DHL Global Forwarding, Freight OCEAN FREIGHT … FREIGHT MARKET UPDATE DHL Global Forwarding,...

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OCEAN FREIGHT MARKET UPDATE

DHL Global Forwarding, Freight

September 2017

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Contents

DHL Global Forwarding | OFR Market Update | Sep 2017

TOPIC OF THE MONTH

1H 2017 results – Carriers OOCL, Hyundai Merchant Marine, Yang Ming, Maersk, & Hapag-Lloyd

HIGH LEVEL DEVELOPMENT

MARKET OUTLOOK

Freight Rates and Volume Development

ECONOMIC OUTLOOK & DEMAND DEVELOPMENT

CAPACITY DEVELOPMENT

CARRIERS

? DID YOU KNOW ?

Global container volumes growth in H1

3 3

Topic of the Month – H1 2017 Results

Carriers OOCL, Hyundai Merchant Marine, Yang Ming, Maersk, & Hapag-Lloyd

P R O G R E S S A N D N E T L O S S E S

Source: Alphaliner, Drewry, Investopedia

O O C L M A E R S K

OOCL posts $21m net losses on its container shipping and logistics business.

However, operating profits are a positive $22m (up at $31m when adding

JVs and other affilitated companies) – this marks a significant improvement

over 2016’s $203m operating loss.

Volumes are up +6.8%, whilst the average revenue per box grew by 7.8%.

The first half of the year marks a strong recovery for the carrier. Operating

profits are at a firm $364m, whilst net profits top at $339m, after five

consecutive negative quarters.

This improvement is driven by a 22% increase in freight rates, whille

volumes only went up 2% at 5.4mTEUs – Maersk favors profitability over

market share.

The cyber attack is expected to have a $200 to 300m impact on the carrier’s

financials, mainly in Q3, due to the extra operating costs of July (shutdown +

rebuilt of the IT infrastructure).

H Y U N D A I M E R C H A N T M A R I N E

It is yet a ninth consecutive negative quarter for the South Korean carrier,

and this despite a 46% growth in volume (ca. 1mTEU vs. 0.7mTEU in 2016).

Revenue only grew by 33% due to downtrading routes.

As a consequence, HMM records $83m operating loss, with a negative

-8.6% operating margin.

H A P A G - L L O Y D

The results for Q2 mark significant improvements over that of Q1. Revenue

progressed by 12% at €2.4m (also a 28% year on year increase over

2Q2016).

Net profit skyrocketed to €14m, when the carrier scored a €63m net loss in

1Q2017.

Volumes are up 21% compared to 2Q16’s, at 1.8mTEUs. Freight rates only

grew 4%. All the data mentionned here does include the contribution of UASC,

as the merger completed on 24th May.

Y A N G M I N G

The carrier performs below the results of its other Taiwanese counterparts, as

it records $15m in net loss. That being said, it is a large improvement over

2016’s $148m net loss.

Yet, it pales in comparison with both Evergreen’s and Wan Hai’s positive

results for this half year.


4 4

High Level Market Development – Supply and Demand

2017F 2018F 2019F 2020F 2021FCAGR

(2017-2021)

EURO 1.8% 1.8% 1.7% 1.7% 1.8% 1.7%

MEA 2.6% 3.4% 3.7% 4.1% 4.0% 3.8%

AMER 2.1% 2.6% 2.5% 2.4% 2.4% 2.5%

ASPA 4.8% 4.6% 4.6% 4.5% 4.7% 4.6%

DGF World 3.0% 3.1% 3.1% 3.1% 3.2% 3.1%1’200

1’000

800

600

400

200

0

Q2 Q1

16

Q4 Q3 Q2 Q1

15

Q3 Q1

17

Q4 Q3 Q2

0

500

2’500

2’000

1’500

1’000

Q2 Q3 Q2 Q1

16

Q2 Q1

15

Q4 Q3 Q1

17

Q4 Q3

0

200

400

600

800

Q4 Q4 Q3 Q2 Q1

16

Q1

17

Q2 Q3

Q3 Q2 Q1

15

BIX 380

BIX MGO

SHANGHAI

CONTAINERIZED

FREIGHT INDEX

(SCFI)3)

WORLD

CONTAINER

INDEX (WCI)2)

BUNKER

PRICE

INDEX 5)

ECONOMIC

OUTLOOK 1)

GDP GROWTH

BY REGION

SUPPLY VS

DEMAND

GROWTH 4)

Source: 1)real GDP, Global Insight, Copyright © IHS, Q2 2017 . All rights reserved; 2) Drewry Container Forecaster –

Forecast global supply-demand balance; 3) Shanghai Shipping Exchange, in USD/20ft container and USD/40ft container for

US routes, 15 routes from Shanghai, 4) Global Insight, Drewry, 5) Bunker Index, in USD/metric ton, Bunker Index MGO (BIX

MGO) is the Average Global Bunker Price for all marine gasoil (MGO) port prices published on the Bunker Index website,

Bunker Index 380 CST (BIX 380) is the Average Global Bunker Price for all 380 centistoke (cSt) port prices published on the

Bunker Index website

0.0

2.0

4.0

6.0

8.0

10.0

% Growth

2019F 2018F 2015 2014 2017F 2016 2013 2012 2011

Demand Growth

Supply Growth


5 5

Market Outlook September 2017 – Major Trades

Rates are stabilizing – at a high level

KEY Strong

Increase ++

Moderate

Increase +

No

Change =

Moderate

Decline -

Strong

Decline - -

EXPORT REGION IMPORT REGION CAPACITY RATE

EURO AMNO = +

AMLA - ++

ASPA = -

MENAT = -

SSA = =

AMNO AMLA = +

ASPA = =

EURO = =

MENAT = =

SSA = =

EXPORT REGION IMPORT REGION CAPACITY RATE

AMLA AMNO = +

ASPA - =

EURO = +

MENAT = =

SSA = +

ASPA ASPA = +

AMNO = +

AMLA + -

EURO = +

MENAT = =

OCEANIA = +


Source: DGF

6 6

Market Outlook August 2017 – Ocean Freight Rates Major Trades Market outlook on smaller

trades available in the

back-up

O C E A N F R E I G H T R A T E S O U T L O O K

ASPA – EURO Pre Golden week rush expected where carriers are looking into a mid SEP rate increase. Some carriers have deployed extra loaders.

EURO – ASPA &

MEA

FAK level with slight decrease to gain spot shipments; long term pricing not impacted

ASPA – AMLA Space to AMLA continues to be tight. There will be 6 extra loaders to Brazil and Argentina in Sept to cater to rollover cargo and also the

rush for Golden Week. Rates have tapered down but still at considerable high level. Pre-booking of up to 21 days in advance is crucial.

ASPA – AMNO Space continue to be tight especially ex SPRC to PSW. Some carriers have deployed extra loaders to clear backlog for direct customers.

2 scheduled GRIs on Sep 1st & Sep 15th 2017.

EURO – AMNO Well utilized vessels and lifting still strong in Aug. Short term rates will remain unchanged the rest of the quarter, trend is stable but

increasing.

ASPA – MENAT Space and Rates have been stabilized in August into EMED and Middle East, but Carriers are still limiting our low paying cargo on board on

a certain volume on weekly basis.

Port congestion in Kuwait has extended to Shuaiba port. The congestion situation will not be improved in a short period of time.

South Africa rates have increased drastically over the months, and Carriers are now trying to go for another increase of USD500/TEU in

September.

ASPA – ASPA GRI to be implemented on 1st Sep for ASPA to IPBC has been announced. Please continue to place bookings at least 2-3 weeks in

advance as space is still tight. Chittagong continues to be congested.


Source: DGF

7 7

Economic Outlook & Demand Development

Q 2 G D P G R O W T H : S L O W A N D S T E A D Y

EURO

Stronger Q2 GDP growth v. Q1at 2.1%. Solid results from ES, AT, FR, and BE. Soft slowdown in DE (0.7 to 0.6% GDP growth Q1 vs. Q2)

UK GDP increased 0.3% in Q2 – projected to reach a total 1.4% growth in 2016, and 1.0% in 2018.

UK’s PMI increases (+2 in August), both in services and manufacturing industries.

AM

US: stronger Q2 GDP growth v. Q1 (2.6% annualized), driven by personal consumption

US PMI (+2.1) also show an improved hiring trend.

AP

JP GDP grew 1.0% quarter on quarter / 4.0% annualized in Q2. Growth is supported by consumer spending, while net exports fell for the first

time since 2015.

CN: strong y/y GDP growth in Q2 at 6.9%. However, industrial production, retail sales and construction deceleration tend to weaken.

CN is threatening to end scrap and waste import

JP’s PMI shows signs that there is a risk for softened or even negative growth in Q3

EMERGING

MARKETS

IN: Government introduced the goods and services tax (GST), creating short-term disruptions in the economy for the coming months. The

planned long-term benefits of the tax include reduced logistics costs, more transparency in the tax system, and e-commerce facilitation.

RU: gradual recovery, although agressive enforcement of US sanctions on European energy infrastructures could undermine it.

BR: reduced political turmoil and lower inflation make for better economic outlook.

Source: Global Executive Summary, IHS Markit, Aug 2017. The Purchase Manager Index is an IHS proprietary metric that polls purchasing managers to understand if they are to order more or less in the future, hence giving a representative estimation

of the global business sentiment. Assessed monthly, a PMI at 50 is considered neutral, expanding above 50, and shows business shrinking below 50.


8 8

Capacity Development

Source: Alphaliner, carriers

C A P A C I T Y D E V E L O P M E N T

Extra loaders are being deployed on various long-haul routes since late July as carriers take advantage of strong cargo demand. The additional capacity has been

added to the Asia - South America, Asia - West Africa, Far East - USEC and Far East - Europe routes. At the same time carriers push for rate increases especially

on the Asia-Europe and Transpacific routes.

Strong cargo demand is so far well absorbed by the available tonnage and has had little impact on the idle fleet.

Maersk Line, Hamburg Süd and CMA CGM will join services on the Europe - ECSA trade. The new services will replace Hamburg Süd’s cooperation with MSC

who in turn have announced a weekly joint service with Hapag-Lloyd on that trade.

Increasing volumes and raising spot rates on the Far East – West Africa trade have prompted COSCO and GSL (Gold Star Line, an associate company of Zim) to

launch an extra loop, offering sailings on a fortnight basis on that trade.



9 9

Carriers


M A E R S K S E L L S M A E R S K O I L

A.P. Møller-Maersk (APM-M) has announced on 21 August the sale of Maersk Oil to the French oil and gas major Total S.A. for a total enterprise value of $7.45 Bn.

The sale will completely terminate the energy business of the group – a first step towards the transformation in a fully-fledged transport and logistics company.

This marks a strategic change in the group’s strategy – Maersk Oil was established in 1962 and became the second largest source of the group’s revenue, with a

14% share.

The three remaining energy-related business units of APM-M will be separated from the group by the end of 2018, in line with a strategy that already led to the

acquisiton of Hamburg-Süd.



10 10

Did You Know ?

Source: Alphaliner

GLOBAL CONTAINER VOLUMES GROWTH IN H1

Average global container growth, 1H ’17: 6.7% (est.)

Global Q2 growth: 7.4%

Global Q1 growth: 5.9%

Growth is on track to reach an annual six-year high

South Asia ports are driving the growth (+9.3% in H1), while Middle East

regions lag behind (still posting growth at +3.1%)

At the country level, China (+8.4%) and the US (+8.2%) post the highest

growths.

At port level, Ningbo, Guangzhou and Hong Kong enjoy a double-digit

growth, respectively at +14.4%, +11.7% and 10.5%.


11 11 B A C K - U P

12 12

Market Outlook September 2017 – Ocean Freight Rates Additional Trades (1/2)

Ocean Freight Rates Outlook

EURO – AMLA from the end of September capacity will drop by 20% on the SAEC trade, as 3 services will be consolidated into 2 services. As vessels are

already very well utilized (around 90 – 100%), this will end up into considerable rate increases as of October / Q4.

EURO – SSA unchanged stable, well utilized vessels

US – MENAT Space is tight from USEC & USGC Ports but better this month.

Bookings are 2-3 weeks out carriers with larger ships (Such as MSC) is in better shape.

It appears that current rates will stay the same until end of September or October.

US – SSA Space is available to all destinations in South & West Africa.

E.Africa is tighter due to routing via congested transshipment ports.

Rates are stable and there is no increase in the horizon for now.

US – AMLA GRI from US to WCSA implemented by direct carriers. All other lanes US to ECSA, Caribbean and CENAC remain static. Services to WCSA

remain over-subscribed, all other trades space open.

AMLA Exports FCL market is facing extreme space issues from the ECSA. Rates have doubled and tripled in some cases on certain trade lanes.

Situation could last through December 2017. Bookings should be placed 2-4 weeks out to ensure space.

Space ex SAWC tight to the US and along the WCSA.

Carriers seeking shorter validity on typical yearly negotiated contracts

Space to EURO in AUG onward from SAEC could be reduced by 1 sling, more information to follow

Source: DGF team

Source: DGF team

Source: DGF team


13 13

Market Outlook September 2017 – Ocean Freight Rates Additional Trades (2/2)

nothing to be highlighted Freight Rates Outlook

EURO MED - AMNO Nothing to be highlighted

EUR MED – AMLA Nothing to be highlighted

EURO MED – ASPA Stable, nothing to be highlighted

EURO MED – MENAT Stable, nothing to be highlighted

EURO MED – SSA Nothing to be highlighted

ASPA-SPAC Space situation from North Asia, especially China and South East Asia to Australia and New Zealand remain tight in August and

September. Scheduled GRI in September for all southbound trades.


Source: DGF

14 14

Market Outlook – Volume Outlook in Main Trade Lanes, 2017 Estimate & Growth

Forecast 2017/20 in %

N O R T H

A M E R I C A I n c l .

M E X I C O

3.5 mTEU +1.2%

1.7 mTEU +0.9%

1.7 mTEU +1.3%

0.2 mTEU +3.0%

N O R T H

A M E R I C A I n c l .

M E X I C O

L A T I N

A M E R I C A

E U R O P E

I n c l . M E D

11.9 mTEU +1.6%

7.0 mTEU +0.9%

7.6 mTEU +0.7%

15.8 mTEU +0.9%

7.0 mTEU +0.9%

4.5 mTEU +2.8%

2017e, in mTEU 2017e-2021e CAGR, in %

F A R E A S T

I N T R A A S I A

excl. Oceania

35.1 mTEU +3.1%

3.5 mTEU

+1.3%

2.0 mTEU

+0.7%

L A T I N

A M E R I C A

G L O B A L C O N T A I N E R T R A D E 2 0 1 7 e 1 3 8 . 5 m T E U + 2 . 3 % C A G R 2 0 1 7 e - 2 0 2 0 e

Mid-term growth is mainly driven by Asian tradelanes.

Source: Drewry


15 15

Global Capacity Development all Trades

20 19 23 23 23 24

28 28 27

Highest scrapping level ever Idling remains high

[TTEU]

602

(May 2017)

1,324

Q4

2016

Q4

2015

1,359

Q4

2014

228

Q4

2013

779

Q4

2012

809

Q4

2011

595

Q4

2010

356

Q4

2009

1,480

Returning

capacity

well

absorbed

by

demand

3.0%

[TTEU]

381

2013

444

2012

332

2011

75

2010

131

2009

351

+239%

Apr 17

YTD

205

2016

654

2015

193

2014

Average age Net capacity growth remains low

Net capacity growth 2017E

Scrapping Net capacity

growth

2.7%

-3.3%

-1.8%

Scheduled

capacity growth

Post-ponements

7.7%

Orders placed by year [TEU m] Vessel deliveries by year [TEU m]

0.2

2015

0.0

2016

2.2

2014

1.1

2013

2.0

2012

0.4

2011

1.8

2010

0.6

2009

0.1

2008

1.2

2007

3.2

Apr17

YTD

+33%

1.2

2017E 2016

0.9

2015

1.7

2014

1.5

2013

1.3

2012

1.3

2011

1.2

2010

1.4

2009

1.2

2008

1.4

2007

1.4 15,300 TEU

Very few deliveries expected post 2017

Source: Alphaliner (May 2017), carrier views


16 16

Carrier Mergers, Acquisitions and Alliances

M E R G E R S A N D A Q U I S I T I O N S

China

Shipping Cosco

OOCL TBC

Evergreen APL CMA

CGM Hapag

Lloyd

United

Arab

Shipping

Hyundai

Merchant

Marine

Hamburg

Süd Maersk

Line MSC K Line MOL NYK

Yang

Ming Hanjin

Shipping

CHINA COSCO SHIPPING EVER

GREEN CMA CGM HAPAG-LLOYD/UASC

HYUNDAI

MERCHANT

MARINE MAERSK LINE MSC

OCEAN NETWORK

EXPRESS (ONE) YANG

MING Bankrupt

A L L I A N C E S

F O R M E R A L L I A N C E S P R E S E N T A L L I A N C E S

2M MAERSK LINE

MSC OCEAN 3

CMA CGM

CHINA SHIPPING

UNITED ARAB

SHIPPING COMPANY

2M

MAERSK LINE

MSC

HMM (strategic

cooperation)

OCEAN

ALLIANCE

OOCL

CMA CGM

CHINA COSCO SHIPPING

EVERGREEN

G6

HAPAG-LLOYD

MOL

NYK

APL

HYUNDAI

MERCHANT

MARINE

OOCL

CKYHE

COSCO

EVERGREEN

HANJIN

SHPPING

K-LINE

YANG MING THE ALLIANCE

HAPAG-LLOYD/UASC

ONE

YANG MING

Source: Carriers


17 17

Drewry’s Altman Z-Score as at June ‘17

Company Period Period End Unit Net Sales EBIT Asset Total Asset

Current

Book Value of

Equity

Liabilities

Total

Liabilities

Current

Retainted

Earnings Z-Score

AP Moller-Maersk 3 months 31-Mar-17 mn US$ 8,963 1,784 38,380 11,494 560 37,820 11,406 4,988 2.40

OOIL (parent of OOCL) Annual 31 Dec 16 mn US$ 5’298 -138 9,405 2’566 4’519 4’885 1’313 4’457 1.89

CMA CGM 3 months 31-Mar-17 mn US$ 4,620 -260 18,812 5,940 5,029 13,783 6,006 4,637 1.72

Wan Hai 3 months 31-Mar-17 mn NT$ 13,877 14 72,584 27,233 32,757 39,827 15,164 9,876 1.65

Hapag-Lloyd Holding 3 months 31-Mar-17 mn EUR 2,132 4 11,206 1,573 4,940 6,266 2,386 3,090 1.54

NYK Group Annual 31-Mar-17 bn Yen 1,924 -18 2,045 575 592 1,452 458 202 1.36

K Line Group Annual 31-Mar-17 bn Yen 1,030 -46 1,045 381 245 800 223 56 1.28

Pacific International Lines Annual 30-Dec-15 mn US$ 3’732 146 5’830 1’215 1’979 3’851 1’493 1’184 1.26

MOL Group Annual 31-Mar-17 bn Yen 1,504 3 2,218 481 684 1,534 383 355 1.23

China Cosco1) 3 months 31-Mar-17 mn RMB 20,101 566 120,574 46,136 38,531 82,044 35,473 8,576 1.22

Evergreen Marine Corp 3 months 31-Mar-17 mn NT$ 33,839 658 181,027 51,096 52,104 128,923 40,113 5,298 1.15

Yang Ming 3 months 31-Mar-17 mn NT$ 30,255 -1,241 131,765 22,782 16,615 115,150 40,935 -2,554 0.69

Zim 3 months 31-Mar-17 mn US$ 655 25 1,723 512 -110 1,833 562 -1,901 0.09

Hyundai Merchant Marine 3 months 31-Mar-17 bn Won 1,302 -566 3,830 1,666 749 3,081 1,091 -2,221 -1.08

• Weak operating performance of all carriers, together with the weak balance sheet position of some carriers, have resulted in generally poor Z-scores for all carriers involved in

container shipping. None of the companies were able to reach the ‘safe zone’ Z-score of 2.99 or more.

• The Z-score is a statistical analysis to predict a company’s probability of failure in the next 2 years, using data from the company’s financial statement.

• A Z-score ≥ 2.99 company is “safe”.

• A Z-score between 1.8 and 2.99 exercise caution (“grey zone”).

• A Z-score ≤ 1.8 higher risk of the company going bankrupt (“distress zone”).

All indications based on these financial figures only.

Source: Drewry Sea & Air Shipper Insight, June 2017; 1) parent of Cosco Container Lines; Z-score is calculated as follows: T1 = (Current Assets - Current Liabilities) / Total Assets, T2 = Retained Earnings / Total

Assets, T3 = Annualized EBIT / Total Assets, T4 = Book Value of Equity / Total Liabilities, T5 = Annualized Sales / Total Assets, Z-score bankruptcy rating = 1.2*T1 + 1.4*T2 + 3.3*T3 + 0.6*T4 + 1.0*T5


18

Acronyms and Explanations

2M - Carrier Alliance: Maersk / MSC OCRS - Operational Cost Recovery surcharge

AMLA - Latin America OWS - Overweight Surcharge

AMNO - North America PH - Philippines

AR - Argentina PNW - Pacific North West

ASPA - AsiaPacific Ppt. - Percentage points

BR - Brazil PSW - Pacific South West

CAGR - Compound Annual Growth Rate RR(I) - Rate Restoration

CENAC - Central Amercia and Caribbean SAEC - South America East Coast

CKYHE - Carrier Alliance: Cosco, K-Line, YangMing, Hanjin and Evergreen SAWC - South America West Coast

CNC - CNC Line (Cheng Lie Navigation Co. Ltd.) SOLAS - Safety of Life at Sea

DG - Dangerous Goods SPRC - South People’s Republic of China – South China

DWT - Dead Weight Tonnage SSA - Sub-Saharan Africa

EB - Eastbound SSL - Steam Ship Line

ECSA - East Coast South America T - Thousands

EURO - Europe TEU - Twenty foot equivalent unit (20‘ container)

FMC - US Federal Marine Commission TP - Trans Pacific

G6 - Carrier Alliance: APL, Hapag Lloyd, Hyundai, MOL, NYK and OOCL TSA - Trans Pacific Stabilization Agreement

GRI - General Rate Increase ULCS - Ultra Large Container Ship

HJS - Hanjin Shipping USGC - US Gulf Coast

HMM - Hyundai US FMC - US Federal Maritime Commission

HSUD - Hamburg Süd USEC - US East Coast

HWS - Heavy Weight Surcharge USWC - US West Coast

IA - Intra Asia VGM - Verified Gross Mass

IPBC - India Pakistan Bangladesh Colombo VLCS - Very Large Container Ship

IPI - Inland Point Intermodal VSA - Vessel Sharing Agreement

ISC - Indian Sub Continent WB - Westbound

MENAT - Middle East and North Africa WCSA - West Coast South America

mn - Millions YML - Yang Ming Line

MoM - Month-on-Month YoY - Year-on-Year

NOO - Non-operating (vessel) owners YTD - Year-to-Date

Ocean 3 - Carrier Alliance: CMA, UASC, China Shipping


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