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OCEAN FREIGHTMARKET UPDATE

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October 2020 publication date September 30th, 2020

TOPIC OF THE MONTH Golden Week Holiday in China

HIGH LEVEL DEVELOPMENT

MARKET OUTLOOK

ECONOMIC OUTLOOK & DEMAND DEVELOPMENT

CAPACITY DEVELOPMENT

CARRIERS

RULES & REGULATIONS

DID YOU KNOW?

LNG Powered Vessels

CONTENTS

DHL Global Forwarding | OFR Market Update | October 2020 2

OCEAN FREIGHT MARKET UPDATE - OCTOBER 2020


TOPIC OF THE MONTH Golden Week Holiday in China

Carriers continue their disciplined capacity management in October

In October cargo demand is expected to slow down during and after theGolden Week holiday in China (first week of October). Both the members ofTHE Alliance and the 2M have formally announced a new series of blankedsailings between Asia and Europe. Also the latest schedules of the OCEANAlliance show skipped sailings in Asia-North Europe loops. This shows thecarrier’s cautious approach to avoid overcapacity to match it with marketdemand.

Most voided sailings are concentrated in the first half of October due toanticipated strong customer demand in the fourth quarter, despite COVID-19.

Since May carriers started to increase capacity by reinstating blanked sailings,resuming suspended services, launching new services and organizing extra adhoc sailings on the two big East West trades. These capacity increases werepushed through the strong cargo demand in China and the additional peakahead of the Golden Week Holiday.In September 2020 the Transpacific capacity was 26% higher compared to Mayand even 6.7% more compared to 1 September 2019. Average weekly capacitybetween Asia and Europe has risen 17.6% compared to May and is only 4%under last year’s figure.

Source: Alphaliner, Dynaliners, carriers

HIGH LEVEL MARKET DEVELOPMENT

4

1) real GDP, Copyright © IHS Markit, Q3 2020 Update 25 Aug `20, Venezuela is excluded from aggregates due to hyperinflation . All rights reserved. 2) DHL Global Trade Barometer Dec19, index value represents weighted average of current growth and upcoming two months of trade, a value at 50 is considered neutral, expanding above 50, and shrinking below 50. 3) Drewry, in USD/40ft container, including BAF & THC both ends, 42 individual routes, excluding intra-Asia routes. 4) Shanghai Shipping Exchange, in USD/20ft container & USD/40ft ctnr for US routes, 15 routes from Shanghai. 5) Source: DHL.

ECONOMIC OUTLOOKGDP GROWTH BY REGION1)

WORLD CONTAINERINDEX (WCI)3)

SHANGHAI CONTAINERIZED FREIGHT INDEX (SCFI)4)

DHL TRADEBAROMETER2)

2,000

0

1,000

500

1,500

3,000

2,500

Q1 ’19

Q2 Q3 Q4 Q1 ’20

Q2 Q3 Q4

600

400

800

1,400

1,000

1,200

1,600

Q1’19

Q2 Q3 Q4 Q1 ’20

Q2 Q3 Q4

30

40

50

60

70

80

Q3Q1’18

Q3Q1’17

Q2 Q3 Q4 Q4Q2 Q1’19

Q2 Q4

Ocean

Global

Actual

Forecast

Our Trade Barometer stands for accuracy,

reliability & credibility. However, the

analyzed data is unable to assess the impact

of such disruptive events as Covid-19. This

is why the update for Q2 ’20 is postponed.

BUNKERPRICES5)

Actual

Forecast

DHL Global Forwarding | OFR Market Update | October 2020

2021F 2022F 2023F 2024F 2025FCAGR

(2022-25)

AMER 3.3% 3.8% 3.1% 2.5% 2.3% 2.6%

ASPA 5.2% 4.6% 4.5% 4.5% 4.4% 4.5%

EURO 4.2% 3.3% 2.1% 1.8% 1.7% 1.9%

MEA 3.2% 3.2% 3.3% 3.1% 3.2% 3.2%

DGF World 4.2% 3.9% 3.4% 3.1% 3.0% 3.2%

EUROPE NORTH AMERICA

SOUTH AMERICAASIA PACIFIC

MARKET OUTLOOK OCTOBER 2020

MAJOR TRADES


Source: DHL

Import region Capacity Rates

AMNO =/- =/+

AMLA = -/+

ASPA = =/-

MENAT - - =/-

SSA = =

KEY Strong increase ++ Moderate increase + No change = Moderate decline - Strong decline - -


EURO - =

AMLA = +

ASPA = =

MENAT = =

SSA = =


EURO = =

AMNO = +

ASPA = =

MENAT = =

SSA - +


EURO - =

AMNO - =

AMLA - =

ASPA - ++

MENAT - =/+

OCEANIA + ++

• ASPA-EURO

• ASPA-AMNO

• ASPA-AMLA

• ASPA-MENAT

• ASPA-ASPA


OCEAN FREIGHT RATES – ASIA-PACIFIC EXPORTS


Source: DHL

The Golden week holiday is around the corner and carriers are starting with their blank sailing program accordingly.

Carriers have announced blank sailings for the China Golden Week Holidays. FAK rates are extended till mid October but demand is expected to pick up quickly after the break.

Market demand is still strong going into Oct and there are few blank sailings in place for Golden week as compared to last year. Above that, we do see extra loader into ECSA being put in place during Golden week to cope with the demand. Carriers are expecting full ships till end of Oct. Freight levels is expected to remain high throughout October.

Significant changes to capacity during wk 40~41 sailings in view of golden week holidays, following which, projecting every string to blank at least once between week 42~wk45. Meanwhile, demand projected strong for the whole of October. Carriers have already reported fully booked up till mid October with no intention of reinstating regular sailings. Freight rates expected to remain high through October while it is not clear yet if existing strong demand will persist into November.

Capacity within Intra Asia Trade will be cut for October due to China Golden Week Holiday. Various blank sailing has been announced during the week of 40-42. Carriers on the other hand are shortage of containers, especially 40’HC. China, Thailand, Vietnam, Indonesia have reported so far. FAK rates are strictly subject to space and equipment availability. For IPBC, market is currently having approximately 2-4 weeks rollover at transhipment ports across all carriers. Rates are expected to further increase as carriers will still continue with their blank sailing plan in October.

• EURO-AMNO

• EURO-ASPA+MEA

• AMNO-EURO

• AMNO-ASPA

• AMLA Exports


OCEAN FREIGHT RATES – OTHER MAJOR TRADES


Source: DHL

Slight rate increases in Q4/2020, plus a moderate BAF increase. Less blank sailings announced, but some still in place. Furthermore 2M decided to stop the TA4 which has the consequence that all services remain well booked. Post strike congestions in Canadian ports continue.

No new blank sailings are announced, space is not that tight anymore. Rates are decreasing. For SPAC, space is

getting tight, rates are increasing; congestion at POD Sydney

Rates remain stable despite ongoing blank sailings on the AL1, AL4 & TA4 through November. Slight BAF increase in October with all carriers.

No increase in rates due to no GRI/PSS and no change in capacity.

AMLA – AMNO, EURO, MENAT & SSA : Despite challenges w/blank sailings, equipment shortages and high demands, rates remain stable with the exception of the ECSA

AMLA – ASPA : Strong exports projected to continue through next couple of months, especially out of Brazil. Tight space situation continues to affect the market due to

blank sailings. In view of the current demand vs. available inventory scenario, carrier is working with priority list on the 40'DC releases in the RIO & ITJ ports and also on

the 20'DC releases on VIX. Some carriers will release 40´HC no more than 7 days before cargo´s cut-off due to lack of equipment in all Brazilian ports. Low stock in Rio

Grande, Paranaguá, Navegantes, Itajaí and Itapoá. Due to lower import volumes in WCSA are affecting equipment supply, with some countries like Colombia now

imposing a ‘pick up‘ charge at certain depots.

EUROPE

AMERICAS

ASIA PACIFIC

LATIN AMERICA

DEMAND DEVELOPMENT

The extremely uneven distribution of the pandemic’s pain impedes recovery

ECONOMIC OUTLOOK & DEMAND EVOLUTION


Source: IHS Markit, IHS Purchasing Manager Index Manufacturing, a PMI at 50 is considered neutral, expanding above 50, and business shrinking below 50.

Rebounds in sentiment surveys and “hard” activity data were vigorous across Western Europe after the easing of COVID-19 virus containment measures. However, levels of production & expenditure generally remain well below pre-pandemic levels and with the initial post-lockdown bounce already well advanced, growth momentum is starting to fade. Recoveries have diverged across countries and types of activity, reflecting differences across a range of factors including the magnitudes of recessions, control of COVID-19 and related containment measures, exposure to the most affected areas of activity, and policy support.

Most components of private demand will rise sharply in Q3, including personal consumption expenditures, residential investment, business equipment investment, exports, & imports. A slower pace of inventory destocking will also contribute to real GDP growth. GDP growth will be restrained by declines in business investment in nonresidential structures and intellectual property, as well as government consumption and gross investment. IHS Markit now forecasts a 4.0% decline in real GDP in 2020, a milder result than the 4.8% contraction projected last month.

In JP declines in household expenditure, personal-related services, & point-of-sales data suggest the resurgence of new confirmed cases suppressed the recovery in consumer spending in July and Aug. Despite fiscal stimulus measures, safety concerns and declines in wages and non-regular jobs are likely to restrain consumer spending.

Demand rebounded broadly in CN. Exports continued to surprise on the upside owing to depleted global inventory and demand stimulus policies of advanced economies. The government appears at ease with the progress of China’s economic recovery. Stimulus measures have remained conservative and no additional stimulus has been signaled.

Despite the deep recession, consumer price inflation in MX was 3.6% YoY in July, pushed up by the pass-through of the peso’s depreciation. While currencies in other countries in the region have weakened as well, this has not translated into higher domestic inflation as the recession and associated lower demand have dominated in price determination.

The global economic recovery is gaining traction. The JPMorgan Global Composite Output Index (compiled by IHS Markit) increased 1.4 points to a 17-month high of 52.4 in August. Both the global manufacturing PMI (at a 21-month high) and the services PMI (at a 7-month high) are signaling expansion.

All the major carriers are experiencing equipment shortages at Asian ports with popular 40’ High Cubes in particular short supply at Chinese ports. Some carriers have started to introduce a “box priority fee”, which secures equipment availability and is payable at time of booking. Further many carriers have introduced restrictions on the release of empty containers prior to the intended shipment. For example, Hapag Lloyd, will now only release empty containers from its mainland China depots a maximum of eight days prior to the estimated arrival of the intended sailing. With the robust export demand, particularly on the transpacific, expected to continue into the traditional slack season and beyond the Chinese Golden Week holiday, the equipment shortage looks unlikely to improve for some time. Carriers are working to resolve the issues in Asia by repositioning as much equipment as possible and even ship empties back as quick as possible. Meanwhile, for the secondary tradelanes such as Latin America and Africa, where 20’ Boxes are more commonly used, shortages are also increasing. According to the xChange’s Container Availability Index (CAx), the availability of 20’ containers at Asian ports is set to reach new lows in coming weeks.

The Panama Canal Authority (ACP) has published beginning of September 2020 a Request for Qualifications (RFQ) for the design and construction of a new water management system that will guarantee an adequate water supply for both Canal operations and local consumption for the next 50 years. The project aims at securing satisfying water levels within the Canal all along the year. Severe periods of drought in recent years, compounded by the extra draining brought by the new locks opened in 2016, led to low water levels and therefore draft restrictions for transiting ships. The Panama Canal Administrator Ricaurte Vasquez stated “ As the Canal’s largest investment since the Expanded Canal in 2016, I am confident this move will safeguard the waterway’s future as one of the most important hubs for global commerce”.

The inactive containership fleet count continued its downward momentum, having decreased by 155,350 TEU within a fortnight to 163 units for 644,293 TEU, or 2.7% of the total containerships fleet as of 14 September 2020, according to the latest survey. The inactive fleet fell across all size segments, with rising demand in various trades, from major East-West trade lanes to regional short sea and feeder services in September. The number of ships kept inactive due to scrubber retrofit, decrease slightly to 21 units for 223,525 TEU. It represented 35% of the total inactive fleet.

CAPACITY


Source: Alphaliner, THE LOADSTAR, Dynaliners, carriers

The A.P. Moeller – Maersk group has announced a new simplification of its group structure which will see the sales activities of Safmarine and the air forwarding and LCL consolidation activities of Damco fully integrated in the Maersk Ocean & Logistics division by the end of the year. The brand names Safmarine and Damco will both be dropped. Maersk is to retain the Sealand brand for intra-regional liner services and is also keeping Hamburg Süd and Aliança as separate brands, although a next step in the integration of the German carrier Hamburg Süd in the Danish group will be made with the set up of a multibrand regional ocean management teams for both carriers before the end of the third quarter. Hamburg Süd’s regional organizational setup will thus be integrated within Maersk. Vincent Clerc, CEO of Maersk Ocean & Logistics, has informed his employees on September 1st about the restructuring, adding the he regrets the impacts on jobs due to dublicate roles. Several sources have indicated that some 3,400 jobs out of a total of 27,000 are at stake.

With effect from 1 December 2020, APL Co Pte will become CMA CGM Asia Shipping Pte Ltd. The name change does not affect the company’s business, shareholder structure, management or agreements it has entered into. The name change is in line with the developments that the CMA CGM Group has been making across its trade lanes and among its carrier brands over the last three years. CMA CGM took over APL through the purchase of its parent company NOL in a deal completed in September 2016.

Singapore based Pacific International Lines (PIL) continues to actively sell container tonnage as it pursues its efforts to restructure its debt as part of its ongoing bailout discussions with Heliconia Capital, a unit of the Singapore government’s investment company TemasekHoldings. PIL has so far sold 14 container vessels since the beginning of the year, of which six 11,923 TEU Chinese-financed units as well as a variety of all sizes from 700 TEU to 4,300 TEU. PIL is also seeking to generate cash by chartering out (or subletting) some of its owntonnage. So far this year, PIL has fixed five of its vessels to third party liner shipping companies, of which four ‘classic panama’ of 4,250-4,300 TEU.

CARRIERS 1/2



MSC finally signed a deal to take a minority stake in the Messina Group and control of four of its modern conros. The deal was confirmed by Banca Carige, which held the original mortages on Messina’s eight 44,500 dwt/2,920 TEU conros built at DSME and STX in South Korea between 2011 and 2015. It concludes a transaction that was first discussed in December 2017, and originally set to close in first half of 2019. Marinvest, the holding company of MSC owner Gianluigi Aponte, will pay a reported EUR 25M for a 49% share in the Ignazio Messina & C. Group, plus 52% ownership in a new holding unit called RoRo Italia.

The port operator PSA Corporation (PSA) and the ocean carrier HMM have agreed to collaborate at Singapore and form a joint venture company to run a container pier. Subject to regulatory approvals, the joint venture company, HMM-PSA Singapore Terminal (HPST), is scheduled to commence operations before the end of this year. PSA will hold a 58% stake in HPST, while HMM will own 42%, both through their respective subsidiaries. According to PSA, the strategic partnership will offer HMM a long term perspective to further develop Singapore port as its main hub in South East Asia and guarantee berth space and capacity for the carrier’s ships, including its ultra-large 24,000 TEU megamaxes.

CARRIERS 2/2



12

Source: Alphaliner, DynaLiners; n.a. = not available, n.m. = not meaningful; 1) local currency numbers were converted into US$ using the average exchange rate for relevant financial period; 2) shipping activities only, excl. CEVA Logistics; 3) result is Q1 of Japanese financial year, i.e. Apr-Jun not calendar year; 4) operating profit is "Core EBIT"; 5) Average excluding ONE; 6) operating profit is EBIT; 7) COSCO Shipping Lines and OOCL; 8) not consolidated for Evergreen Group;9) Profit from continuing operations; 10) excluding Long Beach Container Terminal operation

CARRIER FINANCIAL RESULTS 6 MONTHS 2019-20Lower volumes offset by higher freight rates & lower bunker prices are lifting carrier half-year profits


Revenue Operating ProfitOperating Profit

Margin Net Profit

Carrier 2019 2020 % 2019 2020 % 2019 2020 2019 2020 %

Maersk Group 6), 9) 12’166 11’612 -5% 2’017 2’532 26% 16.6% 21.8% -503 652 230%

CMA CGM 2), 4) 11’711 10’839 -7% 1’443 1’888 31% 12.3% 17.4% -90 236 362%

COSCO SHIPPING Holdings 7) 10’033 10’124 1% 439 357 -19% 4.4% 3.5% 293 274 n.m.

Hapag-Lloyd 6) 7’047 7’005 -1% 440 563 28% 6.2% 8.0% 165 314 90%

OOCL 10) 3’300 3’430 4% 198 155 -22% 6.0% 4.5% 138 102 -26%

Evergreen Marine Corp. 1), 4), 8) 2’993 2’966 -1% 78 193 147% 2.6% 6.5% 1 106 10500%

ONE 3) 2’875 2’736 -5% n.a. n.a. n.m. n.a. n.a. 5 167 3240%

Yang Ming 1), 4) 2’434 2’255 -7% -9 29 422% -0.4% 1.3% -58 -27 53%

HMM 4) 2’327 2’227 -4% -187 113 160% -8.0% 5.1% -325 -31 90%

Zim 1’631 1’618 -1% 170 242 42% 10.4% 15.0% -19 13 168%

Wan Hai 1), 4) 1’151 1’164 1% 44 77 75% 3.8% 6.6% 57 60 5%

Average 5) 54’368 52’546 -3% 4’435 5’994 35% 8.2% 11.4% -474 1’764 472%

In September the CMA CGM JACQUES SAADE has joined CMA CGM Group’s fleet thus becoming the first dual fuel/LNG-powered megamax container vessel in the world.

The vessel with its pioneering LNG technology was named after CMA CGM’s entrepreneurial founder Jacques Saadé and is promoted under the tagline “More than a flagship – a vision”, thus highlighting the commitment to more environmentally-friendly ocean freight. The vessel is the first of a series of nine 23’000 TEU LNG container ships and will join the Asia-Northern Europe service.

Besides CMA CGM’s commitment to LNG, Hapag-Lloyd will also retrofit its 14’993 TEU vessel SAJIR to operate using LNG. Originally scheduled to take place much earlier, the conversion was postponed in light of the COVID-19 pandemic.

Compared to conventional bunker LNG saves ~20% of overall CO2 emission, and drastically reduces nitrogen oxides Nox (-85%), sulphur emission Sox (-99%), and fine particles (-99%).

At the same time and according to the IMO, the maritime methane emission have increased by 150% over the past 6 years as more ferries, cruise ships and off-shore vessels have started to burn gas. This methane slip could have a negative impact on the global climate unless tightly controlled and limited to an absolute minimum.

Although LNG is not a viable long-term solution since it is not a zero-emission fuel, natural gas is at the moment still the cleanest and greenest option.


Source: carrier, Alphaliner

Did you Know?LNG – An Alternative To C02-Neutral Shipping

BACK-UP


OCEAN FREIGHT RATES ADDITIONAL TRADES (1/2)


Source: DHL

• EURO-AMLA+MX

Carriers continue hungry for ECSA cargo where we see some slight reduction in rates for Q4. On the other hand, there have been slight increases accepted into the Mexico market. AL4 blankings from The Alliance continue.

• EURO-MENAT

Maersk Group cancelled the ME1 service to Indian Sub and Middle East, alternatives are mainly absorbed by far east services. Rates are stable.

• EURO-SSA

Rates are remaining stable. Capacity is available. Apapa, Nigeria waiting time is currently slightly improving with approx. 37 days. Tincan Island or Onne are alternative options to be used.

• AMNO-MENAT

Base OFR Rates in the market are steady. Space is tight out of USEC & USGC Ports due to several sailing cancellations on services to M. East & India Subcontinent. No space issues out of USWC except to East Med.

• AMNO-SSA

Rates to South/West Africa will remain same. No changes in capacity. Space is available to West Africa but tight to South Africa.

• AMNO-AMLA

Capacity growth down 7% YOY August. Overall 2020 volume growth expected to decrease by an average of 15% over 2019 (US-AMLA, AMLA-AMLA, AMLA-US). Equipment shortages expected in Q4 for Mexico and the West Coast due demand and capacity constraints from Asia. Pricing & Space flexibility on US exports to assist w/equipment replenishment in South America.


OCEAN FREIGHT RATES ADDITIONAL TRADES (2/2)


Source: DHL

• EURO MED-AMNO

GRI have been announced as of October 1st. USA rates will generally be extended till end of October (very limited GRI could be applied by selected carriers on selected port pairs. Tendency for MX is an extension till end of October. Part of the announced GRI to Canada will instead be implemented. BAF element is slightly increasing in October.

• EURO MED-AMLA

Nothing to be highlighted.

• EURO MED-ASPA and MENAT

Blank sailings and therefore stable rather high rate level.

• EURO MED-SSA

Nothing to be highlighted.

• ASPA-SPAC

October GRI announced at USD300/TEU ex NEA/SEA-AU. Cargoes into Sydney destinations is also subj. to Port Congestion Surcharge at USD235-350/TEU. Carriers are charging premiums above FAKs due to tight space, such as USD500-800/box for ex NEA and USD300-500/box for ex SEA.

Source: Carriers

OCEAN CARRIER ALLIANCESSTATE OF THE INDUSTRY

HAPAG-LLOYDONE

YANG MINGHMM (from 1st April 2020)

THE ALLIANCE OCEAN ALLIANCE

OOCLCMA CGM

CHINA COSCO SHIPPINGEVERGREEN

2M

MAERSK LINEMSC



Source: DHL

OCEAN FREIGHT GLOSSARYACRONYMS AND EXPLANATIONS

AMLA - Latin America OWS - Overweight Surcharge

AMNO - North America PH - Philippines

AR - Argentina PNW - Pacific North West

ASPA - AsiaPacific Ppt. - Percentage points

BR - Brazil PSW - Pacific South West

CAGR - Compound Annual Growth Rate QoQ - Quarter on quarter

CENAC - Central Amercia and Caribbean SAEC - South America East Coast

CNC - CNC Line (Cheng Lie Navigation Co. Ltd.) SAWC - South America West Coast

DG - Dangerous Goods SOLAS - Safety of Life at Sea

DWT - Dead Weight Tonnage SPRC - South People’s Republic of China – South China

EB - Eastbound SSA - Sub-Saharan Africa

ECSA - East Coast South America (synonym for SAEC) SSL - Steam Ship Line

EGLV - Evergreen Marine Corp T - Thousands

EURO - Europe TEU - Twenty foot equivalent unit (20‘ container)

GRI - General Rate Increase TSA - Trans Pacific Stabilization Agreement

HMM - Hyundai USGC - US Gulf Coast

HL - Hapag-Lloyd US FMC - US Federal Maritime Commission

HSUD - Hamburg Süd USEC - US East Coast

HWS - Heavy Weight Surcharge USWC - US West Coast

IA - Intra Asia VGM - Verified Gross Mass

IPBC - India Pakistan Bangladesh Ceylon (= Sri Lanka) VLCS - Very Large Container Ship

IPI - Inland Point Intermodal VSA - Vessel Sharing Agreement

ISC - Indian Sub Continent (synonym for IPBC) WB - Westbound

MENAT - Middle East and North Africa WCSA - West Coast South America (synonym for SAWC)

ML - Maersk Line WHL - Wan Hai

mn - Millions WRS - War Risk Surcharge

MoM - Month-on-Month YML - Yang Ming Line

NOO - Non-operating (vessel) owners YoY - Year-on-Year

OCRS - Operational Cost Recovery surcharge YTD - Year-to-Date

OOCL - Orient Overseas Container Line THEA - THE Alliance

Ocean Freight Market Update - DHL Global Forwarding · In JP declines in household expenditure,...

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