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South Carolina International Trade Conference Carrier Cost Changes & Changing Market Outlook

South Carolina International Trade Conference Carrier Cost Changes & Changing Market Outlook. Rick Wen V.P. Business Development OOCL (USA) Inc May 29 th 2008. Agenda. Trade Outlook ILWU Negotiation Progress Changing Market Dynamics Carrier Supply-Demand & Cost Structure Issues

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South Carolina International Trade Conference Carrier Cost Changes & Changing Market Outlook

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  1. South Carolina International Trade ConferenceCarrier Cost Changes & Changing Market Outlook Rick Wen V.P. Business Development OOCL (USA) Inc May 29th 2008

  2. Agenda • Trade Outlook • ILWU Negotiation Progress • Changing Market Dynamics • Carrier Supply-Demand & Cost Structure Issues • Market Conditions • Outlook & Conclusions

  3. Major Containerized Tradelanes 2007 ASIA-EUROPE 20.47 million Teu 15% growth TRANS-ATLANTIC 6.3 million Teu 4% growth TRANS-PACIFIC 22.19 million Teu 4.2% growth INTRA-ASIA 48.3 million Teu 9% growth Drewry

  4. Container Growth & LA-LB 2007: 15.7M TEU’s 60% Trans-Pacific Imports & 25% Exports via LA-LB 25% via USEC 15% Other Ports Forecast: Despite flat growth in 2007 volumes expected to triple by 2020

  5. Longshore Issues Employment levels Pension and Health Jurisdiction Safety Environment PMA Issues Productivity-technology 2 x 10 hour shifts vs. HOOT+2 x8 hour shifts Safety Environment ILWU Negotiation 2008

  6. Market Conditions • Dollar impact reverses Trade balance • Surging export demand (+15%) • Imports soften (-5%) 1st QTR 2008 • Overall Trade capacity declines • Outbound Vessels full - space at a premium • Freight rates taking quantum increases • Export no longer a repositioning cost recovery model OUTLOOK – MORE OF THE SAME

  7. Round Trip unit income under pressure Source: Drewry

  8. Liner Shipping is Import Driven Source: Drewry

  9. Trans-Pacific Export as % Import MarketTrade Balance Improving

  10. Trans Atlantic Imbalance(‘000 TEUS/Quarter) JOC

  11. Export TPT Market Timeline • In 2007, the market shifted from 65% to 120% industrial load factor • Why… • Dollar Impact • Global Market growth • Bulk Market maxed out • Supply & Demand balance affecting relationship between Carriers and Customers • Export no longer the stepchild of E/B repositioning • Subsidy of exports is not an option or requirement for carriers

  12. Carrier Cost Challenges • Bunker costs at historical highs • Rail contract rates increased over 30% • Inland fuel factors • Rail approaching 40% • Truck requesting 52% • Weak dollar impact on all cost segments • Stagnant US import market • Panama Canal tolls and restrictions • Vessel deployment and capacity management • Viability of Trans-Pacific all-water service

  13. Three years ago: Terminals Transportation Voyage Equipment & Repositioning Today: Voyage Transportation Terminals Vessel – slot cost Liner Shipping Cost Components

  14. Bunker Recovery through Surcharge Bunker $ Bunker $ Asia-Europe Transpacific Asia-Europe Transpacific

  15. Bunker Fuel Cost Calculation Bunker Fuel Cost : $986 per Feu (weighted @ 75%/25% WC/EC)

  16. Top Ten Trans-Pacific Exports Feb 08 Feb 07 TEU TEU Chg in TEUs % of Mkt TEUs % of Mkt Change Pct Chg Shr Pts Waste Paper 87,700 16.7% 68,505 16.9% 19,195 28.0% -0.2 Metal Scrap 53,643 10.2% 31,198 7.7% 22,445 71.9% 2.5 Grain 30,568 5.8% 10,378 2.6% 20,190 194.5% 3.3 Soybeans 27,989 5.3% 13,196 3.3% 14,793 112.1% 2.1 Resin 19,124 3.7% 22,541 5.6% -3,417 -15.2% -1.9 Hay 16,124 3.1% 16,823 4.2% -699 -4.2% -1.1 Cotton 16,629 3.2% 13,374 3.3% 3,255 24.3% -0.1 Lumber Logs 20,560 3.9% 16,269 4.0% 4,291 26.4% -0.1 Plastic Scrap 15,014 2.9% 10,282 2.5% 4,732 46.0% 0.3 Wood Pulp13,694 2.6% 8,851 2.2% 4,843 54.7% 0.4 Top Ten 301,045 57.5% 211,417 52.2% 89,628 42.4% 5.3 Smaller 222,584 42.5% 193,627 47.8% 28,957 15.0% -5.3 Market Total 523,629 100.0% 405,044 100.0% 118,585 +29% 0

  17. Top Ten Trans-Pacific Imports Mar 08 Mar 07 TEU TEU TEUs % of Mkt TEUs % of Mkt Change Pct Chg Furniture 97,019 16.7% 117,106 16.9% -20,087 -17.2% Apparel 55,386 10.2% 67,565 7.7% -12,179 -18.0% E-GDS, Ex Wh GDS 59,572 5.8% 63,823 2.6% -4,251 -6.7% Toys 25,948 5.3% 29,763 3.3% -3,815 -12.8% Misc. Genl CGO-Dry 33,698 3.7% 38,567 5.6% -4,869 -12.6% Auto Parts 39,750 3.1% 41,871 4.2% -2,121 -5.1% Footwear 29,675 3.2% 33,481 3.3% -3,806 -11.4% Auto &Tr Tires 26,912 3.9% 26,585 4.0% 327 1.2% Comp &REL Eqp 23,598 2.9% 24,763 2.5% -1,165 -4.7% Plas Mfg GDS 19,974 2.6% 21,252 2.2% -1,278 -6.0% Top Ten 411,532 57.5% 464,776 52.2% -53,244 -11.5% Smaller 468,646 42.5% 514,382 47.8% -45,736 -8.9% Market Total 880,178 100.0% 979,158 100.0% -98,980 -10%

  18. Top Ten North Atlantic Exports JOC

  19. Top Ten North Atlantic Imports JOC

  20. Challenges in 2008 • EU decision to repeal anti trust rules • North Atlantic Conference ends Oct 18, 2008 • Bunker recovery • Rising costs • Infrastructure funding • Security & Environmental mandates • Trans-Atlantic trade imbalance • 5000 TEU import = 3000 TEU export capacity • Equipment and space shortages

  21. Conclusions: Carriers & Customers - A New Relationship • Export pricing will increase during 2008 • Understand the capabilities from both sides • Commitments by carrier and customer must be planned and actioned together • Partner with as many lines as you can • Plan and know the fight is for Equipment and Space • Negotiations will be tough

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