8 OCTOBER 2018

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NOTOS NEWS | CONTAINER / LINER

L I N E R S ’ S A N D W I C H P O S I T I O N

E A S E S

In our June edition of Notos Quarterly, we described the liner companies as trapped by weak freight rates, rising fuel prices and increasing charter expenses. To illustrate this, we calculated the ratio of the China Containerized Freight Index (CCFI) to the price for 380cst Rotterdam fuel. Further, we put this ratio in contrast to the Clarksons Containership Timecharter Rate Index.

Historic data showed that each time the freight-to-bunker-price ratio fell amidst rising charter rates - as was the case in 2007, 2010/2011 and

2015 - the charter rates corrected subsequently.

In this article, we have updated the respective data until end-September to examine if the history repeated itself once again. And it did, as shown in the graph below: the charter rate index has fallen since July.

Liner companies have been squeezed between weak freight rates, rising fuel prices and higher charter expenses for quite some time. Although charter rates for small and mid-sized boxships have been correcting since summer, rising fuel prices, IMO 2020 regulations and the Sino-US trade conflict are enough of issues to continue to burden liner companies.

For more information please contact:

DR. CHRISTINA STAHN

newsletter@notos-group.com

+49 40 6094 550 - 0

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'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

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L I N E R S ' S I T U A T I O N A B O U T T O E A S E S O M E W H A T

Bunker Price-Adjusted Freight Index Containership Timecharter Rate Index

Source: Clarksons, Notos 09/2018

NOTOS NEWS | CONTAINER / LINER 8 OCTOBER 2018

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M A N Y A C H A R T E R R A T E

S O F T E R , R I S I N G I D L E F L E E T

To get out of this predicament, some liner companies have reacted by cancelling services. The result is already being felt in the container charter market: While container charter rates have seen new highs in June and July this year, many have started to soften since. The graph below depicts the ConTex 1-year time charter rates for small to medium-sized container ships. Compared to their respective highs in summer, such charter rates have already dropped between seven to thirteen percent.

Furthermore, the number of idle boxships is again on the rise. According to Alphaliner, the ratio of idle capacity to the total fleet stood at 2% as of mid-September, up from below 1% seen a few months ago.

R I S I N G F U E L P R I C E S C O N T I N U E

T O P R E S S U R I Z E

Whereas the falling container charter rates somewhat ease the financial situation for liner shipping, ongoing pressure is expected to arise from the recently implemented US tariffs on Chinese imports which is bound to impair the container trade. The biggest impact, however, is to come from the continuously increasing bunker prices, which will most likely intensify as a result of the IMO 2020 regulations.

The oil price (Brent) recently surpassed the USD/barrel 86-mark, the highest level in nearly four years. We expect this to translate into further increasing bunker prices, thereby partly eliminating the solace provided by decreasing charter rates.

Furthermore, liner companies are expected to suffer from the higher expenses incurred through the IMO’s low-sulphur fuel regulations which come into effect in 2020. Maersk, CMA CGM, MSC and Hapag Lloyd are reported to belong to the number of liner companies which intend to pass on this extra cost to their clients. It remains to be seen how successful these companies will be in doing so.

Source: EIA, Notos Group 08/2018

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1 - Y E A R T I M E C H A R T E R R A T E S F O R S M A L L T O M E D I U M - S I Z E D B O X S H I P SH I T T H E I R H I G H S I N E A R L Y S U M M E R

1,700 TEU 2,500 TEU 3,500 TEU 4,250 TEUSource: VHBS, Notos 10/2018

NOTOS NEWS | CONTAINER / LINER 8 OCTOBER 2018

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C O N T A I N E R S T O C K S : N A V I O S

M A R I T I M E C O N T A I N E R S ’ U S I P O

D I D N O T W O R K

Higher fuel prices and the intensifying US-Sino trade conflict seem to weigh down on equity investors’ sentiment. Navios Maritime Containers failed at its USD 100m US initial public offering in September. Navios Maritime Containers is currently listed on Norway’s over-the-counter exchange and aimed to bring a fleet of 25 feeder containerships to the Nasdaq stock exchange. TradeWinds

reported that by company’s own account, Navios Maritime Containers will resume its listing in Norway and seek to list shares directly in the US.

C O N T A I N E R - A N D L I N E R -

S E C T O R S M O V E D O W N W A R D S

Looking at our sector index for container stocks one can see that the container index (light blue line in below graph) gained nearly 45 percent moving from the low of 85 index points in November 2017 to the high of over 120 index points in June this year.

This move was mainly driven by Seaspan, having been able to clinch a deal with a new cornerstone investor which in turn brought back confidence. It seems that this was a one-time effect reflecting a

Seaspan-specific issue and not a sector-wide development.

However, the clouds are turning darker. We wait to see how the container lessor companies like Costamare, Danaos, Global Ship Lease, MPC Containers or Seaspan withstand the mounting pressure from the liner companies once the full IMO 2020 effect kicks in.

Source: Notos 09/2018

Source: Notos Group 08/2018

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N O T O S L I N E R V S . C O N T A I N E R I N D I C E S - 1 2 M O N T H S

Liner Container

Source: Notos 10/2018

NOTOS NEWS | CONTAINER / LINER 8 OCTOBER 2018

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