CONFIDENTIAL – FOR INTERNAL PURPOSES ONLY
DHL Global Forwarding, Freight
OCEAN FREIGHT
MARKET UPDATE
July 2017
Content
Topic Of The Month
High Level Development
Market Outlook
Economic Outlook & Demand Development
Capacity Development
Carriers
Regulations
?
Did You Know ?
Back-up
2
Topic of the Month – Qatar-Gulf crisis
Most Gulf states and Egypt cut diplomatic ties with Qatar – and imposed a blockade
Allegating that Qatar may be a secret ally to Iran and support terrorism,
Saudi Arabia, the United Arab Emirates , Bahrain, Egypt, and Yemen
have been blocking the country since the 5th June.
Freight forwarding implications of the blockade are numerous. All
cargo movements from the aforementioned countries have been
stopped, both on air, sea and land. As 95% of the Ocean containers to
Qatar transit via Jebel Ali and Khorfakkan (UAE), carriers must
navigate through alternative lines. Although it does not mean that
ocean shipments to Qatar have been stopped, they are now mainly
routed through Salalah (OM) and Sohar (OM). Abu-Samra, the only
land border for Qatar, is completely closed. Trucking is therefore not an
option to move cargo from/to the country. Alternatively, multimodal
transport via Oman can be used.
On Friday 23th June, a 13-point, 10-day ultimatum was issued to Qatar
by Saudi Arabia and its allies as a conditio sine qua non to lifting the
blockade. Demands include closing down broadcaster Al-Jazeera,
removing Turkish troops from the country’s soil, and cease most of the
cooperation with Iran and the Muslim Brotherhood.
Qatar’s income per capita is the highest in the world, thanks to the
countries’ gas and oil reserves. Tensions with its Arab neighbors
worsened after the Arab Spring, over Qatar’s support to Islamist
movements.
Source: The Guardian, Alphaliner, DGF Internal, Scribble Maps
3
High Level Market Development
Ocean Freight Spot Rate Index
Economic Outlook
World Container Index (WCI)2)
3'000
GDP Growth by Region1)
2017F
2018F
2019F
2020F
2021F
CAGR
(2017-2021)
2'000
1'000
EURO
1.8%
1.8%
1.7%
1.7%
1.8%
1.7%
MEA
2.6%
3.4%
3.7%
4.1%
4.0%
3.8%
AMER
2.1%
2.6%
2.5%
2.4%
2.4%
2.5%
ASPA
4.8%
4.6%
4.6%
4.5%
4.7%
4.6%
0
Q1
15
Q2
Q3
Q4
Q1
16
Q2
Q3
Q4
Q1
17
Q2
Shanghai Containerized Freight Index (SCFI)3)
1'500
1'000
500
DGF World
3.0%
3.1%
3.1%
3.1%
3.2%
3.1%
Supply vs. Demand Growth4)
Demand
0
Q1
15
Q3
Q4
Q1
16
Q2
Q3
Q4
Q1
17
Q2
Bunker Price Index5)
BIX 380
10
BIX MGO
Supply
8
Q2
800
6
600
4
400
2
200
0
Q3
Q1
'15
Q3
Q1
'16
Q2
Q1
'17
Q2
0
Q2
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
15
16
17
Source: 1)real GDP, Global Insight, Copyright © IHS, Q4 2016 . All rights reserved; 2)Drewry, in USD/40ft container, including BAF & THC both ends, 42 individual routes, excluding
intra-Asia routes; 3) Shanghai Shipping Exchange, in USD/20ft container and USD/40ft container for US routes, 15 routes from Shanghai, 4) Global Insight, Drewry, 5) Bunker Index,
in USD/metric ton, Bunker Index MGO (BIX MGO) is the Average Global Bunker Price for all marine gasoil (MGO) port prices published on the Bunker Index website, Bunker Index 380
CST (BIX 380) is the Average Global Bunker Price for all 380 centistoke (cSt) port prices published on the Bunker Index website
-2
4
Market Outlook July 2017 – Major Trades
Rates on North-South trades still increasing.
Export Region Import Region
EURO
AMNO
KEY
Strong
Increase
++
Capacity
Rate
AMNO
=
+
AMLA
=
ASPA
Capacity
Rate
AMNO
=
+
=
ASPA
-
=
=
-
EURO
=
+
MENAT
=
-
MENAT
=
=
SSA
=
=
SSA
=
+
AMLA
=
+
ASPA
=
+
ASPA
=
=
AMNO
=
+
EURO
=
=
AMLA
=
+
MENAT
=
=
EURO
=
+
SSA
=
=
MENAT
=
+
OCEANIA
=
+
Moderate
Increase
+
No
Change
=
Moderate
Decline
-
Export Region Import Region
AMLA
ASPA
Strong
Decline
-Source: DGF internal analysis 2017
5
Market Outlook July 2017 – Ocean Freight Rates Major Trades
Ocean Freight Rates Outlook
ASPA – EURO
Unchanged strong booking situation with utilization continuing at high 90%. Carriers are pushing for a further GRI in July
2017.
EURO – ASPA
Capacity is back to normal, but rates remain relatively stable; carriers very selective on cargo
ASPA – AMLA
Rates continue to climb to ECSA, latest FAK is USD 3’800/40ft till mid-July. Space is extremely tight as we enter the peak
season for this trade and utilization is 125%. Mexico and WCSA is also tight space situation and high 90% utilization.
ASPA - AMNO
Space situation expected to be tight especially into PSW. SSL have announced two revenue recovery plans, i.e. July 1st
GRI & July 15th PSS.
EURO - AMNO
USA: space is tight still
Canada: space situation is ok, rates are stable
Mexico: space situation is ok, rates are stable
ASPA – MENAT
Carriers still restrict low paying cargo, taking high paying cargo on board instead.
Due to the weight limitation problems, even for FAK cargo is being be rolled over from time to time.
With the political embargo for Qatar, all carriers have announced huge rate increases to Qatar.
Cargo into Qatar are now routed via Salalah (OM) or Sohar (OM), instead of Jebel Ali.
ASPA – ASPA
Rates into South India have stabilized, but rates into rest of IPBC are still climbing in the face of tight space situation in the
market. Pure Intra-Asia port pairs continue to get lower priority for space / equipment, relatively to long haul trade lanes
which are generally still full. Due to tight space into IPBC, 2 to 3 weeks advance booking is necessary to allow more time for
further action in case booking rejected on desired departure date.
NEW: Market outlook on smaller trades available in the back up
Source: DGF team
6
Economic Outlook & Demand Development
2017 global economic growth is still strenghtening, to be the strongest since 2011
EU growth is on the upside, except for UK. Eurozone grew 0.6% quarter on quarter during 1Q2017. UK grew 0.2%% at the
same period (down from 0.7% in 4Q2016).
OPEC countries are extending their production cut to March 2018.
EMEA
 European exports are expected to be spurred by higher global demand and favorable euro exchange rate.
 European Commission is considering to remove VAT exemption for low value goods in favor of a single EU registration
scheme for import of goods < €150 by 2021.
The political disturbances in Washingtom undermine growth and the planned reform agenda. The thealthcare and tax
reform have been slow. Growth is still set at 2.3% for 2017, up at 2.7 if the fiscal reform in reinforced.
AM
 2017 Exports forecast are up 0.7 pp vs. previous IHS forecast, in response to stronger economic growth in the countries
the US export to.
AP
EMERGING
MARKETS
Japan post their fifth consecutive quarter or growth in 1Q2017, a first since 2006, but t is down at +0.3% quarter on quarter.
China’s development is softening, mainly due to excess in industrial capacity and debt.
Growth improves, challenges remain – 2017 growth will be the best since 2013.
Indian economy lost momentum due to cash shortages.
Brazil’s GDP grew in 1Q2017, after two years of decline. Howver, corruption scandals could delay the economic recovery.
 Government-imposed restrain on consumer anbd business spending is fading in India, which should boost demand.
Source: IHS, IHS Markit / DGF Macroeconomic Outlook 2017
7
Capacity Development
Capacity Development
 Port congestion at Yangshan Terminal in Shanghai (SHA) cleared, operations running smoothly again.
 Idle fleet continues to creep up even as the traditionally stronger summer peak season is starting. Owners avoid scrapping surplus tonnage
due to the recent improvement in charter rates and resale prices.
Source: Alphaliner, carriers
8
Carriers
Carriers
 Qatar Holing, a subsidiary of Qatar Investment Authority (QIA) which acts on behalf of the State of Qatar, holds a 14.4% share in the HapagLloyd after its merger with UASC. The diplomatic row involving Qatar and its Middle Eastern partners might complicate Hapag-Lloyd’s attempt
to raise quickly new capital to relieve its very high debt burden.
 K Line, MOL and NYK have announced on 31 May ’17 that their container shipping joint-venture as ‘Ocean Network Express’ (ONE). The
new holding company is to be established in Japan, with an operating company planned in Singapore. The regional headquarters will be set up
in Singapore, Hong Kong, UK (London), USA (Richmond, VA), & Brazil (Sao Paulo). The JV is expected to be established on 1 Jul ’17 with
start of the joint business planned for 1 Apr ’18. NYK will hold 38%, NOL 31% and K Line 31% of the new company.
 However, on the 21st June, the Competition Commission of South Africa has prohibited the merger. The same commission had already
found the three carriers to have colluded to set prices on the car carriers shipping market – even though the present JV would operate
independently from the carriers’ respective car business. Moreover, the joint venture has already been cleared by the Competition
Commission of Singapore. K-Line, MOL and NYK are expected to appeal the decision, and might even divest from the South African altogether
as last resort – NYK exited it in 2015.
 Reports suggest China Cosco Shipping Corp is to acquire OOIL for at least USD 4bn, possibly as early as July. As the industry is witnessing
a strong upturn and valuations have risen materially, both the time and price is right. Drewry stated in early 2017 that “given receding pressure
short term on profitability, the shareholders would likely wait for discount to narrow in coming quarters in a bid to achieve a better price”. The
price upwards of USD 4bn will mean the OOIL will have materially narrowed its P/B valuation discount to its peers and industry averages,
which has plagued the company for years.
 The $ 4bn deal would be in line with CMA CGM’s acquisition price of NOL. However, it is important to note that NOL was sold when the
industry was in the midst of severe crisis and consistently loss making.. OOIL has had a very strong earnings profile with a long history of
being profitable, even in a very challenging environment. If the deal were to take place at the reported price of USD 4bn, acquiring OOIL at 1x
P/B seems a very competitive price for China Cosco Shipping Corp.
 CMA CGM will acquire Mercosul Line, Maersk’s Brazilian cabotage arm, from Maersk Line. Mercosul Line needs to be sold by Maersk Line
in order to obtain regulatory approval from Brazil’s antitrust regulators for its takeover of Hamburg Süd. The transaction is subject to Brazilian
regulatory approval. The acquisition would be in line with CMA CGM’s strategy to develop intra-regional sea transportation and complementary
services.
Source: Alphaliner, Carriers
9
Regulations
Regulations
 India GST (Goods & Service Tax) Go live is targeted for 1 Jul ’17. As of this date the GST will be 18 percent. One of the key requirements
for the Indian consignee to avail the tax credit and completion of import process is to mandatorily have the IN GST registration umber of the
consignee. In the event the shippers not able to provide GST IN registration number, consignee contact details are needed.
Source: DGF team
10
Did You Know ?
Ocean Freight Throughput Breakdown by Region
Africa Oceania
C+S America
China+Hong Kong
4%
7%
2%
N America
8%
S Europe
33%
6%
N Europe
 The weight of China in the global containerized trade appears
more concrete than ever, as it (inclunding Hong Kong)
represents short of a 1/3 of the global volumes, according to a
recent chart published by Alphaliner.
 To put this number into perspective, it is worth mentionning that
the trade from and to China is more prominent than that of all
the other Asia/Pacific regions combined.
9%
3%
S Asia
 Similarly, the Chinese numbers also exceed the combined
volumes of Europe and the Americas altogether.
9%
Other NE Asia
6%
Middle East
14%
SE Asia
Source: Alphaliner
11
CONFIDENTIAL – FOR INTERNAL PURPOSES ONLY
BACKUP
Market Outlook July 2017 – Ocean Freight Rates Additional Trades (1/2)
Ocean Freight Rates Outlook
AMNO – ASPA &
SPAC
No increases have hit the market for the month of May.
Space continues to be a challenge specially for USEC ports. Pre-booking 2-4 weeks in advance is recommended.
AMNO - EURO
Premium services with fast transit time are full ( AL3, ATA, USWC )
Shortage of equipment in Houston & New Orleans.
EURO - AMLA
capacity and rates remain stable
EURO – MENAT
Capacity is back to normal, but rates remain relatively stable; carriers very selective on cargo
EURO – SSA
carriers are still reporting full vessels to West Africa and East Africa. East Africa still subject to PSS. South Africa remains
unchanged stable.
US – MENAT
Space is still very tight from USEC & USGC Ports. Expected to be better in July. Increasing rate trend is slowed down in
May. More carrier choices to East Med and few other destinations with THE Alliance Services.
US – SSA
Space is available to all destinations in South & West Africa. East Africa is tight due to routing via Med/Middle East Services
which are reaching near 100% capacity.
US – AMLA
US to WCSA are trending upward as services remain full. Third GRI announced by Americas service carriers Hapag and
HSUD. Gulf to all AMLA destinations are under stress as resin and chemical segment is getting busy.
AMLA - AMNO
Despite no change in capacity to the US, Asia and Intra SSA, carriers have announced various GRI’s. Rerouting of long
haul lanes via transshipment ports in S. America has created space & roll over conditions with S. America
Source: DGF team
13
Market Outlook July 2017 – Ocean Freight Rates Additional Trades (2/2)
Ocean Freight Rates Outlook
EURO MED AMNO
stable
EUR MED –
AMLA
Slight rate increases towards MX, rest of trade remains stable
EURO MED –
ASPA
Slight rate reductions can occur depending on the provider
EURO MED –
MENAT
Unchanged
EURO MED –
SSA
Depending on the service slight rate increase can occur
Source: DGF team
14
Drewry’s Altman Z-score
Drewry’s Altman Z-score financial stress index (as at May’17)

Weak operating performance of all carriers, together with the weak balance sheet position of some carriers, have resulted in
generally poor Z-scores for all carriers involved in container shipping

None of the companies were able to reach the ‘safe zone’ Z-score of 2.8 or more.
Company
AP Moller-Maersk
Period
Annual
Period
Ended
31 Dec 16
Unit
mn US$
OOIL1)
Wan Hai
Hapag-Lloyd Holding
K Line Group
CMA CGM
NYK Group
Pacific International Lines
MOL Group
Evergreen Marine Corp
China Cosco2)
Hyundai Merchant Marine
Yang Ming
Zim
Annual
Annual
Annual
9 months
Annual
9 months
Annual
9 months
Annual
Annual
Annual
Annual
Annual
31 Dec 16
31 Dec 16
31 Dec 16
31 Dec 16
31 Dec 16
31 Dec 16
30 Dec 15
31 Dec 16
31 Dec 16
31 Dec 16
31 Dec 16
31 Dec 16
31 Dec 16
mn US$
mn NT$
mn EUR
bn Yen
mn US$
bn Yen
mn US$
bn Yen
mn NT$
mn RMB
bn Won
mn NT$
mn US$
Net
Asset
Asset Book Value Liabilities Liabilities Retainted
Sales
EBIT
Total Current of Equity
Total
Current Earnings Z-Score
35’464
-226 61’118 11’143
32’090
29’028
10’733
28’677
1.90
5’298
57’351
7,734
761
15’977
1’415
3’732
1’081
124,468
69,833
4,585
115,400
2’539
-138
9,405
1’874 76’320
26 10’593
126 11,331
-100 18’656
-16
2’076
146
5’830
-2
2’191
-7,848 189,754
-5,041 119,653
-1,472
4,398
-15,156 136,043
-52
1’704
2’566
29’398
1’421
1,608
5’706
599
1’215
552
53,977
45,362
1,290
25,289
466
4’519
34’305
4’729
5,058
4’928
593
1’979
629
53,639
37,549
979
16,279
-101
4’885
42’015
5’864
6,272
13’729
1’483
3’851
1’562
136,115
82,104
3,419
119,765
1’804
1’313
15,526
2’393
2,639
6’009
496
1’493
435
42,031
33,555
810
42,550
531
4’457
10,079
2’914
3,153
5’076
240
1’184
369
4,985
8,107
-1,485
-17,657
-1’893
1.89
1.73
1.49
1.48
1.42
1.34
1.26
1.20
0.87
0.93
0.43
-0.23
-0.25

The Z-score is a statistical analysis to predict a company’s probability of failure in the next 2 years, using data from the
company’s financial statement.

A Z-score >= 2.99  company is “safe”. A Z-score between 1.8 and 2.99  exercise caution (“grey zone”). A Z-score < 1.8  higher
risk of the company going bankrupt (“distress zone”). All indications based on these financial figures only.
Source: Drewry Sea & Air Shipper Insight; Z-score is calculated as follows: T1 = (Current Assets-Current Liabilities) / Total Assets, T2 = Retained Earnings / Total Assets, T3 =
Annualised EBIT / Total Assets, T4 = Book Value of Equity / Total Liabilities, T5 = Annualised Sales / Total Assets, Z-score bankruptcy rating = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 1.0T5
1) parent of OOCL, 2) parent of Cosco Container Lines
15