Wednesday, January 4, 2012

Drewry Forecast

The Journal of Commerce gives a synopsis of the recent report from Drewry,

giving their forecast of the container industry.

They think that if carriers don't lay up tonnage by the mid of 2012, there will

be severe consequences. I think there is some truth to this, but I also think

the big carriers are going to try and play their hand and force out the smaller ones,

who really should have gone bust in 2009. We shall see

Here's the article from the Journal of Commerce.

Container shipping lines could lose as much as $5.2 billion in 2011 despite a projected growth in global demand of 6.5 percent, according to Drewry’s latest quarterly Container Forecaster.

Drewry based its dismal forecast on carriers’ third-quarter losses and industry fundamentals, which have deteriorated sharply since 2010, when carriers’ earned estimated profits of $20 billion.

Vessel overcapacity, poor headhaul growth on the major east-west routes and the continued fight for market share among the largest carriers caused spot rates to fall by more than 50 percent on the key headhaul routes by the end of 2011.

Even attempts by carriers to cull capacity during November and December did not lift rates by any meaningful margin. Spot rates improved a little as of early January, but this is still likely to be a temporary phenomenon driven by the annual spike before Chinese New Year.

The New Year will be another challenging year for liner operators as delivery of big ships will continue to be a problem and carriers’ future lay-up strategies will dictate if they make money or not. “We believe that at the current burn rate, carriers’ cash reserves will run out during the second half of 2012. If they do not put a substantial amount of tonnage into lay-up by this time, the consequences could be dire,” said Neil Dekker, Drewry’s head of container research.

The industry will continue to change its structure as all stakeholders adapt to the difficult conditions, but Dekker does not foresee any company acquisitions. “Consolidation is more likely to happen through the disappearance of small players,” he said.

Drewry said the current supply/demand fundamentals on the key east-west trades are not strong enough for carriers to push through any sustained revenue increases. Some shipper contracts have been signed on the Asia-Europe trade this year for around $1,100 per 40-foot equivalent container unit including all surcharges, levels that are below break-even.

At the moment, relatively few vessels from suspended services are being laid up or idled, with most being re-chartered or absorbed into other routes. Drewry estimates that idling could reach as much as 8 percent of the global fleet during the second half of 2012, which would be equal to about 1.3 to 1.4 million 20-foot equivalent units.

“Carriers will at some stage in 2012 be forced to idle tonnage, even if the lead players are showing no inclination to do so at the moment,” Dekker said. “This will enable a partial recovery in spot rates during the second half of this year.”

Oil Price History

In my predictions I said oil will be between $80 and $130 a barrel in 2012.

I disagree with Byron Wien, who predicts oil will drop to $85 a barrel in 2012. He missed his prediction for 2011 when he said oil would climb to $115 a barrel. Unless of course these predictions are based on a one time occurrence, and not a trend or average.

From Bloomberg News

Blackstone Group LP (BX)’s Byron Wien, whose prediction for the U.S. economy and stock market in 2011 proved too optimistic, said oil will slip to $85 a barrel this year and the Standard & Poor’s 500 Index will exceed 1,400.

Here is the oil history for WTI for the last 3 years.
click here for the source, which gives a much longer history.

2009-01-01 41.740
2009-02-01 39.160
2009-03-01 47.980
2009-04-01 49.790
2009-05-01 59.160
2009-06-01 69.680
2009-07-01 64.090
2009-08-01 71.060
2009-09-01 69.460
2009-10-01 75.820
2009-11-01 78.080
2009-12-01 74.300
2010-01-01 78.220
2010-02-01 76.420
2010-03-01 81.240
2010-04-01 84.480
2010-05-01 73.840
2010-06-01 75.350
2010-07-01 76.370
2010-08-01 76.820
2010-09-01 75.310
2010-10-01 81.900
2010-11-01 84.140
2010-12-01 89.040
2011-01-01 89.420
2011-02-01 89.580
2011-03-01 102.940
2011-04-01 110.040
2011-05-01 101.330
2011-06-01 96.290
2011-07-01 97.190
2011-08-01 86.330
2011-09-01 85.610
2011-10-01 86.410
2011-11-01 97.210
2011-12-01 98.570

Tuesday, January 3, 2012

Zim misses deadline to obtain concessions

It's difficult to say how much this will impact Zim's future. If they continue
to lose money, they will need to get cash from somewhere. Obviously the banks who lent them money don't want to make the required adjustments at this time.

From The Journal of Commerce

Zim Integrated Shipping Services failed to meet a Dec. 31, 2011 deadline to obtain concessions or amendments to financial covenants with its creditor banks, the Israeli ocean carrier’s parent said.

As a result, Israel Corp. may have to record Zim’s debt on its balance sheet as short term debt for the fourth quarter of 2011, which in theory means the shipping operation could be liable for repayment immediately rather than over the long term.

The change in the status of the debt is technical but it could affect Israel Corp.’s financial ratios and financial covenants with its own banks, according to Israeli reports.

Zim has no financial covenants that are based on classifying debt as short term or long term, Israel Corp. said in a statement to the Tel Aviv stock exchange.

Zim is believed to owe around $2 billion to mainly foreign banks.

Zim swung to a $66 million net loss in the third quarter of 2011 from a year earlier profit of $37 million swelling losses for the first nine months to $245 million compared with a $42 million loss in the 2010 period.

Israel Corp, which owns more than 99 percent of Zim, injected $50 million into the carrier in November and the controlling Ofer family provided an additional $50 million. Israel Corp contributed $450 million to the carrier’s restructuring in 2009

Monday, January 2, 2012

Forecast for 2012

It's time for the predictions for 2012!

I have done fairly well with my forecasts the last few years.

In 2009 I said we would be in a recession until 2011.

Of course, the word "until" is a bit subjective. 2011 is over.

The U.S. appears it is now starting to come out of the recession,
but things in Europe are looking worse.

I predicted oil prices would be between $50-$100 a barrel. That has
proved to be pretty accurate, although I certainly gave myself a wide

So, for 2012, what lies ahead?

It's really a tough call. The U.S. no longer is the biggest driver
to the world economy. China is slowing down.

Having said this, this is my best guess.

Shipping companies will continue to struggle. Many of the Greek companies
operating bulk ships will go bust. These are the ones who have their stocks
listed in the U.S., so the investors will get burned.

As for the container companies, that's a difficult call. Everyone has
formed their alliances in an effort to reduce costs. But I don't
think they are managing to control the capacity as will be needed, to get
their rate increases to stick. So, I think these VSA's will allow most
of the carriers to survive 2012

However, I believe ZIM and CSAV might be in jeopardy.
It depends if they can get more money from somewhere. And who
knows the answer to that? There is a lot of cash sitting on the sidelines, looking for a decent investment.

I think the price of oil will be between $80 and $130 a barrel.

I predict the Euro will survive, but the U.S. dollar will once again become stronger. Everyone talks about how bad off the Euro is, but I remember when
it and the dollar were on par.

I think the middle class in China and India will continue
to grow, and living conditions there will improve. So, that at least
is some good news for 2012.

Happy New Year!