SHIPPING & PORTS (EQUALWEIGHT) Sector Update

Goldilocks: For Mature Audiences Only

·         - Global growth is back, or is it?

·         - The 90s-00s saw a 10% rate of containerization

·         - In a real sense the Greenspan Illusion 2002-07 was +2-3%

·         - Peak distortion was +5%

·         - Until the „00s acceleration containerization was about 8%

·         - Recently averages have been closer to 5%

·         - Our working assumption is long term 7%, short term 4-7%

·         - Med-case on vessel supply is normalization by 2016

·         - We are now at about 1m TEU of capacity marginalized  

·         - We also have many quasi-obsolete ships

·         - Obsolescence can be down to wrong sized ships

·         - Gap between weak and strong is huge (operational and financial)

Containerization: A new phase of lower growth since 2008

Goldilocks: For Mature Audiences Only

We‟ve been dying to use this title.  Growth has decelerated  in the long term. In essence, we are in Year 3 of China‟s export story deceleration. And yet, the US has been recovering a little better than expected for 6 months and Europe has stabilized a little. A recovering US economy has raised a lot of hopes, but this is not an ordinary recovery by any stretch, not in terms of economic activity and neither in terms of container shipping.

For some time, the bad news has been that there are too many ships. The silver lining is that there are too many of the wrong ships out there. But to get to the silver lining, we still need the consolidation of the coming years. Keynesian over-spending has not helped, as it has kept demand artificially higher, which may offer false hope to owners of certain vessel types.

Some vessel owners and operators have pointed out that the average useful life of vessels in the upcoming years could fall to 20 years from 25 years. Of course we are not going to get accountants and owners to recognize this. But effectively, there are many ship types that could head to the scrap heaps given small nudges. Many  ships in the range of  5,000  – 6,000 TEUs could be severely marginalized if they consume too much fuel or are owned by financially weak owners. At the moment, according to Alphaliner and others, we are at about 1m TEU of idled vessel capacity, against a standing fleet of about 15.5m TEUs, according to March 2012 Clarkson data.

Here is what the fleet growth looks like long term. The dotted red line is the long term trend while the bold red line is the actual capacity data. The problem  is  the bold line exceeds the long term trend, just as demand decelerated globally,  meaning the problem is not fully over unless demand really takes off (and more vessels are taken out). We may have strong players come out better, and we may have rebounds, but full cleansing is still needed.

Source: OSK188