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DHL GLOBAL FORWARDING Ocean Freight Market Update May 2017

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Topic Of The Month

Market Outlook: Capacity And Rate Development

Summary: Ocean Freight Market

General Market Information: Did You Know?

Content

DHL Global Forwarding | OFR Market Update | May 2017

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Topic of the month – Shanghai Port Congestion

Source: DHL

According to the SIPG’s (Shanghai International Port Group), the congestion is caused by three main factors:

• Due to the launch of the new carrier alliances the alliances’ vessels need to be reshuffled with very short notifications

given to the Port beforehand

• The upsurge of the total throughput, both laden and empties

• Bad Spring weather, with thick fog hindering visibility

Shippers in both Asia-Europe and Asia-U.S. trade are being impacted by this congestion as it causes container vessel

berthing delays of 2-3 days causing vessel schedules to be affected with 3-5 days delay not only for Shanghai but

also port callings after Shanghai. Also, barges have to wait 7-10 days for berthing and equipment is short at Shanghai

and Ningbo port.

SIPG has been trying to address the capacity issues and has been shifting some port calls from Yangshan to its other

terminals in the city of Shanghai. However, the group does not expect the congestion situation to improve before end

of May.

Yangshan Port is part of the Port of Shanghai, with an annual volume of 37.1 mTEU the world’s busiest port.

Major congestion is happening at Yangshan Port in Shanghai


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Moderate Increase

Moderate Decline

No Change

Strong Decline

Strong Increase

++ -- - + =

Source: DGF internal analysis 2017

Market Outlook May 2017 – Major Trades

Export Region Import Region Capacity Rate

EURO AMNO = =

AMLA = =

ASPA - =

MENAT - +

SSA = =

AMNO AMLA = +

ASPA = +

EURO - =

MENAT = =

SSA = +/=

Export Region Import Region Capacity Rate

AMLA AMNO - +

ASPA = +

EURO = =

MENAT = =

SSA = +

ASPA ASPA - +

AMNO + +

AMLA -- ++

EURO = +

MENAT = +

OCEANIA = =

Space situation from Europe to Asia continues to be tight. However we see first signs of an improvement as

some carriers announced to waive the PSS (Peak Season Surcharge).


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Ocean Freight market in a nutshell (1/7)

Source: IHS, IHS Markit, Alphaliner, DGF team

Ocean Freight Rates Outlook

ASPA – EURO unchanged strong booking situation with utilization at high 90%. Carriers are pushing for a further GRI in May 2017.

EURO – ASPA tight space situation continues and rates remain on very high level. However some carriers announced to waive PSS which is

the first sign of an improving situation.

ASPA – AMLA Space is extremely tight due to the 15% space reduction to MX and WCSA. Rates are increasing fast. Bookings need to be

placed 21 days before vessel arrival. Successive GRIs are expected to be implemented. Traditional peak season will be in

June.

TP EB : Strong utilization. Next GRI announced for May 1st, 2017.

WB : April GRI was implemented mainly for US Gulf Ports. Space continues to be tight and pre-booking is strongly

recommended.

TA as expected capacity reductions continue also in May. Phasing out of old services by the new alliances are causing service

disruptions and port omissions. Space is tight from USEC and Gulf.

ASPA-MENAT increased booking situation due to pre-Ramadan rush. GRI April was successfully implemented. Next GRI announced for May

2017.

ASPA-ASPA Rates for IA and IPBC are increasing. Demand ex TH and CN remains strong and there are signs of starting space issues ex

MY. Space continues to be very tight on all IPBC destination lanes. Bookings need to be placed 2 to 3 weeks in advance. Port

Congestion Surcharge into PKKHI is withdrawn by carriers as congestion situation in KHI has improved.


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Source: IHS, IHS Markit

Economic Outlook

The global economy: More upside surprises


In EU “soft” data, like the Eurozone PMI, look strong, “hard” data, like retail sales & industrial production, less so.

Even before any policy changes, the US economy is on a firmer footing than it was a year ago. Inflation-adjusted growth has been slowly

picking up since the 4th quarter of 2015.

JP outlook has brightened a little. Exports continued to increase, while imports declined. Housing sector slowing down in CN, with dozens of

cities announcing restrictions on purchasing.

With less confrontational and more constructive international trade rhetoric, currencies of emerging markets have recovered to near pre-US

election value. This, along with higher commodity prices, is taking the pressure of both fiscal and monetary authorities many of the emerging

economies.

Demand Development

Business sentiment: The most upbeat in almost two years

Developed-world optimism was led by the Eurozone, where business sentiment hit a near-six-year high based on the JPMorgan Global PMI.

EU unemployment rate edged down to 9.5% in Feb, its lowest level since May ’09

Optimism slowed in the US, and retail sales and payroll jobs numbers in March were disappointing.

Optimism also picked up in JP. Continued tightness in the labor market and job mismatches in JP could lead to stronger wage increases and a

shift from part-time to full-time status.

The emerging-markets PMI signaled strength, but trends varied among major economies, with RU leading the way, IN recovering from its cash

crunch, and BR’s contraction subsiding.

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Source: Alphaliner, DGF team

Transition to the new alliances’ services on the key East-West routes, involving the world’s 17 top ocean carriers, got off to a smooth start on 01

April 2017. Networks operated under the four ‘old’ carrier alliances (2M, G6, CKYE and O3) are being phased out, as vessels end voyages on

their current rotations. Gradually, the network is being replaced by revised services under the set up of the three new alliances (2M+HMM,

OCEAN Alliance and THE Alliance).

Capacity Development


Far East-Europe weekly capacity by Alliance/Carrier (TEU) Far East-N. America Europe weekly capacity by Alliance/Carrier (TEU)

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The launch of the new carrier alliances on the east-west trades has boosted demand for vessels. The final tally of containership tonnage, to be

deployed on the revamped Asia-Europe, Transpacific and Transatlantic routes, is to increase by 5% (by TEU capacity) and 4% (by vessel

count) compared to March. Compared against the peak season deployment of summer 2016, total vessel capacity planned for this summer will

be 2% higher. At the same time, the number of deployed ships is set to fall as carriers continue upgrading to larger vessel sizes. The tonnage

removed as a result of Hanjin Shipping’s withdrawal from the east-west trades in Sep 2016 will be fully restored with the new services launched

on 1 Apr 2017 by the 2M+HMM, OCEAN Alliance and THE Alliance, as well as various independent carriers incl newcomer SM Line who

kicked of its new transpacific service beg of Apr 2017.

Containerships deployed on east-west trades (2016-2017)

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APM Maersk has received on 11 April the MADRID MAERSK, first of eleven ‘EEE Mark II’-class containerships with an advertised capacity of

20,568 TEU. Currently the largest containership in the world. MADRID MAERSK is currently proceeding from Korea to Russia for a bunkering

trip, after which she is due to join on 27 April the Maersk-MSC Fare Est-Europe ‘AE-2/Swan loop, offered in the context of the 2M agreement.

Carriers 1/2

The European Commission (EC) has cleared the proposed acquisition of Hamburg Süd by Maersk Line 10 April 2017, subject to the

withdrawal of Hamburg Süd from five vessel sharing consortia agreements. According to the EC’s review of 17 trade routes connecting Europe

with Americas, Asia, the Middle East, Africa and Australia/New Zealand, the merged entity would have faced insufficient competition on some

routes where Hamburg Süd currently operates. In order to address the competition concerns, Maersk will terminate Hamburg Süd’s participation

on the four affected routes : North Europe to Central Amerca/Caribbean, West Coast South America and Middle East as well as Mediterranean

to West and East Coast South America. The move will involve a withdrawal of eight ships with a total capacity of 64’943 TEU, representing

about 11% of Hamburg Süd’s total operated capacity. Maersk’s existing participation on the affected routes includes its own services, which will

be retained following the merger and likely be reshaped later on.

Apart from the withdrawal from the five of Hamburg Süd’s European routes, Maersk will also sell its Brazilian cabotage carrier, Mercosul Line

while retaining control of Hamburg Süd’s Aliança. This is a preemptive move of Maersk to avoid competition concerns by Brazil’s Conselho

Administrativo de Defensa Economica as Mercosul Line and Aliança would together control about 75% of the cabotage container trade.

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The average operating margins of 13 main container carriers remained negative in the 2nd half of

2016 despite the freight rate improvements that followed the collapse of Hanjin Shipping in late August

2016. The tough operating environment saw only three carriers recorded positive operating results for the

FY 2016, while the remaining carriers ended in the red.

HMM recorded the worst operating results among the main carriers in 2016 and was forced to undergo a

financial restructuring exercise involving a debt-equity swap of KRW 1.1 Tn, extension of the bond

maturities of KRW 0.8 Tn and charter adjustments of KRW 0.43 Tn, as well as the disposal of various

assets. The company said that it will continue to rely on state support, including a government program to

acquire and charter back HMM’s ships with the loss from the sale to be recovered by HMM through capital

injections by the Korean government.

Yang Ming has suspended trading of its shares on the Taiwan Stock Exchange for two weeks from 20 Apr

to 03 May 2017 in order to allow it to reduce the number of outstanding shares by 53.3% from 3.004 Bn to

1.404 Bn shares. The move follows the resolution approved at Yang Ming’s extraordinary shareholders’

meeting on 22 December 2016 to consolidate the company’s stock and write off NT$16.005 Bn ($527 M) of

accumulated losses. Yang Ming stated in its latest customer advisory issued on 24 April that the reverse

stock split will be followed by an infusion of new capital. Further details about

identity of the new investors, the timing or expected amount have not been

disclosed so far. Yang Ming raised NT$1.691 Bn (US$ 54 M) from new share

issues in Feb 2017, however this amount is not sufficient to meet the short term

maturities of NT$22 Bn ($690 M) due over the next 12 moths.

Carriers 2/2


Source: Alphaliner, carriers DHL Global Forwarding | OFR Market Update | May 2017

Main carriers operating margins FY 2016

ZIM completed a comprehensive debt restructuring in July 2014, reducing

overall liabilities by 1.5 Bn, while extending the maturities and reducing the cost

of the remaining debt. According to ZIM, the completion of the restructuring

process has significantly improved the company’s financial position and ability to

face future financial challenges. ZIMs negative equity position does not reflect its

current financial status and the carrier states that it remains well-positioned to

continue to provide its services to customers.

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Did You Know?

Drewry’s Altman Z-score financial stress index (as at Apr ’17)


Company Period Period Ended Unit

Net Sales EBIT

Asset Total

Asset Current

Book Value of Equity

Liabilities Total

Liabilities Current

Retainted Earnings Z-Score

AP Moller-Maersk Annual 31 Dec 16 mn US$ 35’464 -226 61’118 11’143 32’090 29’028 10’733 28’677 1.90

OOIL1) Annual 31 Dec 16 mn US$ 5’298 -138 9,405 2’566 4’519 4’885 1’313 4’457 1.89

Wan Hai 9 months 30 Sep 16 mn NT$ 42’461 1’007 75’069 28’426 33’063 42’006 17’289 9’406 1.64

Hapag-Lloyd Holding 9 months 30 Sep 16 mn EUR 5’714 26 10’593 1’421 4’729 5’864 2’393 2’914 1.49

K Line Group 9 months 31 Dec 16 bn Yen 761 -35 1’072 372 335 737 215 140 1.44

CMA CGM Annual 31 Dec 16 mn US$ 15’977 -100 18’656 5’706 4’928 13’729 6’009 5’076 1.42

NYK Group 9 months 31 Dec 16 bn Yen 1’415 -16 2’076 599 593 1’483 496 240 1.34

Pacific International Lines Annual 30 Dec 15 mn US$ 3’732 146 5’830 1’215 1’979 3’851 1’493 1’184 1.26

MOL Group 9 months 31 Dec 16 bn Yen 1’081 -2 2’191 552 629 1’562 435 369 1.20

Evergreen Marine Corp 9 months 30 Sep 16 mn NT$ 90’272 -7’076 185’836 50’944 52’579 133’257 39’097 6’249 0.84

China Cosco2) 9 months 30 Sep 16 mn RMB 49’874 -7’990 120’827 47’354 37’377 83’450 34’137 9’847 0.77

Hyundai Merchant Marine 9 months 30 Sep 16 bn Won 3’313 -647 4’416 929 1’542 2’874 933 -765 0.43

Yang Ming 9 months 30 Sep 16 mn NT$ 83’888 -12’886 138’788 25’149 17’849 120’939 46’222 -16’144 0.14

Zim Annual 31 Dec 16 mn US$ 2’539 -52 1’704 466 -101 1’804 531 -1’893 -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.

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.

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

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Source: DGF team

Regulations

India: Amendment to Service Tax on Import Prepaid Freight into India.

The Government of India has issued a new Notification effective 23 April 2017, which is an amendment to the earlier notification issued in Jan

2017 . The new notification which is now issued clarifies the person responsible for payment of service tax on the Ocean Import Prepaid Freight

shipments to India.

As per the said notification, it has been clarified that the person responsible for payment of Service tax will be the IMPORTER of such goods in

India.

Hence Shipping line or its Agent should not charge service tax at Origin for the shipments whose Bill of Lading date is on or after 23 Apr 2017. If

Origin receives shipping line invoice with service tax for Bill of Lading on or after 23 April 2017,


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