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DHL Global Forwarding

OCEAN FREIGHTMARKET UPDATE

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June 2020 publication date May 29th, 2020

TOPIC OF THE MONTH Carrier Financial Performance Q1 2020

HIGH LEVEL DEVELOPMENT

MARKET OUTLOOK

ECONOMIC OUTLOOK & DEMAND DEVELOPMENT

CAPACITY DEVELOPMENT

CARRIERS

DID YOU KNOW?

Containerships opt for Cape route

CONTENTS

DHL Global Forwarding | OFR Market Update | June 2020 2

OCEAN FREIGHT MARKET UPDATE - JUNE 2020

Carrier Financial Performance Q1 2020

TOPIC OF THE MONTH


Source: Alphaliner, Drewry, Seaintelligence, carriers

Carriers financial performance continued to be positively impacted by stable freight rates and low bunker prices in Q1 2020 while volumes were down only marginally at the beginning of the year.

Rates are however coming under pressure as volumes are negatively affected by the COVID-19 lockdowns across all regions which will hit the second quarter. Maersk expects total liftings to fall by 20-25% in that quarter.

Also higher variable costs including storage costs resulting from the COVID-19 pandemic will impact earnings.

So far carriers were able to avoid the collapse of freight rates by reducing capacity. Drewry therefore observed that decrease in rates is much less than the steep slide during the 2008 financial crisis.

Although some unblankings are now announced, SeaIntelligene Consulting founder Lars Jensen does not believe that this is a sign of returning demand but rather a sign that the enormous amount of capacity withdrawals was slightly overdone.

4

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 Q4 of Japanese financial year, i.e. Jan-Mar, not calendar year; 4) operating profit is "Core EBIT"; 5) Average excluding CMA CGM, Cosco, OOCL, ONE; 6) operating profit is EBIT; 7) COSCO Shipping Lines and OOCL; 8) Net Profit for Group; 9) Profit from continuing operations; 10) excluding Long Beach Container Terminal operation

CARRIER FINANCIAL RESULTS 3 MONTHS 2019-20Carrier financial performance positively impacted by higher freight rates & lower bunker prices

Revenue Operating ProfitOperating Profit

Margin Net Profit

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

Maersk Group 6), 9) 9’540 9’571 0% 230 552 140% 2.4% 5.8% -104 209 301%

CMA CGM 2), 4) n.a. n.a. n.m. n.a. n.a. n.m. n.a. n.a. n.a. n.a. n.m.

COSCO SHIPPING Holdings 7) 4’984 4’915 -1% n.a. n.a. n.m. n.a. n.a. 163 95 -42%

Hapag-Lloyd 6) 3’478 3’684 6% 243 176 -28% 7.0% 4.8% 109 27 -75%

ONE 3) 2’826 2’966 5% n.a. n.a. n.m. n.a. n.a. -96 -27 72%

OOCL 10) 1’460 1’540 5% n.a. n.a. n.m. n.a. n.a. n.a. n.a. n.m.

Evergreen Marine Corp. 1), 4) 1’519 1’407 -7% 45 12 -74% 2.9% 0.8% 19 -14 -177%

Yang Ming 1), 4) 1’166 1’121 -4% 3 4 40% 0.2% 0.3% -23 -26 -17%

HMM (container business) 4), 8) 1’129 1’100 -3% -91 -2 98% -8.1% -0.2% -153 -55 64%

Zim 796 823 3% 19 25 34% 2.3% 3.0% -24 -12 51%

Wan Hai 1), 4) 575 583 1% 22 21 -3% 3.8% 3.6% 35 3 -92%

Average 5) 18’204 18’288 0% 470 787 68% 2.6% 4.3% -142 131 192%

DHL Global Forwarding | OFR Market Update | June 2020

HIGH LEVEL MARKET DEVELOPMENT

5

1) real GDP, Copyright © IHS Markit, Q2 2020 Update 25 May ̀ 20 . 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)

2,500

0

500

1,000

1,500

2,000

3,000

Q1 ’19

Q2 Q3 Q4 Q1 ’20

Q2 Q3

900

400

500

700

600

800

1,000

1,100

1,200

Q1’19

Q2 Q3 Q4 Q1 ’20

Q2 Q3

30

40

50

60

70

80

Q4Q3 Q3Q1’17

Q1’18

Q2 Q4Q3 Q1’19

Q4 Q2 Q2

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


2021F 2022F 2023F 2024F 2025FCAGR

(2022-25)

EURO 3.6% 2.5% 1.8% 1.6% 1.6% 1.7%

MEA 2.8% 3.0% 3.2% 3.1% 3.1% 3.1%

AMER 4.5% 4.3% 3.6% 3.1% 2.8% 3.2%

ASPA 5.3% 4.5% 4.5% 4.4% 4.4% 4.4%

DGF World 4.5% 3.9% 3.5% 3.3% 3.1% 3.3%

EUROPE NORTH AMERICA

SOUTH AMERICAASIA PACIFIC

MARKET OUTLOOK JUNE 2020

MAJOR TRADES


Source: DGF

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 uncertain outlook continues into June due to the Covid-19 situation. Carriers are planning a GRI and the structural blank sailings continue.

Space outlook remains strong due to ongoing capacity withdrawal. Spot rate market has increased post GRI June.

To cope with the continual weak demand outlook for June, structured blank sailings by carriers have been in announced. Space is starting to get tight on both East and West Coast South America. We start to see a slow but gradual increase in rate levels for June.

Demand surge for East Med/Red Sea market is expected to cool off by mid June, while outlook for middle east remains poor in the short term. Capacity is generally expected to be maintained even however there are some signs of blanks withdrawal due to current rollovers for East med. A volume recovery to South Africa is expected in anticipation to the easing of lockdown measures.

Capacity in Intra Asia and Indian Subcontinent will continue to be reduced due additional blank sailings announced by carriers. Rates will remain at a relatively high level. June – August will be the traditional lull period due to monsoon in Indian Subcontinent region.

• EURO-AMNO

• EURO-ASPA+MEA

• AMNO-EURO

• AMNO-ASPA

• AMLA Exports


OCEAN FREIGHT RATES – OTHER MAJOR TRADES


Source: DHL

Volumes are dropping and blank sailing programs continue. Rates stable.

Space remains super tight on all eastern hemisphere trades due to high amount of blank sailings. PSS and GRI's are

still in place. In addition Equipment Imbalance surcharges are still applicable. Rates remain on the high May-levels.

Very few blank sailings planned in June . The 2 M will resume their ATL4 service on week 26. Full capacity is planned to be restored as of July. Despite the traditional summer slow season, we expect the volumes to be picking up over the next couple of months in conjunction with the reopening of the European countries. Rates stable.

Moderate capacity decrease due to blank sailings. GRI pushes slight rate increase.

Continuous equipment challenges from WCSA and side conditions related to COVID-19. Volume spike for essential commodities.

EUROPE

AMERICAS

ASIA PACIFIC

EMERGING MARKETS

DEMAND DEVELOPMENT

Global economic recovery to pre-pandemic levels will take 2-3 years

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.

Monetary and fiscal stimulus will not prevent huge output losses in the near term, although they can help to mitigate some second-round risks. Nonetheless, increases in debt burdens from already high levels threaten to weigh on longer-term growth prospects in many member states, along with challenging demographics and poor productivity performance.

A gradual reopening of the economy, already underway, will allow recovery to begin in the third quarter and gather momentum in the fourth. Nonetheless, we project GDP to decline 7.3% this year, the steepest annual drop since 1946 when the economy transitioned from wartime footing.

The size of the total stimulus package in Japan is the largest ever (JPY117 trillion, 22% of GDP), but this includes spending plans under the December stimulus package. The upside from fiscal spending is expected to be offset by the greater downside of containment measures, and the government is planning an additional package.

The mainland Chinese economy will face additional headwinds in the coming months due to the expected severe export collapse from a deep world recession. Mainland China’s falling exposure to exports in recent years will help mitigate some external demand shock. The central government is expected to announce additional stimulus measures to buttress economic growth at the annual National People’s Congress in late May. The scale of the stimulus will remain constrained by mainland China’s high leverage and falling returns of investment.

As a result of the extension of India’s nationwide lockdown, albeit with some adjustments to classifications of essential businesses and color classifications of districts based on COVID-19 infection rates, IHS Markit expects a deeper contraction for India in fiscal year 2020. Essential businesses are indicating that workers and other production inputs are in short supply and transportation of goods remains difficult.

In April, the JPMorgan Global Composite Output Index (compiled by IHS Markit) fell 12.7 points to 26.5, a new low in the survey’s 22-year history. While mainland China’s economy shows signs of stabilization, most other countries saw output, new orders, and employment decline at faster rates.

Unexpectedly strong demand for cargo space on the route from Asia to the US West Coast has prompted carriers to rethink capacity deployment plans. This after the rationalization moves that had resulted in a record number of void transpacific sailings in May. Matson, APL and OOCL have already reacted to the increased demand by deploying extra loaders or adding capacity by replacing ships with larger units on selected services on this trade.

The Transatlantic Trade is still suffering from the reduction in demand caused by the COVID-19 pandemic. This has prompted the 2M partner carriers Maersk and MSC to extend the temporarily suspension of their joint North Europe – USEC ‘TA4 / NEU-ATL4’ Service until the end of June. THE Alliance meanwhile has decided to void two more sailings on the North Europe – US Gulf ‘AL4’ service, whilst HapagLlyod will reduce the frequency of its Med – US Gulf service ‘MGX’ from weekly to forth-nightly in June.

The inactive containership fleet has surged to a new record of 524 units for 2.65 MTEU as at 11 May, surpassing the previous high of 2.46 MTEU at the beginning of March this year. The inactive fleet currently account for 11.3% of the total containership fleet capacity. This includes some 71 units for 659,600 TEU that are currently undergoing scrubber retrofits. The inactive fleet is expected to continue to climb in the coming weeks, with the impact of the blanked sailings due to the COVID-19 pandemic still to be fully reflected in the ship idling numbers. All size segments have been hit by the depressed demand.

CAPACITY


Source: Alphaliner, Dynaliners, carriers

While share prices of the main container shipping companies have fallen by an average of 19% in the past year as the impact of the COVID-19 pandemic takes its toll, Hapag Lloyd’s share price has risen by 630% to reach a record high of €186 per share on 15 May 2020. The run-up in Hapag Lloyds share price has pushed the company’s market capitalization to €34.6 Bn, which is more than the combined market valuation of the next nine largest publicly listed container shipping companies (Maersk, COSCO Shipping, NYK, MOL, Evergreen, Wan Hai Lines, HMM, Yang Ming and K Line). Hapag Lloyd’s management was not able to explain the reason for the share price appreciation during the company’s first quarter results announcement beginning of May apart from pointing out the very low public free-float of just 3.6% of its shares as at the end of March. Hapag Lloyd’s key shareholders are Klaus Michael Kuehne 30%, CSAV 30% and HGV (City of Hamburg) 13.9%.

PIL has confirmed that it has entered into an exclusive agreement with Heliconia Capital Management in relation to a potential investment. The agreement is for a term of six months from 26 May 2020. PIL stated that discussions are still at a preliminary stage, with a financial advisor appointed to advise on its strategic and capital raising alternatives. On PILs debt restructuring discussions with its creditors, the carrier said that it has obtained the agreement with 13 of its financial lenders that represent 97.6% of its total debt for a moratorium on its principal and interest payments until 31 December 2020, as well as a standstill on debt enforcement actions until the same date. However, two of the financial lenders representing 2.4% of its total debt did not agree. One of the lenders had issued a letter of demand to PIL on 11 May 2020 for the repayment of $12.6 M with due date 26 May 2020. According to PIL’s latest available financial statements, it has total financial loans of $1.82 Bn (excl the outstanding bonds) as well as lease obligations of $1.88 Bn as at the end of June 2019. PIL is expected to release full year 2019 financial statements in June.

CMA CGM has secured a €1.05 Bn ($1.15 Bn) syndicated loan form a consortium of banks (BNP Paribas, HSBC, and Societe Generale) that is 70% guaranteed by the French government as part of the state guaranteed loan scheme established at the end of March in response to the COVID-19 pandemic. CMA CCM intends to use 75% of the proceeds in its shipping business to provide a liquidity buffer against the negative impacts of COVID-19, and 25% to loss-making CEVA Logistics which will be recapitalized to reduce its reliance on its outstanding debt.

CARRIERS 1/2



Yang Ming’s board of directors has approved on 6 May 2020 a private placement for 300 M preferred shares in the company to raise additional capital for the Taiwanese carrier. Yang Ming’s net loss reached NTD 4.31 Bn ($144 M) in 2019 and NTD 6.59 Bn ($220 M) in 2018, with its shareholder’s equity dropping by 36% in the last 2 years to just NTD 17.1 Bn ($571 M) at the end of 2019. The price for the preferred shares has not been determined. According to company filings, the preferred shares will only be listed three years after they are issued. The Taiwanese government owns about 48% of Yang Ming’s shares and is expected to fund the new share offering.

CARRIERS 2/2



13

Source: Alphaliner, DHL

Containerships opt for Cape RouteDid You Know?

The number of containerships that have opted to use the Cape Route and by-passthe Suez Canal has risen to a historic peace-time high

Since the end of March, at least 32 sailings used the longer route via the Cape of GoodHope. Rather unusually, even three westbound Asia – Europe headhaul sailings haveopted for the Cape Route. Carriers very rarely choose this longer route for the transit-time sensitive headhaul, but the current low bunker price and lack of demand inEuropean markets, hit by the COVID-19 lockdowns, have suddenly made suchmovements viable.

Despite the longer distance via the Cape of Good Hope the cheaper bunker fuel pricesmakes it more economical to take this route compared to using the Suez Canal thatcould cost around $700,000 for a fully laden 20,000 TEU container ship.

These diversion will cost the Suez Canal Authority (SCA) over $10M in lost charges.SCA reacted to this major loss of traffic by announcing a new rebate scheme to incitecontainerships to transit through the Suez Canal again.However also the revised toll rebate as of 1 May has, so far, failed to discouragecarriers from re-routing vessels to avoid Suez Canal transits in favor of the longerjourney via the Cape of Good Hope.


Cape Route vs Suez Canal

Total distance from Rotterdam to Singapore via Cape route 11,720 nautical miles, compared to 8,440 nautical miles via the Suez Canal route

Updated breakdown of containerships using the Cape route

Based on date of departure at last port as at 26 May 2020

BACK-UP


OCEAN FREIGHT RATES ADDITIONAL TRADES (1/2)


• EURO-AMLA+MX

Blank sailings continue on the AL4 service, causing disruptions to MX. Rate levels remain relatively stable.

• EURO-MENAT

Middle East destination are being served via FE services. Due to the blank sailings on the FE services we see massive space problems on the exclusive middle east and IPBC services, resulting in same rate hikes as mentioned for ASPA.

• EURO-SSA

Capacity remains stable. Slow port productivity in South Africa continues to show an improving trend.

• AMNO-MENAT

Rates remain stable. 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 stable. No changes in capacity. Space is available to West Africa, but tight to South Africa.

• AMNO-AMLA

Market volumes are down. Pending GRI’s have been cancelled.


OCEAN FREIGHT RATES ADDITIONAL TRADES (2/2)


Source: DGF

• EURO MED-AMNO

Slight rate reductions depending on the service and the ports called.

• EURO MED-AMLA

Situation unchanged.

• EURO MED-ASPA and MENAT

Artificial capacity reductions through blank sailings force rate increases.

• EURO MED-SSA

Situation unchanged.

• ASPA-SPAC

Capacity is reduced due to the rationalization plan made last year, and shipping lines have no plan to adjust. This results in overload utilization and successful June GRI, which was never seen in the market before. Space is expected to be full until end of the month.

NORTHAMERICA

Incl. MEXICO

LATIN AMERICA

EUROPEIncl. MED

FAR EAST

INTRA ASIAexcl. Oceania

NORTHAMERICA

Incl. MEXICO

LATIN AMERICA

ASIAN TRADE LANES DRIVE MID-TERM GROWTH


Source: Seabury Jun19 update

2.0 mTEU

+3.9%

1.5 mTEU

+3.0%

4.3 mTEU

+2.2%

2.3 mTEU

+1.5%

1.7 mTEU

+3.4%

1.9 mTEU

+2.5%

14.6 mTEU

+3.8%

7.3 mTEU

+2.2%

7.6 mTEU

+3.0%

18.5 mTEU

+3.4%

1.7 mTEU

+4.0%

4.4 mTEU

+4.8%40.7 mTEU

+3.8%

GLOBAL CONTAINER TRADE 151.2 mTEU +3.9% CAGR 2020e-2023e

MARKET OUTLOOK

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



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

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