Ocean Carriers: Top 30 gaining share
Scrapping capacity and protecting share characterized carrier strategy this past year. But long-term goals remain the same: finding profit while proving better service.
By Patrick Burnson, Executive Editor -- Logistics Management, 10/1/2009
When ocean cargo shipping analysts spoke with us in 2008, all the talk was about cascading rates and “bottom-feeding” competitors. The major carriers were rightly worried, but a pricing shift has occurred that may find them counting profits rather than losses in 2009.
Rationalization of space and services over the past year still kept the smaller carriers in the game, but the Top 30 gained share by shedding capacity and concentrating on brand equity. As in recent years, the large global piece of this enterprise remains tightly held among a trio of industry.
According to the latest figures published in AXS-Alphaliner's annual survey (Liner Market Shares/www.axs-alphaliner.com.), Maersk Line, MSC, and CMA CGM lead the pack again, but only because they had more toxic assets to dump. “As of the end of August, 1.27 million TEU (twenty-foot equivalent units) representing nearly 10 percent of the world's container fleet was lying idle,” says Steven Fletcher, commercial director for AXS Marine, an ocean cargo analyst firm based in Paris.
Yet despite a flurry of lay ups, Alphaliner anticipates even more capacity cuts with subsequent scrapping by the end of the year. Idle ships, explains Fletcher, still incur costs, and the only way to eliminate them is to scrap. “This year has seen record numbers of container ships sold for scrap, particularly to Asian yards,” he notes. For example, ranked number 23, Malaysian carrier MISC has the highest percentage of idle ships out of the top 24 container lines, while MSC has no idle ships at all following a scrapping spree.
Fletcher adds that shippers can expect rates to firm up on the transpacific and Asia-Europe trade lanes in late 2009, as carriers manage space more efficiently, fight to contain costs, and scramble to protect share.
Carriers on attack
For those keeping score, the current global fleet still has a capacity of 13,516,566 TEU. A.P. Moller-Maersk, with 15 percent of market share, has 2,028,836 TEU comprising 540 vessels. Of these, 212 are owned and 328 are chartered. Given the current slack demand, it should come as no surprise that only 67 ships are on order from this premier carrier.
Maersk's chief executive Nils Smedegaard Andersen is telling investors, however, that he feels “relatively optimistic” for the group long-term. “When markets return to normal, we will be among those making money,” he says. Still, Andersen's report mentions “considerable uncertainty” for the rest of 2009, especially on container freight rates, transported volumes, the dollar exchange rate, and oil prices.
Paul Bingham, managing director with IHS Global Insight Inc., concurs with Smedegaard, saying that the pace of the recovery in trade will not see shipper volumes overtake containership fleet capacity any time soon. “The large overhang in worldwide container capacity, even accounting for increased scrapping and order cancellations, will continue to exceed underlying container trade demand for several years,” says Bingham.
At the same time, Maersk is warning its rivals that it will not give any quarter when it comes to market share. In remarks made obliquely to Geneva-based Mediterranean Shipping Co. and France's CMA CGM, Andersen boldly announced that Maersk is sticking to a series of rate increases on its intra-Americas services, claiming they were necessary “to continue providing a first class service…in an environment where the operating costs remain on the rise and current rates are below sustainable levels.”
The largest increases are on routes from North America to/from the West Coast South America—$300 per TEU. Smaller rate rises of between $50 and $200 per TEU on routes between Mexico, Central America, the Caribbean, and the east and west coasts of South America were also put into place.
Maersk has reason to remain vigilant, say analysts. CMA CGM became the third carrier to cross the 1 million-TEU capacity barrier this year, with 505,000 TEUs on order while MSC has an impressive 623,000 TEUs on order.
But where does that leave the rest of the field? Fighting among themselves, it seems. Evergreen, APL, and Hapag-Lloyd only have as many vessels when those fleets are combined. At the same time, analysts tell us, COSCO and Zim have been actually delaying orders on the books until their fortunes improve.
Impact on shippers
Shippers, meanwhile, are seeing record increases in container freight rates as part of another swing in an increasingly volatile container shipping spot market.
Indeed, London-based Drewry Supply Chain Advisors maintain that rates have been surging of late. In the past year, Drewry's regional container freight rate index for European imports plunged from $3,169 per forty-foot equivalent unit (FEU) in July 2008 to a low point of $1,071 in March, before shooting up to $1,812 in July 2009, according to Drewry's latest Container Freight Rate Insight report which gathers “all-in” spot freight rates globally on 312 trade lanes.
Similarly, in the past year, Drewry's global freight rate index for container shipping has fluctuated between a maximum of $2,727 per FEU (in July 2008) and a minimum of $1,536 (in May 2009). Just recently, on the Far East-Europe route, most all-in spot rates increased by more than 50 percent between May and July, although from a very low base.
“The extreme volatility of the spot container shipping market is an industry issue not just for shippers, who cannot forecast their transport costs or their product's total landed costs, but also for container shipping companies and forwarders,” says Philip Damas, director of Drewry Supply Chain Advisors.
Michael Berzon, president of Mar-Log Inc., a supply chain optimization consultancy specializing in international trade, and chairman of the Washington, D.C.-based National Industrial Transportation League's ocean cargo committee, says that the news should come as little surprise. “During these periods, as demand pushes the supply of space, we would expect rates to increase,” he says. “In those trade lanes that are particularly squeezed, one can expect lines with capacity to enter them in order to achieve market share in a now profitable trade lane.
Analysts for Drewry say that the standard deviation for the regional freight rate index of European imports, a measure of volatility, reached $805 per FEU between July 2008 and July 2009, as compared to about $450 in each of the past two years, as rates dived and then experienced a sharp upwards correction.
“This volatility looks even more acute than that of the stock market, and makes it extremely difficult for shippers to know what a fair price is in today's spot market,” Damas says.
The regional container freight rate index for imports to Europe is now back to the level of the end of 2008, while the Drewry global freight rate index is back to the level of about January 2009, thereby reversing the rate falls seen earlier this year.
Drewry contends that the removal of capacity by carriers in the Asia to Europe trade has led to capacity shortages, roll-overs, and a complete shift in the bargaining power of spot shippers and carriers on this route. Carriers are exploiting the potential to negotiate rate increases in return for peak-season capacity guarantees.
| Rank | Operator | TEU | Share |
| Source: AXS-Alphaliner | |||
| 1 | APM-Maersk | 2,019,526 | 15.0% |
| 2 | Mediterranean Shg Co | 1,517,200 | 11.3% |
| 3 | CMA CGM Group | 1,023,208 | 7.6% |
| 4 | Evergreen Line | 594,154 | 4.4% |
| 5 | APL | 531,403 | 3.9% |
| 6 | Hapag-Lloyd | 475,282 | 3.5% |
| 7 | COSCO Container L. | 469,848 | 3.5% |
| 8 | CSCL | 449,469 | 3.3% |
| 9 | NYK | 412,711 | 3.1% |
| 10 | Hanjin Shipping | 406,462 | 3.0% |
| 11 | MOL | 350,647 | 2.6% |
| 12 | OOCL | 326,035 | 2.4% |
| 13 | K Line | 326,003 | 2.4% |
| 14 | Hamburg Süd Group | 318,079 | 2.4% |
| 15 | Yang Ming Line | 318,008 | 2.4% |
| 16 | Zim | 284,148 | 2.1% |
| 17 | CSAV Group | 278,616 | 2.1% |
| 18 | Hyundai M.M. | 267,227 | 2.0% |
| 19 | PIL (Pacific Int. Line) | 186,143 | 1.4% |
| 20 | UASC | 160,985 | 1.2% |
| 21 | Wan Hai Lines | 126,193 | 0.9% |
| 22 | IRIS Lines | 101,802 | 0.8% |
| 23 | MISC Berhad | 101,054 | 0.8% |
| 24 | Grimaldi (Napoli) | 51,312 | 0.4% |
| 25 | RCL (Regional Container L.) | 51,291 | 0.4% |
| 26 | Sea Consortium | 50,614 | 0.4% |
| 27 | TS Lines | 45,490 | 0.3% |
| 28 | CCNI | 40,362 | 0.3% |
| 29 | Maruba + CLAN | 38,305 | 0.3% |
| 30 | SITC | 35,971 | 0.3% |
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