Speech of Jesper Praestensgaard, Propeller Club Basle, 17th April 2012
“Global Container Shipping – Prospects and Challenges of a Growth Industry”
Based on the freight rate from South China to Northern Europe the costs for Transport of
many consumer goods are close to nothing or very little in comparison to sales prices of
these items. E.g. for T-Shirts the transport costs less than one US-Cent in a 40 ft container
nowadays, for a bottle of wine from Mosel/Rhine to Tokyo it is ten US-Cents per bottle which
would probably cost at least 20 US-Dollar in a shop in Tokyo. Therefore it is true to say that
the container and container shipping was the catalyst of globalization. The development of
the world trade since the 1960’s when the container was introduced proves this.
This only as a short introduction and please keep these transport costs per item in mind.
Now, let me introduce you to my company:
Hapag-Lloyd was formed on September 1st, 1970 as a result of the merger of HamburgAmerikanische Packetfahrt-Actien-Gesellschaft (Hapag) and North German Lloyd (NDL). But
the origins of these shipping lines go back much further: Hapag was founded in Hamburg in
1847 by local merchants and NDL in Bremen in 1857. The lines initially carried mainly
European emigrants eager to start a new life in America.
In 2005, Hapag-Lloyd acquired the British-Canadian container line CP Ships, thereby
becoming one of the leading liner shipping companies of the world and being among the
TOP 5 – at the moment we are Number 4 by capacity of our fleet.
In October 2008 TUI AG sold the majority of the shares of Hapag-Lloyd to the Albert Ballin
consortium consisting of the City of Hamburg, Kühne Holding AG (and please note: this is
not K+N but Mr. Kühne as a private man), Signal Iduna, HSH Nordbank, M.M.Warburg Bank
and HanseMerkur. The remaining shares have been owned by TUI AG.
Latest development in our shareholder structure: City of Hamburg will rise its share as part
of the Albert Ballin Consortia. This means even more stability and backing of shareholders.
As of June 30th, 2012 approx. 78% will be held by Albert Ballin consortium and 22% by TUI
AG.
Environmental protection and a sustainable management has been very important to us
since many years. We are not just talking about it as PR or marketing. Our achievements are
independently certified, too.
Today, a modern container vessel contains the same amount of technology than in an
Airbus or Boeing – if not more! Main targets of this technology are:
+ Lower Fuel consumption
+ Environmental protection, i.e. mainly lower emissions
+ Increased Safety
Looking at our financial results and figures of 2011 which was a challenging year for the
shipping industry you will see that HL fared much better than all other liner companies. Only
one other partner line of HL played in the same league in 2011.
Hapag-Lloyd is well positioned to continue to serve our customers well in spite of the difficult
market environment.
Coming to the market environment the most important question is: Will growth in container
shipping continue?
World container trade has evolved much more dynamically than the global economy.
As a consequence, growth rates are not directly comparable. A reduction in GDP growth
does not translate into a similar reduction of container trade volume.
Global Container Transport will grow between 5 and 7% per year between 2012 and 2016
research institutes like IHS Global Insight say.
Global fleet capacity grows by 10 and 9% this and next year.
But, be careful: We cannot just take the nominal capacity when talking about capacities or
even overcapacities.
Nominal capacity of a vessel does not equal the effective capacity which can be used in
daily operations. These are only 80 to 85% of the nominal TEU also due to weight of loaded
containers and other restrictions like draft of ports etc.
And if you look beyond 2013 the order book is at a historical low level and new orders are
not coming in at the moment.
However, we still have an overcapacity in the industry and it will last at least through 2012
and 2013.
What will the consequences be?
Carriers cannot control demand, since it depends – briefly spoken – upon economic activity.
The two major measures in carriers’ capacity management are adjustments to its charter
fleet or idling vessels.
The slide shows the industry’s flexibility to imbalances in demand and supply.
In the dawn of the crisis in 2009, carriers have started to lay-up excess vessels. Lay-ups
have actively been used by carriers and non-operating owners during the crisis. Peak of the
lay-ups was in Dec 2009 with roughly 12% of total fleet. Due to improvement of the
economic environment in 2010, vessel owners considerably phased-in their laid-up tonnage
until mid 2011, hence the number of inactive vessels declined to nearly zero. In the second
half of 2011, carriers increased their layups again – this trend is expected to continue.
Alphaliner expects a total of 1.1 m TEU lay-ups by the end of 2012.
Besides removing tonnage from the market, service restructurings are another measure to
adapt supply to changing demand patterns (e.g. for slack seasons). An example: The G6
Alliance decided to start with 6 joint services between Asia and North-Europe instead of 7. A
seventh service will only follow when it can be supported by sustainable trade conditions.
Talking about the main challenges of our industry we have to look at the oil price in the first
place: To fill the tank of a 8.750 TEU vessel once costs approx. 7 to 7.5 million USD for
10.000 tonnes bunker. A year ago this was approx. 4 to 4.5 million USD. Bunker and other
fuels and lubricants are by far the largest cost factor in our industry. Due to aggressive
competition in 2011 no carrier was able to recover the higher oil and bunker costs from
customers.
Fuel saving is therefore one of the first things we are doing: slow steaming and De-Rating
save more than 50% fuel per vessel. De-Rating is the technical reduction of the main
engine‘s power to match lower speed. It saves even more bunker in addition to the slow
steaming measures and the combustion of the engine is cleaner with less NOx.
However, slow steaming and De-Rating is not enough to tackle the problem of rising bunker
prices. At a certain point you cannot go slower on technical grounds.
Looking at cumulated losses of more than 6.5bn USD (Alphaliner) in the whole liner shipping
industry in 2011 it seems like: the desperation of the industry is great enough to return to a
sensible and sustainable way of doing its business.
All carriers announced independently rate increases since end of January. They applied as
of 1st March and following monthes. The 3rd step by Hapag-Lloyd will apply beginning of May.
The Shanghai Spot Rate Index showed very well that the market accepted the rate
increases. Beginning of March there was a leap of 114% for a box from Shanghai to North
Europe.
So, my final question to you is: Can the cargo afford the rate increases?
The answer seems easy considering that the transport of the T-Shirt from the beginning of
my presentation costs approx. 1 US-Cent instead of half a Cent. And the bottle of wine will
end up with transport costs of approx. 13 instead of 10 US-Cents. And please keep in mind:
In return for sustainable rates our customers will receive a much more reliable and
comprehensive service by the ocean carriers.
Thank you!