Container Shipping – Survival of the Fittest

The container shipping companies are faced with the perfect storm with the ever tighter environmental regulations coming into force and oil prices jumping, exerting further pressure on liners to squeeze out profit from the buoyant demand.

Asset quality, size and diversification will determine the success of shipping companies in the next 18 months, German rating agency Scope Ratings said.

“Only container shipping companies with the biggest fleets and most efficient vessels are likely to turn a profit this year and meet longer-term challenges,” the agency explained.

One of the major issues faced by liner majors is the high oil price which has seen carriers introduce emergency bunker surcharges as a means of recovering costs.

Scope expects a rise of around 25% in bunker prices this year compared with 2017, squeezing thin profit margins despite robust global economic growth and buoyant trade, notably in Asia.

Shipping consultants Drewry recently upgraded its container demand forecast by two percentage points to 6.5% from 4.5% for 2018 amid favorable supply-demand-fundamentals.

However, this has not yet translated into visibly higher shipping rates, as supply has also been slightly higher than anticipated, mostly due to less capacity taken out of the industry via scrapping.

Another topic adding to the overall challenging situation are growing trade disputes.

Even the current impact has been dubbed as subdued, on the longer term, the impact on the global trade volumes could be far greater should further tariffs and retaliatory measures be introduced.

Shipping volumes are determined by consumer demand and suppliers’ strategies for meeting it. If consumers substitute imports from countries with increased tariffs for cheaper ones from other countries, the impact on overall trade volumes might be modest but will favour operators of large, diverse fleets able to adjust routes quickly to changing trade patterns, the rating agency explained.

As such, being part of a strong alliance like M2, THE ALLIANCE or OCEAN is essential, in Scope’s view, to meet shifting customer demands in a flexible and reliable way.

Japanese Big Three Bleed Red amid ONE Launch

Japanese shipping majors K Line, NYK Line and MOL reported losses for the first quarter of 2018 fiscal year covering the period from April 1 to June 30.

K Line’s net loss came at JPY 19.2 billion (USD 172 million) for the period spiraling down from the profit of JPY 8.5 billion in the same quarter in 2017. Operating revenues for the period stood at JPY 212.1 billion, also lower when compared to revenues for the three-month period in 2017, which stood at JPY 287.4 billion.

NYK Line booked a net loss of JPY 4.59 billion for the period reversing from a profit of JPY 5.39 billion in the same period in 2017. The company’s consolidated revenues amounted to JPY 464.8 billion, down from JPY 521.7 billion in the same period of the previous fiscal year.

MOL shares a similar fate, posting a net loss of JPY 1.6 billion against a net income of JPY 5.2 billion a year earlier.

Recorded revenue of JPY 304.4 billion was also lower when compared to corresponding JPY 403 billion revenue from last year.

All three companies ascribed their losses to the launching of Ocean Network Express (ONE) in April as well as the rise in oil prices. As disclosed, the costs related to ONE’s launching were higher than expected and signaled the termination of the trio’s container businesses.

On the other hand, dry bulk businesses of the trio fared much better, reporting black ink amid strenuous cost cutting efforts and overall improvement of the market.

OOCL’s Volumes, Revenues Continue Rising

Hong Kong-based Orient Overseas Container Line (OOCL) witnessed a continued rise in revenues in the second quarter of 2018, driven by an increase in volumes.

For the three-month period ended June 30, 2018, the company’s total revenues increased by 4 percent to USD 1.46 billion from USD 1.4 billion. The rise was mainly driven by the Trans-Pacific trade, where revenues surged by 11.2 percent.

The Asia/Europe trade’s revenue was slight up by 1.3 percent, while the Trans-Atlantic and Intra-Asia/Australasia revenues were down by 0.2 and 1.4 percent, respectively.

OOCL’s total volumes for the second quarter increased by 4.6 percent to 1.69 million TEU from 1.61 million TEU. The Asia/Europe trade saw the largest rise in volumes, which surged by 13.5 percent, followed by a 7.2 percent increase in Trans-Pacific volumes. Intra-Asia/Australasia volumes were slightly up at 0.5 percent, while Trans-Atlantic volumes dropped by 2.3 percent.

The company informed that loadable capacity increased by 4.7 percent, as the overall load factor was at par with the same period in 2017. Overall average revenue per TEU decreased by 0.6 percent compared to the second quarter of last year.

For the first six months of 2018, total volumes increased by 6 percent over the same period last year and total revenues recorded a 9.6 percent growth. Loadable capacity increased by 9.9 percent, while the overall load factor was 3.1 percent lower than in the same period in 2017.

Yang Ming enters into charter agreements for 10 newbuilds

TAIWAN's Yang Ming Marine Transport Corp says it has secured charter agreements with Shoei Kisen Kaisha for five 11,000-TEUers and another five 12,000-TEUers from Costamare.

The vessels are to be delivered from the second quarter 2020 through to the third quarter the following year, reports Bunkerspot of Adderbury, Oxfordshire.

Said the Yang Ming statement: "With respect to the enforcement of the upcoming IMO rule in 2020 concerning environmental protection, the vessels are designed in compliance with the regulations calling for efficient bunker consumption."

The chartered newbuilds will emit less carbon, use fuel oil containing limited sulphur, and will be equipped with a more efficient ballast water treatment system, said the company.

Yang Ming operates a fleet of 106 containerships of 600,000 TEU. To reduce operating costs and mitigate the environmental impact of older ships, the company has an ongoing fleet renewal programme to replace such ships upon the expiry of their charter agreements.

Source: World Maritime News