More on oversupply of containerships

To continue on the reporting of oversupply of containerships,

Bloomberg published an article regarding same. I am quoting in it's
entirety, as a link might expire.

Maersk Shareholders Suffering With Overwhelming Container Supply: Freight

By Christian Wienberg and Marianne Stigset - Oct 18, 2011 5:00 PM CT


The container operations of Maersk, which carries 15.7 percent of the world’s container capacity, according to Alphaliner, lost $45 million in the second quarter.
The container industry may be facing half a decade of oversupply that will curb freight rates as shipping lines launch vessels into a global trade slowdown.

The rise in container capacity will exceed demand by as much as 10 percentage points over the next three years, according to Drewry Shipping Consultants Ltd. That gap won’t substantially improve for five years, Neil Dekker, head of container research at Drewry, said in an Oct. 11 interview. Those estimates assume no slump in world economic output.

Global growth will slow this year as “crisis-hit” advanced economies struggle and Europe’s debt woes prove “tenacious,” the International Monetary Fund said last month. An increase in vessels from shipping lines like Copenhagen-based A.P. Moeller-Maersk A/S has helped send freight rates plunging 70 percent since a 2010 peak. On its current course the industry will struggle to turn profitable, said Ross Porter, a Stavanger, Norway-based fund manager at Skagen A/S.

“The market outlook is pretty bleak,” Porter said in an interview. The fund, which has $18 billion under management, owns about 10,000 Maersk shares after cutting its holdings by 20 percent last month. “Given the overcapacity that’s built up in the market, a few years will be required to consolidate the situation.”

Capacity in the container market will rise 29 percent in the three years ending in 2013, according to data from London- based Drewry’s quarterly Container Forecaster report. Demand will grow by as little as 19 percent in the period, it said.
No Layups

There won’t be a “major” improvement in the balance between supply and demand for five years, Dekker said. Ships on the world’s two busiest trade routes, Asia to Northern Europe and Asia to the Americas, are only about 85 percent full at the moment, he said.

“Freight rates are very low,” Dekker said. “It would be logical to lay up vessels, but that’s not really happening.”

The price to transport a full 20-foot container from the biggest Asian ports to European ones fell to $650 in the first week of this month, according to Danske Market’s container index published Oct. 7. That was the lowest spot price in at least two years and compares with a peak of about $2,100 18 months ago.

The fallout from Europe’s deepening debt crisis is showing signs of spreading as far as Asia as policy makers in the euro area fail to persuade investors they can avert a Greek default. Asia faces “severe macroeconomic and financial spillovers” from deteriorating economic outlooks in Europe and the U.S., the IMF said Oct. 13.
Shipping Demand

That means container shipping demand could grow even less than Drewry estimates, Dan Togo Jensen, a transport analyst at Svenska Handelsbanken AB in Copenhagen, said in an Oct. 13 interview. He has a “reduce” recommendation on Maersk shares. Jensen is the top-ranking analyst of the 25 covering the company, according to Bloomberg data.

“Box rates will be under pressure” because the imbalance between supply and demand will persist “for quite some time,” he said.

Container lines have booked orders for new ships for a combined $57 billion, according to an Oct. 11 estimate by Paris- based industry consultant Alphaliner. Over the next four years, new ships will add capacity equivalent to 4.5 million standard 20-foot containers, or TEU, versus today’s 15.2 million TEU, according to Alphaliner.


More Room

Vessels that can haul the equivalent of about 1 million TEU will need to be idled or laid up, the Baltic and International Maritime Council, a Bagsvaerd, Denmark-based shipping trade group, said in an Oct. 13 report.

Ships are being built larger as well. The size of container ships has more than doubled over the past decade. New deliveries this year on average carry 6,100 TEU, compared with 2,900 TEU in the year 2000, Alphaliner said in a Sept. 29 report. The size of the world’s fleet of ships with capacity larger than 8,000 TEU will increase by more than 20 percent annually over the next years, outpacing overall supply growth, Drewry says.

The container operations of Maersk, which carries 15.7 percent of the world’s container capacity according to Alphaliner, more than any other, lost $45 million in the second quarter. It earned $1.1 billion a year earlier, Bloomberg calculations show. The unit may lose money in the rest of the year if freight rates don’t recover, the company said Aug. 17.
Dropping Shares

Maersk shares have lost 31 percent this year. The world’s second and third-largest lines, Geneva-based Mediterranean Shipping Co. and France’s CMA CGM SA, aren’t listed.

CMA CGM has seen the price of its $475 million of 8.5 percent notes due 2017 plunge to 45.567 cents on the dollar since they were sold April 14, according to prices compiled by Bloomberg.

There are some signs shipping lines may reduce capacity by canceling or postponing orders for new vessels, Martin Bo Hansen, a corporate bond analyst at Jyske Bank A/S, said in an Oct. 11 note. Hansen, who’s based in Silkeborg, Denmark, has a “hold” rating on Maersk’s debt.

CMA CGM has no plans to order any new container vessels before next year at the earliest, Chief Executive Officer Rodolphe Saade said Oct. 11. The line was approached by two Chinese shipyards about possible orders for vessels larger than 9,000 containers and declined, Saade said.

Shipping lines are betting demand will catch up with supply sooner than Drewry’s analysis shows. Eivind Kolding, CEO of Maersk Line, said Oct. 5 in an interview broadcast by Danish TV2 News that overcapacity probably will last a year at most. That will still be long enough to put some smaller container lines out of business, he said. Maersk hasn’t announced any plans to cut capacity.

The company declined to comment for this story, in compliance with a self-imposed silent period ahead of third- quarter earnings, due to be published on Nov. 9.

Overcapacity may thin out the industry, with only the biggest companies surviving the pressure on freight rates, Skagen’s Porter said.

“In the long-term I see Maersk coming out as the relative winner,” he said. “They have the financial strength to weather this cycle, which a lot of their competitors don’t.”

To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net; Marianne Stigset in Oslo at mstigset@bloomberg.net

This is just crazy..

From the Journal of Commerce

More big ships coming in...there will be too much capacity for demand.

Well, it will be interesting. There will be a fall out. The ones with
deep pockets will survive.

Alphaliner says about half of orders made as industry emerged from deep slump in 2009

Ocean carriers and charter shipowners have placed orders worth $57 billion for new container vessels over the next four years, with about half of the value of orders made as the industry emerged from a slump in 2009, said Alphaliner.

The carriers' and shipowners’ ordering spree of $27 billion for new container vessels prior to the collapse of Lehman Bros. added to $30 billion of contracts already in the pipeline, the container market analyst said. Of the orders for new ships through 2015, ocean carriers account for $35 billion and charter owners $22 billion.

“The carriers’ first action after emerging from the worst recession in container shipping history ever, was to order even more capacity,” Alphaliner said. “New orders were placed in an already over-supplied market.”

The capital commitment on new vessels by 19 of the largest ocean carriers exceeds $33 billion.

MOL and NYK are the only top 20 carriers without outstanding new vessel commitments on their own account. But the Japanese lines have signed charter deals for 13,000-14,000 20-foot equivalent container units newbuildings with their alliance partners “to not be left out of the expected capacity growth.”

As ships ordered in 2010 and 2011 are between 25 percent and 30 percent cheaper than vessels contracted before the crisis, their owners will benefit from a significant cost advantage to ships ordered in 2006-2008.

Maersk Line is the biggest spender with new ship commitments estimated at $6.5 billion, largely accounted for by its 20 Triple-E class 18,000 TEUs ships costing $190 million each.

The Danish carrier’s order book also includes 24 ships of 4,500-7,500 TEUs valued at $2.6 billion. Singapore-based Neptune Orient Lines/APL ranks second with orders worth close to $4 billion, followed by Taiwan’s Evergreen at a little over $3 billion.

What lies ahead?

It does not appear we are out of the woods yet. Too many people forget
that these recession last longer than just a couple of years.

I just bought another house, but I don't expect to be able to sell
it for another 10 years. Yes, that is correct, in my opinion things will
be bad for another 8-10 years.

From the Journal of Commerce

Forecasting firm says all signs point to weakening economy

The U.S. is headed into new recession, Lakshman Achuthan of the Economic Cycle Research Institute, a forecasting firm known for accurately predicting turns in the business cycle, warned on Friday.

Achuthan sounded the warning in interviews on Bloomberg Radio and CNBC. He said ECRI’s forward-looking indicators provide an “overwhelming message” that an economic downturn is on the way.

"There is virtually nothing that can be done to avert what is going to happen," he said.

ECRI’s U.S. Long Leading Index, which forecasts economic shifts several months in advance, turned downward earlier this year, leading Achuthan to warn the mid-year downturn was more than a temporary blip.

That warning was confirmed by recent weakness in ECRI’s Weekly Leading Index, which signals shorter-term economic trends, fell to 121.9 this week, its lowest level since Sept. 3, 2010. The weekly index’s growth rate declined for the ninth straight week, falling to negative 7.2 percent.

One component of the Weekly Leading index is The Journal of Commerce-ECRI Industrial Price Index, which gauges industrial demand by measuring prices of 18 industrial commodities, some of which aren’t traded on exchanges.

The JOC-ECRI IPI has been on a steady decline since mid-April and fallen into negative territory over the last eight weeks, including an 8.5 percent slide last week.

“The vicious cycle is starting where lower sales, lower production, lower employment and lower income (leads) back to lower sales,” Achuthan told CNBC. He said "contagion in what is going on among those leading indicators. It's wildfire, it's recessionary, it is not reversible."

He said the best-case scenario is for a short recession, lasting about six months but ECRI has seen no indicators pointing to a turnaround yet.

He said the slowdown could affect exports, which have been a rare bright spot in the U.S. economy.

New Supertanker Mothballed

From Bloomberg News

A shipowner will mothball a newly built supertanker for the first time since the 1980s as a glut of the ships erodes earnings to an unprofitable $1,000 a day.

The tanker, capable of carrying 2 million barrels of crude, will be sent to a natural harbor in Malaysia, Arild Johannessen, an Oslo-based spokesman for Wilhelmsen Ship Management, which will oversee the deactivation, said by phone today. He declined to identify the ship because the details are private.

Earnings from this class of vessel, which carry about a fifth of the world’s oil, last week averaged $1,000 a day, according to Braemar Shipping Services Plc (BMS) in London, the U.K.’s second-largest publicly traded shipbroker. Some tankers were contracted speculatively and not secured against long-term charters, according to Holger Romer, spokesman for Hamburg, Germany-based Dr. Peters Group, owner of 19 supertankers.

“If you have a new ship that was ordered in ‘07 and ‘08, it was at a high price and now if you don’t have a charterer, it’s a big problem,” Romer said by phone. Dr. Peters Group owns 19 supertankers, he said.

The largest supertanker fleet in 29 years has cut earnings from the vessels by 96 percent since 2007 when they rose to a record $229,000 a day, according to data from Clarkson Research Services Ltd., a unit of Clarkson Plc, the world’s largest shipbroker.
Orders Surged

Owners ordered the most tankers in about three decades in 2007 and 2008, depressing freight rates to a 14-year low, as the fleet swelled almost three times faster than demand, Clarkson data show.

The last time new tankers were delivered straight from shipyards to anchorages, a process known in the industry as lay up, was in the 1980s, with owners sending the vessels to fjords in Norway, Eleusis Bay in Greece and the waters off Malaysia and Sri Lanka, Hong Kong-based Charles de Trenck at Transport Trackers, an adviser on shipping and trade flows, said today by e-mail.

Prices for new tankers have fallen 35 percent to about $100 million, according to EA Gibson, a London-based tanker broker. Those ordered in 2007 and 2008 require daily earnings of $55,000 to break even, the broker estimated in November.

Running costs, excluding fuel, are $10,645 a day, according to Moore Stephens International, a London accounting firm.
Cold Lay-Up

The mothballing is probably the first time in at least three decades that a new supertanker has been deactivated before trading, according to Halvor Ellefsen, a shipbroker at Galbraith’s Ltd. in London.

“More than anything else, it just shows how many ships there are,” said Ellefsen, who has been a broker since 1987. “Even if this happens on a meaningful scale, it’s hard to see it saving the tanker industry as ships that get laid up will just come back into the market when freight rates jump.”

The particular kind of mothballing for this ship is called cold lay-up, which involves anchoring the vessel in a protected area for a “long period of time,” and shutting all systems, with a minimum crew on board, according to Johannessen.

Warm lay-up means the ship can return to trading more quickly.

The supertanker, along with another of the same type already trading, will join another 15 ships already managed at anchor at Labuan, Malaysia, Johannessen said.

There are 152 supertankers contracted to be built at Asian shipyards, and 570 in the fleet trading today, according to Clarkson. A record 55 of the tankers, also known as very large crude carriers, began trading in 2010, and 41 have joined so far in 2011, Clarkson data show.

There was an overhang of 50 VLCCs, Jens Martin Jensen, chief executive officer of the management unit at Frontline Ltd., the largest supertanker operator, said on a conference call Aug. 26.

Fed Ex as "bellweather"

FedEx is considered a good indicator of how the economy is doing. It use
to be just the U.S. economy, but because they have become so big in the
global market, it appears they are also a good indicator for the entire
global economy.

This just reported.

"The U.S. and global economy grew at a slower rate than we anticipated during the quarter," said Chief Financial Officer Alan B. Graf. "While FedEx Ground and FedEx Freight achieved improved operating results despite lower than expected growth, the more rapid decline in demand for FedEx Express services, particularly from Asia, outpaced our ability to reduce operating costs."

Click here for rest of story from Journal of Commerce

Who will own Hapag-Lloyd?

TUI would really like to sell the rest of their stake in Hapag-Lloyd.

Problem is, once again the economy is not favorable, and their talks
with investors have gone nowhere.

I suspect that in Jan. 2012 the Albert Ballin consortium will end up with the rest of TUI's shares.

From The Journal Of Commerce

Report quotes majority shareholder saying clarity on ownership structure needed

Hapag-Lloyd is ruling out an initial public offering in the next 12 to 15 months, according to the German ocean carrier’s majority shareholder.

“As long as we don’t have clarity about the final ownership structure, an IPO is not going to come. I don’t see it in the next 12-15 months,” Karl Gernandt, CEO of Kuehne Holding, told the Financial Times. Kuehne is member of the Albert Ballin consortium that controls 61.6 percent of container ship operator.

German tourism group TUI holds the remaining 38 percent stake in Hapag-Lloyd, which it wants eventually to divest. It sold an 11.3 percent stake to the Albert Ballin investors in May.

Gernandt, chairman of Kuehne+Nagel, the Swiss global logistics group, said talks with Oman and Chinese investors about acquiring TUI’s remaining stake have fallen through. But there have been talks with several US private equity companies.

“Our discussions with potential investors are very difficult as there have been different interests … TUI wants to sell and some investors presented their ideas, but unfortunately it was not possible to realize a deal.”

TUI likely will exit Hapag-Llloyd through a private deal rather than an IPO, Gernandt said. TUI says it has three options for its stake: a trade sale, share floatation or exercising a put option to sell it to the Albert Ballin consortium in January 2012.

Hapag-Llody scrapped plans for an initial public offering in 2004, saying it coudn't get "fair value" for Germany's biggest container shipping line.

Maersk struggles to raise rates

Maersk is having difficulty to raise rates because of all of the new
ships coming in, increasing capacity.

They don't mention where all these new big vessels are coming
from, but at least some of them belong to Maersk.

This is their web-site about the new Triple E vessels.

From 27 June 2011

Today, at a signing ceremony in Tokyo, Japan, Maersk Line exercised its option with Korea’s Daewoo Shipbuilding & Marine Engineering Co., Ltd. to build an additional 10 Triple-E ships, the world’s largest and most efficient container vessels.

The event follows Maersk Line's order in February this year for 10 Triple-E vessels with two options - each for an additional 10 ships.

“I am very excited to have signed a contract with Daewoo for 10 more Triple-E ships. We now have twenty Triple-E on order. They underline our strong commitment to the Asia-Europe trade and fit well with our current ambitions and expectations for the future development of the trade. We believe the Triple-E ships with their record capacity and energy efficiency will enable us to deliver on the commercial and environmental expectations of our customers and also give us a significant competitive advantage in the market,” says Eivind Kolding, CEO of Maersk Line.

Maersk Line expects demand on the Asia to Europe trade to increase 5-8% per year during 2011-2015. By introducing the Triple-E vessels from 2013, Maersk Line will be able to meet the increasing demand as well as maintain its market share. The first 10 vessels will be delivered 2013 and 2014; the second 10 vessels are scheduled for delivery in 2014 and 2015.

And now, less than 3 months later, this appears in Bloomberg News

A.P. Moeller-Maersk A/S, the No. 1 container line, said it’s struggling to raise peak-season rates on the Asia-Europe shipping route, the world’s second-busiest, as an influx of new vessels leads to a glut in capacity.

The Danish company’s Maersk Line unit imposed a “pretty ok dividend” on most other routes, with the exception of Asia-North America, the busiest global flow, where expansion has been “very modest,” Chief Executive Officer Eivind Kolding said in London.

“Most of the new big ships actually go to northern Europe, so this is where you have the bigger problem,” the CEO said in an interview. “It’s difficult to make a decision to pull a lot of capacity, especially if hypothetically one line should decide to do it, then actually the rest of the market will benefit.”

Maersk has implemented rate increases on some Mediterranean routes since the start of the peak season, which began on Aug. 15 and runs until Nov. 30, Kolding said, and trade in emerging markets and some regional routes is showing “double digit” growth. Still, the CEO said he’s concerned that “nervousness” in financial markets could spill over into the wider economy.

“We have a much more mixed picture than in 2009, where we saw a collapse basically across the board,” he said. “We’re slightly concerned because we did see a good momentum of recovery, not a fast, but a fairly fast, recovery.”

Holiday Stockpiles

Europe usually imports more goods in the third quarter as shops stockpile for the Christmas and New Year holidays, a gain that may be curbed as retailers anticipate that concern about economies and jobs will hurt consumer spending.

For the moment, fleet utilization remains at more than 90 percent on Asia-Europe routes, matching the global average, Kolding said, giving shipping lines little incentive to slash capacity, especially with new vessels arriving later this year.

While growth in container volumes has slowed for four consecutive quarters, declines are nowhere near the 22 percent contractions seen in the first half of 2009. Only a drop of a similar magnitude will force all container lines to conclude that pulling capacity is the right strategy, he said.

The industry may lose $2.5 billion to $3 billion this year, according to Philip Damas, director of liner shipping and supply chains at Drewry Shipping Consultants Ltd. in London. Owners and operators lost $20 billion in 2009, when the global container trade contracted for the first time ever, Drewry says.

“People are definitely more concerned today than they were, say, around the end of June,” Kolding said. “We definitely hear some concerns from our retail customers as well. It’s Europe, North America and Japan that are negative. The rest of the world is doing very much more nicely.”

Kolding spoke Sept. 12 after Maersk said it will deploy 70 ships on the first guaranteed daily sailings between Europe and Asia in a bid to win market share as demand stutters. The Copenhagen-based company will also offer fixed cut-off times and a discount of at least $100 for delayed containers.

Maersk has deep pockets, and maybe the new "guaranteed daily sailings" will be
the trick that will put them at the top of the heap. Also, their new
ships are energy efficient, which certainly helps.