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21 - 27 Nov 2016

SeaIntel Sunday Spotlight November 27, 2016 – Issue 290

Windows User

Content

Editorial: Watch the niche carriers Page 2

Niche carriers escalating vessel sizes Page 3

Niche Carriers show resilient results Page 7

Unique port-port offerings, SAM-EUR 0

Carrier Service Changes Page 14

Carrier Rate Announcements Page 15

SeaIntel products Page 19

Executive Summary

Niche carriers escalating vessel sizes

Smaller niche carriers are increasing their vessel sizes at an even faster pace

than the major global carriers. For charter vessels, the rate of growth is double

that of the global carriers.

Niche Carriers show resilient results

The available 3rd quarter financial results show that 67% of the niche carriers

remain profitable – a stark contrast to the global carriers where only 10% are

profitable.

Unique port-port offerings, SAM-EUR

Despite close collaboration between carriers from South America to Europe, a

large number of unique port-pair offerings show that the trade is not fully

commoditized.

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Editorial: Watch the niche carriers With just 10 carriers controlling 75% of the global capacity, it is no surprise that the

actions of the large global carriers are subject to intense scrutiny and interest. At

SeaIntel we are no different, and have closely been following developments related to

the orders of ultra-large container ships, deployment changes due to cascading, and

deep-sea spot rate dynamics. To top this off, we have seen a historically rapid

consolidation amongst the top carriers – a high-stakes poker game which is no less

intense and captivating than the hit TV-series Game of Thrones, where different

families are fighting each other in a quest to gain the most control.

In making this parallel, we apologize to those of our readers who have not been

following Game of Thrones, but can only recommend seeing it – if for no other reason

than to see battles for survival and power at least as intense as the financial fight for

survival amongst the main container carrie4rs.

And in making this parallel, two things become obvious. One is related to the credo of

this particular TV-series: “Anyone can die”. Perhaps the industry – and the shippers –

should have taken note, as this is exactly what happened to Hanjin. This is of course

already in the past, but of note is the second parallel. In Game of Thrones it is not

uncommon for the main players to be undermined by smaller unnoticed characters.

As we show this week, the smaller players in our industry – the niche carriers – may

indeed be well poised to strike from behind. They are increasing the size of their

vessels much more rapidly than the main carriers. In doing so their unit costs, on a

relative scale, will be declining faster than for the main carriers. And even more

interesting: Whereas only 10% of the main global carriers were profitable in Q3, a full

67% of the niche carriers have shown profits in the same period.

Therefore perhaps some caution is due before all market observers declare the battle

on the part of the global carriers finalized – we may indeed be in for additional

surprises in the coming years, with the niche carriers taking an active part in

upsetting the order of the industry.


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Niche carriers escalating vessel sizes Smaller niche carriers are increasing their vessel sizes at an even

faster pace than the major global carriers. For charter vessels,

the rate of growth is double that of the global carriers .

When industry attention is on ever

growing vessel sizes, focus tends to be

on the global carriers and their phase-in

of the 18-20,000 TEU “mega-vessel”

classes. The development in this

segment is of course in itself of great

significance to the dynamics in the

industry – however there is an equally

large change happening amongst the

smaller niche carriers, which will have

an even more widespread impact than

that of the global carriers.

We have this week decided to compare

the fleet composition of the 100 largest

container lines as it stands right now,

compared to how they were in

November last year.

The initial approach is quite simple – we

have calculated the average vessel size

deployed for each carrier based on the

size of their global fleet divided by the

number of vessels they operate. Based

on this we have calculated the growth in

average vessel size for each carrier. For

this analysis we have included UASC as

part of Hapag Lloyd given the approval

for merger which was announced this

week. We have kept the three Japanese

carriers separate in the analysis, as no

firm details have been published yet

pertaining to the Joint Venture for 2017.

The result of this calculation is shown in

figure 1. As can be seen in figure 1

there are a few outliers which makes it

difficult to see the underlying trend

developments within the majority of

carriers.

Only 13 carriers have seen declines in

average vessel sizes, and can hence be

characterized as outliers and not

representative for the overall

development. Furthermore, we have one

single carrier – Interworld Shipping

Agency – seeing more than 100%


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growth, which clearly is also not

representative for the overall

development.

Hence in figure 2 we show the same

data as in figure 1, except that we have

eliminated the outliers from the dataset.

Figure 2 shows a very interesting

pattern emerging. Niche carriers with

sizes ranging from 10.000 – 100.000

TEU of capacity generally show a much

more rapid increase in vessel sizes than

the major carriers.

In order to understand this development

in more depth, we have split their

operated fleets into vessels the carriers

own, and the vessels they charter.

Figure 3 and 4 show the development in

vessel sizes for own and chartered

vessels respectively.

We see the same pattern repeated for

both own and charter vessels, however

it is also very clearly seen that the

escalation in vessel sizes is much

stronger for charter vessels.

In other words, the data shows that

over the past year, niche carriers have

been escalating vessel sizes

predominantly by taking in substantially

larger charter vessels.


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If we split the carriers into 4 sub-

groups, we get a better view at what

this will do to the industry dynamics

going forward. We have chosen to split

the carriers into four groups:

Major Global Carriers: Fleet size

of 1 million TEU or more

Minor Global Carriers: Fleet size

between 100.000 TEU and 1

million TEU

Niche Carriers: Fleet size between

10.000 TEU and 100.000 TEU

Small Niche Carriers: Fleet size

less than 10.000 TEU

Figures 5 and 6 shows the average

vessel growth split on own and charter

vessels for each of the 4 carrier

groupings.

We clearly see how the niche carriers

exhibit substantially larger growth than

the global carriers.

For own vessels there is furthermore a

stark contrast for the minor global

carriers which have essentially seen

their own vessel sizes be stagnant

compared to carriers both smaller and

larger then themselves.

For the chartered vessels, we see a

strong spike for the niche carriers who

have been seeing vessel sizes grow

twice as fast as for any other carrier

grouping.

Conclusions

There are a number of conclusions

which can be drawn from this

development.

First and foremost, this development

clearly show that the “race for scale”

have hit the niche carriers. This has 2

particularly important implications for

the future:


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As we continue to see very subdued

growth in most trades, the rapid

increase in vessel sizes with the niche

carriers will inevitably lead to the same

impact as we have seen amongst the

large global carriers in the past years.

Declining vessel utilization, high risk of

price wars and ultimately consolidation.

Furthermore, this development is of

great importance to the small and

medium sized ports and terminals. This

means that local ports – no matter how

small – have to brace themselves for a

significant relative increase in vessel

sizes calling at their ports.

A different aspect which is also apparent

from this analysis is that the group we

have termed Minor Global Carriers have

a substantial risk of being “squeezed” by

both smaller and larger carriers – as

both of these groups have a larger

growth in vessel sizes and hence,

provided they can fill the ships, a more

advantageous development in unit

costs.


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Niche Carriers show resilient results

The available 3rd quarter financial results show that 67% of the

niche carriers remain profitable – a stark contrast to the global

carriers where only 10% are profitable.

In last week’s issue of the Sunday

Spotlight we took a look at the Q3

financial results of the top-20 carriers.

The analysis showed that the majority of

deep-sea carriers are operating in loss-

making territory, with Hapag Lloyd and

Wan Hai being the only ones posting

profits for 3rd quarter 2016.

Niche carriers are typically focusing their

operations on a very limited set of trade

lanes, often mainly within intra-regional

trades. As their scope of operations

differs quite significantly from the global

carriers, it is thus of interest to see

whether this has allowed them to

“weather the storm” that is impacting

the industry at a global scale.

Hence, in this issue of the Sunday

Spotlight we will analyse the financial

results of the niche carriers in the top-

100 ranking list of carriers. As we

have already looked at the top-

20 carriers last week, we have

quite simply defined “niche” to be

any carriers ranked between

number 20 and number 100 on

the top-100 list.

Methodology

The focus of this analysis is the 2016-Q3

financial developments for the top-21 to

100 carriers according to Alphaliner’s

current ranking list. Unfortunately, not

all of these carriers publish financial

records, and for those who do, not all

have yet published their 2016-Q3

financial reports. Table A1 shows the list

of niche carriers which have published

their 2016-Q3 results.

As many of the carriers are privately

owned, financial reports are not issued.

Moreover, as other carriers are part of

conglomerates, we were only able to find

financial results from the group. Here,

precaution needs to be used when using

these figures, as they include diverse

divisions of a company.

Direct comparison of results might be

Carrier Issues Q3 report2016-Q3 data Data Source

Containerships Plc Yes Yes Q3 report

Log-In Logística* Yes Yes Q3 report

Matson Yes Yes Q3 report

RCL No Yes Stock exchange filing

Samudera Yes Yes Q3 report

Shipping Corporation of India No Yes Stock exchange filing

SITC Yes Yes Q3 report

Eimskip Yes Yes Q3 report

Temas Line Yes Yes Q3 report

Table A1: Available source for Financial data

* Report only published in Portoguese


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tricky for some measures, as carriers do

not always choose identical reporting

standards.

Where they were published, we used the

carriers´ EBIT results. Nevertheless, if

these were not specified, we used

operating profit or segment income.

For the container carriers which are part

of a larger conglomerate, we specifically

looked for the financial results of the

container-line division. However, all the

carriers analysed – apart from Shipping

Corporation of India – report only the

figures for the group.

Further, we were able to find the results

for Shipping Corporation of India through

the Indian Stock Exchange. As SITC did

not provide profit/loss figures for 2016-

Q3, we only show the revenue figures for

the period.

Additionally, as volumes figures were

only published by very few of these

carriers, we have opted to exclude them

from the analysis.

Finally, it is important to note that all the

financial figures have been translated

into USD in order to be directly

comparable.

We have chosen to look only for 2015-

Q3 and 2016-Q3 results, in order to see

the latest developments.

Financial performance in Q3

In table A2 we show the revenue results

for the nine niche carriers that provide

these figures. As explained in the

methodology, almost all the carriers

analysed provide group results. Hence,

the revenue figures include these

different segments of the companies.

As we can see, the majority of carriers

analysed posted a decrease in revenue

compared to the same period last year.

Shipping Corporation of India is the

carrier posting the largest decline, with a

-23% Y/Y 2016-Q3 revenue decrease.

Following, we find that Samudera, RCL

and SITC also saw significantly lower

revenues, equal to declines of -19%,

-16% and -13% respectively.

Looking at the other end of this scope,

only three carriers reported increasing

revenue figures: Log-In Logística, with

2% Y/Y growth, and Temas Line and

Eimskip both with 3% Y/Y increases.

Table A3 shows the profit/loss for 2016-

Q3 for the carriers which have published

2015-Q3 2016-Q3 %

Containerships Plc* 56,588,472 53,386,731 -6%

RCL* 84,782,803 70,921,760 -16%

Log-In Logística** 57,269,504 58,626,980 2%

Matson* 444,800,000 398,000,000 -11%

Samudera* 75,157,000 61,003,000 -19%

Shipping Corporation of India 20,584,500 15,811,500 -23%

SITC* 323,100,000 281,500,000 -13%

Eimskip 137,379,110 142,050,000 3%

Temas Line* 28,824,731 29,826,986 3%

*Group figures

**Group result/Report in Portoguese

Table A2: Q3 Revenues 2015-2016 in USD


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these figures, compared with the results

from the same period last year.

Following their increases in revenue,

Log-In Logística, Temas Line and Eimskip

also shows positive figures in table A3.

For Log-in Logística and Temas Line the

profits have, however, declined

compared to last year. This is not the

case for Eimskip who have seen a

marginal increase in profitability

compared to last year.

Containerships Plc. reports an

improvement in their results, coming

back to black figures from the negative

ones of 2015-Q3. Matson continues

posting positive results, albeit at a lower

level than last year.

The only carriers, among the ones

analysed, that have been experiencing

red figures in 2016-Q3 are RCL,

Samudera and Shipping Corporation of

India. As these carriers have an Intra-

Asia scope, the recent downturn in this

trade has likely be a driving factor for

these carriers’ results.

Conclusion

The analysis shows that niche carriers

have experienced more resilient financial

results than the global carriers in as far

as a higher proportion of them have

reported profits in 3rd quarter.

Based on the available results, we see

that 63% of the niche carriers are

profitable. This is in contrast with the

top-20 carriers last week where only

18% were profitable.

Additionally, it can be argued that

despite their placement in the top-20,

Wan Hai is de facto a niche carrier. If we

adopt this view, we find that in the 3rd

quarter 2016, 67% of niche carriers were

profitable, whereas only 10% of the

global carriers were profitable.

It would therefore seem that niche

carriers have indeed been able to

partially shield themselves from the

industry downturn. Whether this will be

the case going forward can be

questioned – especially seen in the

context of the rapidly increasing vessel

sizes, as documented in our other article

in this week’s Sunday Spotlight.

It should of course be kept in mind that

the share of niche carriers who provide

public results is relatively small, hence

caution must be used as it cannot be

guaranteed that the results are truly

representative for the entire sector.

2015-Q3 2016-Q3

Containerships Plc* - EBIT -1,464,794 1,509,041

RCL* - EBIT -678,678 -12,873,448

Log-In Logística** - EBIT 43,424,768 18,036,840

Matson* - Operating Income 68,900,000 42,700,000

Samudera* - Operating Income 1,211,000 -3,419,000

Shipping Corp. of India - Segment Income -4,854,000 -4,819,500

Eimskip - EBIT 11,045,320 11,485,990

Temas Line* - EBIT 7,197,442 4,451,907

Table A3: Q3 EBIT/Operating Profit 2015-2016 in USD

*Group figures

**Group result/Report in Portoguese


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Unique port-port offerings: SAM-EUR

Despite close collaboration between carriers from South America

to Europe, a large number of unique port-pair offerings show that

the trade is not fully commoditized.

In this issue of the Sunday Spotlight

we will analyse the existing products

being offered on the trade between

South America and Europe. The key

focus will be on the amount of unique

port-port combinations that shippers

can choose from.

Given that the northbound trade is a

strong reefer trade, shippers are

dependent on a well-designed service

network in these trades to provide the

best possible connections, as time and

reliability is of the essence.

In terms of general product

differentiation, the current market

situation between South America and

Europe trades is a priori less

favourable to shippers due to the

collaboration between carriers. Carriers

extensively use vessel sharing

agreements, which have an impact on

the number of physical services

available.

Methodology

We have sourced the data for this

analysis from the SeaIntel’s’ Proforma

Schedules database and carriers’

websites in order to determine the

exact port rotation. We explicitly

focused on cargo movement from

South America to Europe. Hence, if a

vessel called other regions between

South America and Europe, such as

West Africa or the Caribbean, we have

excluded those port calls.

We have included the following trades

in the analysis:

- East Coast South America-North

Europe

- East Coast South America-

Mediterranean

- West Coast South America-North

Europe

- West Coast South America-

Mediterranean.

Overview of port-pairs

Figure B1 shows the number of total

port-pairs and unique port-pairs

available across the four trade lanes.


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Total port-pairs comprise port pairs

that are covered several times per

week. Unique port pairs are pairs that

are only offered on a single service.

As can be seen in figure B1, the largest

number of total port pairs is offered

from East Coast South America to

Europe and equals (112+94=) 206

combinations to North Europe and the

Mediterranean combined.

Regarding the distribution of unique

port pairs, we can see that the level of

unique port pairs is similar from East

Coast South America to both North

Europe and Mediterranean,

corresponding to approximately 70

unique port combinations each. This is

in contrast to West Coast South

America where the number of unique

port pairs (45) is nearly four times

higher to the Mediterranean than to

North Europe.

ECSA-North Europe

As we saw in the previous section

there are 64 unique port pairs offered

in the East Coast South America-North

Europe trade lane on a service level.

The largest number of unique port

combinations is offered by COSCO,

Hamburg Süd, Maersk Line and

Safmarine on their ESE/SAEC 4/SAMBA

service at 20 unique combinations.

Additionally, Grimaldi follows with 17

unique port combinations in the trade

offered on their Northern Express

Service.

Figure B2 lists the unique port pairs

from the East Coast South American

ports, which receives most of the port

calls on a weekly basis, to North

Europe.

ECSA-Mediterranean

At 70 unique port combinations in the

East Coast South America-

Mediterranean trade lane, this is the

largest number of unique port

combinations compared to other three

trade lanes included in this analysis.

Santos, Itapoa and Navegantes ports

have the largest number of weekly

ports calls from East Coast South

America to Mediterranean, where

carriers offer 6, 7 and 7 unique port

combinations, respectively. More

details are shown in figure B3.


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WCSA-North Europe

The trade between West Coast South

America and North Europe is relatively

small with only 27 total port pairs and

12 unique port combinations.

The ports of Guayaquil and Callao

receive most of the total weekly port

calls, while CMA CGM, Hamburg Süd

and Hapag Lloyd offers the largest

number of 6 unique port pairs on their

joint WCV/SAWC2/EW2 service.

However, if a shipper wants to ship

cargo from Guayaquil to St.

Petersburg, it is only Maersk Line that

offers this product (Figure B4).

WCSA – Mediterranean

The last trade lane included in this

analysis is West Coast South America-

Mediterranean. The largest amount of

unique port pairs is offered by Alianca,

CCNI, Hamburg Süd and Hapag Lloyd

on their joint service.

Guayaquil and Buenaventura ports

receive the largest amount of weekly

port calls in the trade corresponding to

19 and 14 port calls, respectively.

As can be seen in figure B5, despite

Maersk Line, MSC and CMA CGM

offering the largest amount of unique

port pairs from the two busiest ports in

the trade, it is only Alianca, CCNI,

Hamburg Süd and Hapag Lloyd that

offer the direct connection from

Guayaquil to Salerno in Mediterranean.


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Conclusion

This analysis has shown that despite a

multiple of collaborative services in the

South America trades, there are still a

large number of port pairs which are

uniquely covered by only a single

service.

This provides the operators of these

services with the ability to offer a

premium direct product – an important

feature in a reefer-dominated trade.

Hence the carriers clearly have the

opportunity to differentiate on price, as

a significant part of this trade cannot

be termed purely as a commodity.


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Carrier Service Changes Carriers to launch India East Express

Service

CMA CGM and APL will launch the new

India East Coast Express (IEX) service,

which connects Far East with Indian

Subcontinent. The new service will be

operated by five vessels.

According to APL, the first vessel will

depart from Busan on 15 December

2016. As none of the carriers have

updated their schedules, we cannot

determine the average size of the vessel.

The port rotation of the IEX service is as

follows (10 port calls):

Busan – Qingdao – Shanghai – Shekou –

Singapore – Port Kelang – Chennai –

Port Kelang – Singapore – Manila -

Busan

MSC upgrades Kiwi service

MSC has added an additional call to their

Kiwi service at Bell Bay in Tasmania. The

service is operated with three 1100 TEU

vessels and has the following revised

rotation in place from December 8th :

Sydney – Brisbane – Noumea –

Tauranga – Auckland – Bell Bay –

Melbourne – Bell Bay - Sydney


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Carrier Rate Announcements


16


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Tailor-Made Analysis

Our core belief is that anything in this industry can be analysed – and analysed well. However,

the solution to a particularly difficult problem often rests in the ability to think out of the box and

develop new analytical viewpoints. Doing this is our key strength.

At SeaIntel Maritime Analysis we have a combination of extensive practical industry experience,

combined with strong academic analytical skills. We have served a wide range of customers

looking to gain insights into the container shipping industry including:

- Container carriers

- Freight forwarders

- Financial institutions

- Cargo owners

- Ports

- IT companies

- Equipment manufacturers

- Non-governmental interest organizations

Contact [email protected] to discuss how we may assist you with tailor-made analysis.

How to subscribe to SeaIntel Sunday Spotlight?

Send an email requesting the subscription to [email protected] stating whether you want a quarter or a full

year subscription. Your subscription will be available immediately, and you will receive an invoice with bank

payment details.

Subscription options:

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22

Copyright and Disclaimer Editor:

CEO and Partner, Mr Alan Murphy – [email protected]

Analysts:

Shipping Analyst, Ms Jasmin Slovackova – [email protected]

Shipping Analyst, Mr Giulio Gentilezza – [email protected]

Shipping Analyst, Mr Odvidijus Voronkovas – [email protected]

SeaIntel Maritime Analysis

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