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>> Maersk to acquire Hamburg-Sud and reinforce its presence on the Latin America routes. more.

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>> India - the impact of shipping lines’ consolidation and the cabotage rule change. More.

>> Iran – changes in maritime services post-sanctions. more.

>> 'India: The only way is up' say MDST in an article published by Lloyds List. More.

>> Hanjin’s collapse - A wake-up call to the industry? More.

>> Peak season 2016: could the seemingly more rational shipping lines restore stability to the market?. More.

>> Panama Canal Expansion: the major announcements so far have been made by the CKYHE Alliance and G6 Alliance: each have indicated the upsizing of some of their vessels on the services passing through the Panama Canal as shown in MDS Transmodal's analysis. More.

>> CMA-CGM’s acquisition of Neptune Orient Lines and Cosco’s merger with China Shipping Container Line (CSCL), prompted the need for a few changes in the current capacity-sharing agreements amongst the shipping lines. More.

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>> Chris Rowland, Managing Director of MDST, presented the draft conclusions from the Transport for the North (TfN) Freight & Logistics Strategy at the Freight in the City Conference in Manchester on 3 March 2016. More.

>> With 22 maritime services, Iran is expected to see an increase of around 250% in the capacity of container shipping passing through its ports in spring 2016, as shipping lines seek to benefit from the removal of sanctions. More.

>> MDST Chairman, Mike Garratt, wrote to the editor of RAIL magazine in March about the future of rail freight in Great Britain. More.

>> MDST has examined the evidence for Chinese ‘dumping’ of steel on the global and UK markets using its World Cargo Database, which allows it to monitor world trade by both volume and value and for detailed commodities. More.

>> East Asia export box trade sees growth of 1.7% in 2015, says MDST in an article published by Lloyds List. More.

>> The UK Department for Transport (DfT) has published road traffic forecasts which used MDST’s GB Freight Model (GBFM) to develop forecasts to 2040 for HGV traffic on the British road network. More.

>> Ports should be at the centre of distribution chains says MDST. More.

>> Based on its analysis of Eurostat port statistics and its own World Cargo Database, MDS Transmodal has concluded that ports handled 640 million tonnes in 2014, a market share of 40%. More.

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Hanjin’s collapse

A wake-up call to the industry?

The record level of scrapping together with the reduction in services witnessed in the last few quarters had obscured the financial difficulties that some shipping lines are facing. This gave the false impression that the industry (although far from perfect) was slowly finding a way towards a more stable state and that consolidation along with M&As were paying off. Not quite. On the 31st of August Hanjin Shipping filed for court receivership. Whilst this technically does not mean bankruptcy, it brings with it all the challenges and disruptions of one.

The news did not come as a surprise to some of those close to the industry, but it was a shock nonetheless. The container shipping industry as a whole is not in good shape financially: for the traditional peak season we project an annual overall decline of some 9% in unit revenue which, combined with unit costs declining by a lower rate (less than 7%), demand increasing only by approximately 2% and supply up by more than 11%, could translate in a total loss for the industry of some US $2.5bn[1]. Business has not been great for the industry for a while, with the latest financials published by the biggest names also showing reasons for concern for their shareholders.

As shown below in Figure 1, Hanjin has not been performing well but neither has the industry as a whole as illustrated in Figure 2.

Figure 1: Hanjin’s operating profit (US$ million)
Source: MDST elaborations on Hanjin’s financial results

Figure 2: Total container revenue - Hanjin vs all other shipping lines, Index 2008=100
Source: MDST Container Business Model, August 2016

Although Hanjin only accounts for approximately 3% of global capacity, we estimate that their ships could be moving around US$ 14bn worth of goods and their departure will have repercussions for the industry as a whole.

Hanjin operates approximately 100 ships, of which 56 are deployed on the East/West trade lanes. The following table describes their fleet compared to other shipping lines grouped into the Alliances.

Table 1: Current and future fleet by Alliance, East/West trade lane*

 

Present fleet (overall fleet)

Present fleet (>8,000TEU)

Newbuilds  (>8,000TEU)

No. owned

No. chartered

Mean ship capacity TEU

No. owned

No. chartered

Mean ship capacity TEU

No. of ships

Mean ship capacity TEU

2M Alliance

119

117

9,938

75

66

13,399

38

15,575

CKYHE Alliance

136

121

8,705

73

92

10,548

47

16,293

- of which Hanjin

25

31

8,223

6

26

10,486

 

 

G6 Alliance

152

94

8,045

95

40

10,392

27

15,893

Ocean Three

75

67

10,056

59

40

12,375

31

15,006

All Alliances

507

430

9,069

308

264

11,588

143

15,748

Others

22

63

4,350

6

4

8,981

51

11,785

Grand Total

504

462

8,654

308

242

11,541

194

14,706

*Excluding Far East-Gulf services when they do not proceed to Europe
Source: MDST Container Business Model, August 2016

All the players of this industry will have to face imminent challenges. Shippers will have to locate their containers and find alternative ways to deliver them to minimise disruptions to their supply chains; shippers could also soon be facing increases in freight rates. Ports and terminals operators may not get paid for the jobs carried out on ships discharged at their berths. Container lessors and ship owners might not get paid for the equipment and vessels leased/chartered. The other shipping lines could experience delays in delivering their cargo due to some of their containers being stuck on board vessels operated by Hanjin. CKYHE/THE Alliance could see their positioned weakened compared to their competitors (proposed 2M + HHM and Ocean Alliance). To give an idea of how complex the picture is and how intertwined the shipping lines are, we have listed a few of the routes where Hanjin operates:

  • Hanjin operates on the East/West trade lanes as part of the CKYHE Alliance (also including Cosco/CSCL, Evergreen, K-Line and Yang Ming)
  • On the Transpacific trade lane, Hanjin operates as a member of the CKYHE Alliance and it also operates one service on its own.
  • On the Far East – Gulf & ISC trade lane, Hanjin operates two services independently and on another service in partnership with several carriers it also deploys one vessel.  
  • On the transatlantic Hanjin offers a West Med-USEC service in partnership with CMA-CGM, COSCO and UASC.
  • In partnership with the smaller Korean operators Heung-A and KMTC as well as on its own, Hanjin operates in the Intra-Asia market.
  • On two Far East – Australia loops, Hanjin cooperates with several lines including COSCO and OOCL and it operates a Far East – USWC – Gulf & ISC service with the G6 Alliance.
  • Hanjin contributes two vessels on a Med-W Africa service with CMA-CGM, UASC
  • It cooperates through partnerships/slot agreements with CKYHE members (particularly COSCO, Evergreen and K-Line) on numerous trade lanes.
  • Hanjin also has some slotting exchange on East-West trades with CMA-CGM.

Without doubt the most affected services will be those operated by the CKYHE Alliance which use solely Hanjin’s vessels, listed as follows:

  1. CKYHE ALLIANCE – AWE 1 (Far East – North America East Coast)
  2. CKYHE ALLIANCE – HPN (Far East – North America West Coast)
  3. CKYHE ALLIANCE – MD3/HPM (Med – Far East – North America West Coast)
  4. CKYHE ALLIANCE – NE6 (North Europe – Far East via Algeciras)

As an example, on the Far East – North America East Coast market alone, we estimate that in 2015 there were boxes with a value of US$ 0.44 trillion on this trade lane.

At this stage we can only speculate on how this event could impact the industry in the medium and long term and whether the likely departure of Hanjin will be sufficient to act as a lesson remains to be seen. What seems to be certain however is that the container shipping industry may need to be prepared to go through a challenging few years before benefiting from consolidation. However, Hanjin’s collapse should not pass in vain and hopefully it may restore more rational behaviour and make all the players in this industry more conscious and responsible, eventually ending price volatility and improving the poor profitability characterising the industry today. For that to happen shippers might become more conscious in choosing the carriers for their boxes (when they can); ports might ask more guarantees before unloading a vessel; shipping lines could team-up with counterparts with a reasonable stable financial position. What appears to be a key element for all of this to happen is more knowledge and transparency in the industry.

Possible impacts on shipping lines' market shares

Based on our estimates, the three re-shaped/proposed new Alliances will have an uneasy task in demonstrating to Regulatory Authorities that their market shares do not exceed the ‘30% limit’. Although detailed analyses will be required to assess the market share route by route, looking at the aggregated trade lanes on the East/West routes[2] we estimate that the Ocean Alliance (proposed by CMA-CGM/APL, Cosco/CSCL, Evergreen, OOCL and ANL) and the THE Alliance (proposed by Hanjin, Hapag-Lloyd, K-Line, MOL, NYK, Yang Ming and UASC) could exceed this limit, as shown in the following two charts.

Figure 3: Current agreementSource: MDS Transmodal Containership Databank, September 2016

Figure 4: Proposed agreement - pre Hanjin’s collapse*Hanjin still part of the THE Alliance;
**including Hyundai Merchant Marine

Source: MDS Transmodal Containership Databank, September 2016

This calculation, however, was carried out prior to Hanjin’s collapse. On the 31st of August Hanjin Shipping filed for court receivership and the future of their vessels (both owned and chartered) is rather uncertain with the high possibility that a large number of them could be scrapped. Looking at the vessels operated by Hanjin on the East/West routes, we estimate that only 13 are bigger than 10,000 TEU, representing only 13% of the total fleet on these trade lanes, as shown in the following table. The low level of demand on the one side and the still high level of capacity on the other side, will challenge the future of small/older vessels.

Table 2: Vessels operated by Hanjin on the East/West trade lanes

Chartered / Owned

Building year 

Number of ships

Average ship size (TEU)

Chartered

2001

2

5,618

2003

1

4,646

2005

5

8,180

2010

1

4,250

2011

4

8,433

2012

5

13,100

2013

4

13,100

2014

4

10,000

2015

4

9,760

2016

1

9,040

Chartered Total

 

31

9,701

Owned

2006

3

6,650

2007

3

6,650

2008

7

4,954

2009

2

4,275

2010

1

9,950

2011

5

9,677

2013

3

4,553

2014

1

4,600

Owned Total

 

25

6,389

Grand Total

 

56

8,223

Source: MDS Transmodal Containership Databank, September 2016

If all the 56 ships are indeed cut out of the market, that will certainly be advantageous for the remaining big players, but their task in proving that their proposed agreements will not surpass the legal limit of 30% will become harder. The following charts (Figure 5 for the combined East/West routes and Figure 6 for the Transpacific trade lane) describe the possible impacts for the Alliance’s market shares. In these charts we have also assumed that Maersk Like acquires K-Line (although it is very much a rumour at this moment in time).

Figure 5: Possible scenario - post Hanjin’s collapse – East/West routes*Hanjin’s ships (owned and chartered) assumed to be scrapped;
**including Hyundai Merchant Marine and K-Line
Source: MDS Transmodal Containership Databank, September 2016

Figure 6: Possible scenario - post Hanjin’s collapse – Transpacific trade lane*Hanjin’s ships (owned and chartered) assumed to be scrapped;
**including Hyundai Merchant Marine and K-Line
Source: MDS Transmodal Containership Databank, September 2016



[1] Our estimates are based on the assumption that shipping lines pay market level charter rates at any point in time. Based on this assumption we estimate that only two years ago (in 2014) the industry made a profit of some US $1.75bn.

[2] Excluding services on the Far East – Gulf trade lanes when they do not call at the Northern European & Mediterranean ports.