1. Trade Concentration and Large Vessels in the Container Trades
Andrew Penfold Director, Ocean Shipping Consultants Ltd.
Barcelona, June 2008
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2. Presentation Overview - trade expansion, concentration and larger vessels
What is actually happening to trade volumes?
How are these likely to develop - are these trends sustainable?
How have shipping lines reacted to these developments?
Optimum future vessel sizes
The true position for container terminals
Supply/demand balance for larger vessels
Issues arising from the size revolution
Scale economies are driving the business, ship size revolution will have major effects for all trade sectors - not just arterial
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3. What is Happening to Trade Volumes?
Volumes have increased dramatically, with port demand reaching around 470m TEU in 2007
Demand has actually accelerated with total volume’s CAGR increasing from 10.5% pa in the 1990s to 12.8% pa since 2000
This growth - although focused on Asian trades - has been broadly-based and all regions have benefited
This is the true manifestation of globalisation - made possible by containerisation
Transshipment has been a major demand sector and reached nearly 112m TEU last year
Large vessels + feeders is the dominant mode
Ports are under pressure to handle larger vessels, shipping lines position under pressure from overtonnaging and fuel prices
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4. World Container Port Demand by Region Since 1990 - million TEUs
some slowdown in demand growth
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5. What is Happening to the Container Fleet?
The role of 10,000TEU+ vessels has increased dramatically - driven by scale economies and competitive pressures
Sheer level of ordering for ULCS and New Panamax vessels is difficult to justify - overtonnaging (again) will be the outcome
Transpacific and Asia-Europe trades will absorb most of this tonnage - but the ‘cascade’ effect will see redeployment of 6000TEU+ vessels into the Atlantic and some N-S trades
At the same time fuel is much more expensive - there are pressures to slower steaming and dropping port calls
The overall effect will be further concentration and transshipment activity
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6. Design Development of Deepsea Containerships
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7. A Ship Size Revolution is Underway - I
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8. Asia-Europe Vessel Costs Per TEU Slot by Speed and Bunker Price - $/TEU Slot
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9. A Ship Size Revolution is Underway - II
Orderbook for very large vessels at unprecedented levels
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10. A Ship Size Revolution is Underway - IV
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11. A Ship Size Revolution is Underway - III
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12. Much Larger Vessel Sizes - a continuing process
We are in the middle of a size-based revolution for container ships
This is not just in the arterial trades - much larger vessel sizes are expected in north-south trades and for feeders
The economic drivers are clear - lines that don’t move up will see their competitive position undermined
Already 13,500TEU+ vessels are a reality and the orderbook confirms this will accelerate
The decision to proceed with Panama Canal expansion was a key factor. This will accelerate penetration of larger vessels into the Atlantic
Shipping lines will introduce much larger vessels. Ports will have to respond.
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13. The True Position for Vessel Sizes
Clearly, the pressure is on to berth larger vessels but, as trades are severely imbalanced, actual draught is much less than design draught. E.g. Asia to Europe vessels are full of light cargoes, Europe to Asia has many heavy containers and many empties
Draught has received much attention but only limited further increases are anticipated
The major pressure for ports will be handling huge consignments and allowing access for long and wide vessels
Investment attention is now focused on handling capacity and providing effective links:
For high volume for feeders
For the hinterland (especially intermodal)
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14. Design Draught v. Actual Draught at N
Design Draught v. Actual Draught at N.Continent Container Terminals
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15. Forecast Summary - what is the outlook?
Strong demand growth will continue, but there will be increased risks
These risks are macro-economic
How will the Chinese bubble be sustained and what are the implications for container trade and ports?
Will the transpacific slowdown be mirrored in the Asia-Europe trades?
There are also significant technical changes that will revise the shipping market - specifically the Ultra Large Container Ship and the Panama Canal programme
There will be increased reliance on feedering - this sector will see ship size increase and demands for much better service
A subsidiary concern - will there be enough feeder ships?
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16. Latest Demand Projections
Forecast container port demand will reach between m TEU by 2015 and could exceed 1bn TEU by 2020
The main danger - the ‘increased risk case’ is that there is dislocation and lower average growth in the medium term. The Chinese bubble, ‘sub-prime’ and ‘credit crunch’ mean risks are much higher now
Even here, demand will remain very strong but year-on-year growth rates will vary widely
This makes demand projection (and vessel/project financing) much more difficult
A period of massive demand expansion is forecast, but volatility will be much greater.
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17. Forecast World Container Trade to 2026 - million TEUs
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18. Implications for Container Terminals
In order to handle much larger vessels and consignment sizes terminals must both expand and make better use of existing facilities
In North Europe, consignment sizes are averaging nearly 2700TEU for 6000TEU+ sizes. For very large vessels, up to 5000TEUs have been handled at single port calls
These increases will be noted in all major front rank ports
Terminal productivity has increased - especially volume per berth metre - but there remain wide differences
Terminals which do not lift productivity will see market share decline
There is scope for considerable further improvement
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19. Major Container Terminals: Berth Productivity 2000-2006 - TEUs/m/a
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20. Implications for Container Shipping
In the short term - downward pressure on freight rates as a result of demand uncertainty and over supply
Much higher fuel prices will slow trading speeds - absorbing some excess capacity
Cascade effect will accelerate ship size pressures in secondary trades - larger vessels much sooner than anticipated
As market returns to equilibrium the emphasis on larger vessels will be confirmed
Investment required in feeder vessels to meet demand
Mid-size vessels under pressure
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21. Daily Charter Rates for Representative Vessels since 1998 - $/day
Supply side issues have been the generator of the cyclical pattern in container markets
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22. Estimated ‘Cascade’ Effect for Large Containerships to 2010
Even delayed delivery will see cascade of vessels to smaller volume trades
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23. Container Fleet Productivity 1990-2007 - TEUs per fleet TEU
Productivity is key driver of freight and charter markets
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24. Productivity and Freight Rates 1994-2007
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25. 3500TEU Productivity and Charter Rates 1998-2007
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26. 5000TEU+ Containership Demand to 2026 - million TEUs
Demand focuses on 5000TEU+ fleet sector - ULCS/NPX dominant on these trades
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27. Large Containership Fleet Development to 2012 - ‘000TEUs
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28. Forecast 8000TEU+ Productivity to 2026 - TEUs per fleet TEU
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29. What does all this mean?
Massive container demand growth - even under ‘high risk’ scenario
Concentration of demand in largest fleet sectors
Increased transshipment:
Hub and spoke, and
Interline (relay)
Bigger ships and much bigger consignments concentrated on hub port calls
Short/medium term pressure on shipping profitability
Concentration of demand in much larger hub terminals with supporting feeder and regional ports
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30. Trade Concentration and Large Vessels in the Container Trades
Andrew Penfold Director, Ocean Shipping Consultants Ltd.
Barcelona, June 2008
SIL 2008 Barcelona