weakness in housing market. On the upside, falling oil price as well as from a steady US interest rate (which is expected to be stay flat till the middle of 2007) are expected to provide support to the growth.
Demand for Asian made consumer goods is expected to continue its resilience moving into Despite being cautioned as risking an overheated economy and the expected RMB appreciation , China will remain a strong manufacturing base of the world. The emergence of India as a manufacturing hub will also spur more Asian exports.
As a result, intra-Asian trade will stand to benefit from trading of raw materials and semi-processed goods between the neighbouring Asian countries and the manufacturing giants of China and India.
As at Nov 2006, the total container capable capacity stood at 11.1 M TEU, with a total of 9,308 vessels. This was an increase of 11.6% over Dec The total order book currently stands at 4.7 M TEU. This corresponds to 42% of total existing shipboard capacity.

4. Executive Summary (continued)
Supply growth for 2006 is estimated to reach 13.5%, exceeding demand growth of 10.6%. Supply is expected to moderate to 12.5% in 2007.
Supply growth is expected to exceed demand growth in 2006 following a balanced supply/demand situation in Overcapacity situation is likely to prevail for 2007 and Factors such as congestion, increasing trade imbalances and increasingly trade distances, carriers’ actions to reduce shipping capacity (eg return chartered ships to owners, add more ships to existing services, withdrawal from new services), etc may ease the oversupply situation, but unlikely to swing the balance.
In terms of tonnage ranking, Maersk remained far ahead at the top, doubling the size of its closest rival, MSC. CMA CGM retained its 3rd place, ahead of Evergreen in the 4th. Hapag-Lloyd was in 5th, with CSCL in 6th position. COSCO took 7th and APL filled 8th place.
In ownership profile, charter owners now control 54% of the total container capable fleet, holding steady from the previous quarter. This equates to 5.98 M TEU in the hands of charter owners and 4.93 M TEU owned by operators.
In the charter market, rates showing signs of further slowing as some liner operators are planning to return chartered ships to charter owner.
In the newbuilding market, price of containership is expected to steady in near future, but would soften further towards the end of the year if buyers remain reluctant to order new ships for delivery beyond Sluggish chartering activities would also exert downward on newbuilding price.

5. Section 1 – Economic Outlook

6. Economic Outlook
World growth in 2006 will see an improvement on Following that, it is expected to slow to 3.2% in 2007, before picking up modestly to 3.4% in 2008.
Two of the largest engines of global growth, the US and China, are showing strains, with the US economy entering into a slowdown and the Chinese economy taking measures to cool the overheated economy.
China is expected to record growth at 10.5% in 2006, but slowing to 9.6% in Similarly, India GDP growth will moderate to 7.8% in 2007 from 8.7% in 2006.

7. Key Indicators for US (% growth)
Economic Outlook – US
The US economy grew at 2% in 3Q 06, its weakest pace in more than 3 years.
A weak housing market as well as potential inflation increases were the likely causes of the slower growth. If the housing market moves towards a soft-landing and the Fed continues to adopt a cautious stance in raising interest rate, GDP is likely to slow more significantly to 2.0% in 2007 before picking up at a slightly higher pace of 2.8% in 2008.
Key Indicators for US (% growth)
2003
2004
2005
2006F
2007F
2008F
GDP
2.5
3.9
3.2
2.0
2.8
PCE
3.5
3.0
1.6
2.1
Gross Fixed Investment*
3.4
7.3
7.5
4.8
Note: * Gross fixed investment is used as a quick indicator for business spending
Source: EIU

8. Key Indicators for EU-25 (% growth)
Economic Outlook – EU
EU countries has entered 2006 with a strong momentum. Key to the acceleration is pick up in business spending as well as consumer spending.
Growth for the EU in 2007 is projected to moderate slightly. Economic performance varies across member states. For example:
The UK, which has been growing 2.6% in 2006, will slow to 2.2% in 2007, as an interest rate rise is expected to dampen a still booming housing market.
Germany's GDP growth for this year is likely to moderate to 1.4%, with VAT rise effective from 1st Jan 07.
Key Indicators for EU-25 (% growth)
2003
2004
2005
2006F
2007F
2008F
GDP
1.4
2.4
1.8
3.0
2.3
PCE
2.0
1.5
1.7
1.6
Gross Investment*
4.5
2.7
3.6
3.4
3.2
Note: * Gross investment is used as a indicator for business spending
Source: EIU

9. Key Indicators for Japan (% growth)
Economic Outlook – Japan
Japan is currently moving steadily on a firm recovery path, driven by corporate investment and strong demand for Japanese exports in the developed world and rest of Asia as well as a consumer demand.
Going forward into 2007, the momentum of growth is expected to come from consumer demand as labor market continues to improve
Key Indicators for Japan (% growth)
2003
2004
2005
2006F
2007F
2008F
GDP
2.0
2.1
2.7
2.9
1.9
1.8
PCE
0.6
1.6
Gross Fixed Investment*
0.5
1.1
3.6
4.7
3.2
2.3
Note: * Gross fixed investment is used as a quick indicator for business spending
Source: EIU

10. Key Indicators for China (% growth)
Economic Outlook – China
China’s growth is projected to moderate to an average of 9.6% for 2007 and 2008 as the measures taken to cool the economy take effect.
China is expected to continue its key consumption role in the Intra-Asia trade as it imports intermediate goods for its production, and increasingly for domestic consumption as China becomes more affluent.
Furthermore, the major events such as Beijing Olympics in 2008 and Shanghai Expo in 2010 is expected to provide boost to China’s imports of goods, benefiting TPWB, EUAS and Intra-Asia trade over the next 4 years.
Key Indicators for China (% growth)
2003
2004
2005
2006F
2007F
2008F
GDP
10.0
10.1
9.9
10.7
9.3
PCE
7.7
7.1
9.0
9.1
9.2
Gross Fixed Investment*
19.8
14.4
17.9
16.6
12.0
12.6
Note: * Gross fixed investment is used as a quick indicator for business spending
Source: EIU

11. Section 2 – Demand & Supply Balance

12. Container Trade Demand Outlook
On expectation of a moderating world economic growth, global trade demand in 2007 is expected to slow slightly, following a higher expected than growth in 2006.

13. Containership Supply Outlook
Containership supply is estimated to grow 13.5% in is likely to see a 12.4% increase or 1.47m Teus will witness another 1.57m Teus delivered, slowing to a 11.7% growth rate. At this point, the new orders growth for 2009 stands at 6.9%.

14. Demand & Supply Balance Outlook
Supply growth is estimated to outpace demand growth in the next 3 years
Source: Drewry, Trade Horizon, MDS/GRD

15. Demand & Supply Balance by Drewry /Clarksons as at Nov 2006
Demand & Supply Balance Outlook (external sources)
Demand & Supply Balance by Drewry /Clarksons as at Nov 2006
Note : Drewry numbers only take into account pure containerships while Clarkson and GRD numbers includes all ships that carry containers, even smaller geared ships that carry containers. As such, Clarkson and GRD numbers are better reflection of demand & supply gap.

16. Section 3 – Freight Rate 

17. Freight Rate Trend and Outlook
Freight rates continued its downward slide in 2Q 06, while a slight turn takes place in 3Q 06. Freight rates have been widely anticipated to remain soft in 2006/07 on expectation of overcapacity.
With an oversupply of new ships for delivery in 2006, there has been widespread perception of overcapacity in the market, leading to significant drop in freight rates since the end of last year.
In recent months, carriers have been adopting ways to reduce operating capacity (withdraw previously announced new services, add additional ships to existing services but keep the same frequency, etc) These actions are likely to ease the downward pressure on freight rates in the near term.
Source: Containerisation International

18. Freight Rate Trends (continued)
Rates of TPEB continued to fall in 3Q 06 following the conclusion of the contract negotiation in May 06, while that of ASEU, TAWB increased slightly in 3Q 06.
The back haul trades showed slight increase in rates.

19. Section 4 – Capacity Supply

20. Overview - Supply
As at Nov 2006, the total container capable capacity stood at 11.1 M TEU.
The container capable capacity grew 11.6% over December 2005, and 23.6% over December 2004.

21. Top 20 Operators
Maersk remained far ahead at the top, doubling the size of its closest rival, MSC.
CMA CGM retained its 3rd place, ahead of Evergreen in the 4th. Hapag-Lloyd was in 5th, with CSCL in 6th position. COSCO filled 7th place, while APL took 8th.

22. (Source: MDS /NOL GRD Nov 2006)
Top 20 Operators – Capacity Table
(Source: MDS /NOL GRD Nov 2006)
CMA-CGM registered the highest growth, posting a 37.8% y-o-y growth. This was followed by MSC in second place, with growth of 32.3%. Yang Ming ranked third with a growth of 26.5%. Carriers such as COSCO, CSCL, OOCL and K-LINE all registered an average growth of 20% compared to the last period.
Of the total orderbook of 4.74m TEUS, 68% of the capacity will be delivered to the top 20 carriers.

23. (Source: MDS /NOL GRD Nov 2006)
Orderbook as at Nov 2006 (Deliveries 2006 and Beyond)
As at Nov 2006, the order book currently stands at 4,741,499 TEU. The top five carriers (Maersk, MSC,CMA-CGM, ZIM and NYK) based on individual orderbook, together accounted for approximately 20% of the total orderbook.
(Source: MDS /NOL GRD Nov 2006)

24. Orderbook as at Nov 2006 – Ships above 3,000 TEU

25. Orderbook as at Nov 2006 – Ships above 3,000 TEU (continued)

26. Containership Age Profile
At Nov 2006, the average age for the global containership fleet is 15.5 years.
APL operates a relatively young fleet of average 9.8 years, with approximately 63% of its total fleet below 10 years of age.

27. Container Capable Fleet Ownership Profile
The mix of charter owned and operator owned vessels remained steady as of Nov Charter owned vessels currently account for about 54% of total container capable fleet.
Container Capable Fleet Ownership Nov 1998 vs Nov 2006
Fleet Size: 5.74m TEU
Fleet Size: 11.1m TEU
Owner Operated: 3.14m TEU, 54.7%
Owner Operated: 4.93m TEU, 44%
Charter Owner: 2.34m TEU, 40.8%
Charter Owner: 5.98m TEU, 54%
< 3000 TEU
TEU
> 7000 TEU
Note: The above chart does not include portion of fleet for which ownership is unknown
(Source: MDS /NOL GRD Nov 2006)

28. Section 5 – Newbuilding Market

29. Newbuilding Contracts
For YTD Dec 06, 1.54 M TEU of new containerships has been contracted, exceeding that for the whole year of 2005.
Ships of 3,000-6,999 TEU size remain the largest category of ships ordered. Orders for smaller vessels of size below 3,000 TEUs dropped significantly from the previous year.
Overall, containership newbuilding contracts were lower in 2006 as compared to the 2003/2004 levels, in line with the market sentiment.

30. Newbuilding Prices
New containership price has so far remained firm despite weakness in new orders from liners in recent months. It was supported by a strong demand from the dry bulk sector allowing yards to commit berths forward into 2010 and even into [Note: Demand for yard space from the dry bulk sector has posed some competition as its price has risen].
In near future, containership newbuilding price is likely to remain steady in view of these factors :
Yards’ orderbook is almost full up to 2009 (upside).
Tanker buyers are in general not ready to commit to beyond 2009 berths which yards are now actively marketing (downside).
Furthermore, weakening charter rates would discourage further activities (downside).

31. Newbuilding Prices (continued)
The end of Q was a relatively quiet month for new orders placed. A total of 125,844 TEU was ordered during the month, 35% down on TEU ordered in the previous month, which totalled 193,776 TEU, and 29% down on TEU ordered in July 06. Yards are ready to quote for 2010 berths but are not seeing much in terms of new enquiries.
In spite of supply side concerns, owners were forced to take into consideration the possibility that it might be difficult to build enough containership capacity in the remaining 2009 berths to meet projected demand. By the middle of the quarter containership owners had taken the plunge and newbuilding activity in this sector began to increase.
There are now only a handful of berths remaining in 2009 for large containerships and business remains price sensitive, with tankers and gas carriers still providing higher margins for the shipyards. While 2009 is almost fully booked, it is uncertain if there will be strong competition for berths in 1H 2010 as so far, tanker buyers are in general not ready to commit to beyond 2H 2010 berths.

32. Charter Hire Rates
Chartering activities slowed in recent months, resulting in continued rate slide. Going forward, downward pressure on charter rates is expected continue as some liner operators have planned to return chartered ships to charter owners. The downward pressure on charter rates had not been even, with the larger sized ships e.g TEU sizes, bearing most of the brunt.
Source: Howe Robinson & Co Shipbrokers

33. Charter Hire Rates (continued)
The charter market has been moving on a downward trend across all classes.
At Dec 2006, charter rates, on average, fell by 18.1% as compared to the same period last year. The largest fall was seen for vessels in the 1,700 TEU, 2750 TEU and 3,500 TEU range, which averaged a 24% decline year-on-year.

34. Section 6 –Industry/Market Development

35. East-West Market Share (YTD Sep 2006)
Maersk maintained lead in all three east-west trades.
Hapag-Lloyd took third position in the Transatlantic trade, after its acquisition of CP Ships
APL ranked 6th overall, no.3 in the Transpacific, no.10 in Asia-Europe and no.8 in Transatlantic

36. Alliance Developments
Multi Carrier Alliances
After the industry consolidation in 2005, carriers have mapped out their strategy to adapt to the new dynamics.
The Grand Alliance's new global service schedule in the year included a closer working relationship with the New World Alliance in the Asia-Europe trade.
The Grand Alliance and New World Alliance have started a joint Panama Canal service from Asia to the U.S. East Coast since August This is the fifth all-water service for both alliances.
Each alliance contributes four 3,500TEU ships on the weekly service, which would run on a 56-day rotation.
A clear trend has emerged as many carriers and carrier alliances have reworked existing services to offer direct services from a half-dozen cities in China to key load centers in the U.S. and Europe.
Grand Alliance
Grand Alliance
CHKY Alliance
CHKY Alliance
133 Vessels
121 Vessels
147 Vessels
198 Vessels
22 Strings
19 Strings
18 Strings
34 Strings
630,057 TEU
639,447 TEU
609,687 TEU
937,987 TEU
Incl
Americana(CP Ships)
MISC
MISC
partnership in TATL trade
New World Alliance
New World Alliance
Cooperates in selected trades
Cooperates in selected trades
Cooperates in selected trades
Cooperates in selected trades
81 Vessels
97 Vessels
12 Strings
16 Strings
18 Vessels
18 Vessels
18 Vessels
31 Vessels
4 Strings
4 Strings
4 Strings
10 Strings
504,876 TEU
381,426 TEU
UASC
UASC
UASC
UASC
74,368 TEU
55,854 TEU
55,854 TEU
55,854 TEU
Maersk
Line
Evergreen Group
201 Vessels
83 Vessels
30 Strings
15 Strings
975,894 TEU
392,606 TEU

37. KEY INDUSTRY DEVELOPMENT
In recent months, carriers have been taking aggressive actions to reduce operating capacity in view of excess supply of containerships in the market.
Carriers are taking actions to reduce operating capacity in major trade lanes via
Adding more ships to a service loop aims to reduce speed (to save bunkers cost) and maintain frequency.
Adding more ships to extend a service loop to make more port calls and maintain frequency.
Upsizing ships in a service loop and cascading smaller ships to other trade lanes.
Delaying or withdrawing intentions to start new services.
Returning charter–in ships to ship-owners when leases expire or early termination of leases.
Dry dock.
Scrapping.
Reduction of operating capacity may help to cushion further slide in freight rates which had fallen significantly in the past one year.
Slide 43