Trends affecting the Australian maritime industry

Ports AustraliaCentennial Conference18 - 21 October 2016Melbourne

David BaynePort Economistbayne@drewry.co.uk

Fit for function vs Capacity4 million teus p.a. were barged in Hong Kong prior to the new container terminals. The right question is the port fit for function?

It is not how much but how well you get cargo through a port that matters. 

The important questions

• Is the port fit for function?• Can our exporters compete?

– Ship size and port costs

Have we really matched ourports to the markets?

• Focus on 3 shipping markets 1. Dry bulk (iron ore and coal);2. LNG; and 3. Containers.– Dry bulk because Australia has 5 ports amongst thelargest dry bulk ports in the world.

– LNG because of our rapid growth and strongprospects.

– Containers because the ship upscaling since the GFC in 2008 has changed the market needs.

Matching markets to ports

Drewry

Capesize (280 m)

Panamax (225 m)

Handymax (190 m)

Handysize (185 m)

Traditional dry bulk vessel classifications

300m , 185 DWT

Ship traces combined

Heavily weighted by iron ore

Dry bulk – iron ore exports(Drewry Dry Bulk Forecaster Q2 2016)

53% 25%

The Valemax – 403,000 DWT

• Chinese have now ordered  30  ‘Valemax’ ‐ to be delivered in 2018 and 2019

The Wozmax Capesize subset

Our Champion

Evolution of ‘standard’ Capesize ships

Year of build Dwt (‘000) Beam (m) Loa (m) Draft (m)

1981 138 43 270 16.8

1990 149 43 270 17.3

2000 171 45 288 17.7

2010 180 45 292 18.2

Wozmax  300 57 330 18.2

Source:  Braemar Seascope

Outlook for iron ore Chinese iron ore imports up 9% in Q1 & Q2 2016

Drivers• Chinese government 

stimulation of the building industry.

• Chinese steel mills are replacing low quality domestic ore with imports from both Brazil and Australia.

• Rising labour costs in China.

Dampeners (steel production)• Rising anti‐globalisation 

sentiment.• US duties on Chinese cold 

rolled steel. (As high as 256%).

• Both India and the EU foreshadowing anti‐steel dumping measures.

• Increasing competition from Brazil with the Valemax.

Dry bulk – iron ore imports(Drewry Dry Bulk Forecaster Q2 2016)

Japanese coal revival

• Because 36 Japanese solar power stationshave gone bankrupt in 2015, the Governmentcommissioned 45 new coal‐fired power plantswith better quality coal mostly from Australia.

Source:  Drewry Dry Bulk Forecaster Q2 2016 and Bloomberg

Dry bulk total order book (‘000 DWT)(Drewry Dry Bulk Forecaster Q2 2016)

Ships on order have dropped from 23.8% of the fleet’s capacity in 2012 to 15.3% in 2016.  The  VLOC  is the exception.

This means the outlook  is for increased Brazilian competition in iron ore 

Dry bulk outlook ship size

Year Average size DWT Largest vessel (DWT) CAGR (2006‐16)

2006 56,067 364,768

2016 72,879 403,919 2.7%2017 74,815 403,919

2018 76,803 403,919

2019 78,844 403,919

2020 80,939 403,919

2021 83,090 403,919

2022 85,298 403,919

2023 87,564 403,919

2024 89,891 403,919

2025 92,279 403,9192026 94,731 403,919

LNG shipping

“Prelude” FLNG 200 km from the WA coast

Stay with conventional shipping  for this presentation

LNG – capacity in m 3

128,000 m 3 Conventional (1976)

145,000 m 3  Conventional (1995)

210,000 m 3  Q‐Flex (2007)

260,000 m 3  Q‐Max (2008)

Source:  Moorways Pty Ltd

LNG carriers Q‐Max ‐ trading between Qatar and Europe / US

Australia and Indonesia best placed for the market. 

If it were not for the lower shipping costs, Canada and East Africa would have a competitive advantage.

LNG and the widened Panama Canal to increase competition

• The widened Panama Canal will now handleall of the current LNG fleet except the Q‐Flexand Q‐Max.

• A trip from US to Far East which used to take35 days will now take 24 days.

• This means a cost saving of between USD 0.50and USD 0.70 per MMBTu (Q2 USD 4.90 perMMBTu).

LNG imports forecast (mill. tonnes)

Japan is still dominant and China is committed to increased Australian LNG

LNG fleet development (Drewry Forecaster Q2 2016)

Table 3.1 LNG FLEET DEVELOPMENT

18-50 50-75 cbm 75-125 cbm 125-150 cbm 150-200 cbm 200-220 cbm 220+ cbm Total No. 000 cbm No. 000 cbm No. 000 cbm No. 000 cbm No. 000 cbm No. 000 cbm No. 000 cbm No. 000 cbm

2012 8 189 5 348 11 968 225 31,100 65 10,278 31 6,601 14 3,715 359 53,199 2013 7 154 5 348 10 881 222 30,718 82 13,016 30 6,391 14 3,715 370 55,222 2014 5 88 3 205 10 881 219 30,351 114 18,041 30 6,391 14 3,715 395 59,671 2015 6 118 3 205 8 725 218 30,226 141 22,448 30 6,391 14 3,715 420 63,828 2016 6 118 3 205 8 725 212 29,443 153 24,482 30 6,391 14 3,715 426 65,079 2016 8 176 3 205 7 603 210 29,187 182 29,413 30 6,391 15 3,978 455 69,954 2017 9 221 3 205 6 481 203 28,296 221 36,000 30 6,391 15 3,978 487 75,572 2018 9 221 3 205 6 481 201 28,036 264 43,425 30 6,391 15 3,978 528 82,737 2019 9 221 3 205 6 481 201 28,036 281 46,376 30 6,391 15 3,978 545 85,689 2020 9 221 3 205 6 481 201 28,036 284 46,898 30 6,391 15 3,978 548 86,211 1Q15 5 88 3 205 8 725 219 30,351 122 19,345 30 6,391 14 3,715 401 60,820 2Q15 6 118 3 205 8 725 219 30,351 128 20,322 30 6,391 14 3,715 408 61,827 3Q15 6 118 3 205 8 725 218 30,226 136 21,611 30 6,391 14 3,715 415 62,990 4Q15 6 118 3 205 8 725 218 30,226 141 22,448 30 6,391 14 3,715 420 63,828 1Q16 6 118 3 205 8 725 214 29,700 148 23,627 30 6,391 14 3,715 423 64,481 2Q16 6 118 3 205 8 725 212 29,443 153 24,482 30 6,391 14 3,715 426 65,079 Source: Drewry Maritime Research

Small numbers and no growth

Stable fleet structure because:Qatar has put on hold all new development.The widened Panama Canal has released shipping tonnage.  

Design vessel for your LNG port planning

Containers

• Containers show a very different story to LNG

Slowing global volume growth

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

‐100.0

‐50.0

0.0

50.0

100.0

150.0

200.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Global container volume 1990‐2015

Millions teu port World Container Traffic Millions teu port World % change yoy

What does slower cargo growth mean for ship upscaling?

Container vessel sizes

So it’s not so much cargo growth driving the upscaling

Consolidation by acquisition ‐transactions

Consolidation by carrier alliancesMore changes to come 

Shipping line AllianceMaersk

2M MSC

CMA CGM

Ocean ThreeChina Shipping

UASC

NYK

G6 Alliance

OOCLHapag-Lloyd

APL MOL

HyundaiCosco

CKYHE AllianceK Line

Yang MingHanjin

Evergreen16 4

16 companies make up almost  80% of the market and work in 4 alliances.

This means when an alliance changes  to a new port, it comes in blocks 

Brisbane moved container ships from Hamilton to Fisherman Islands

Sydney moved container ships from Port Jackson to Port Botany

Port of Melbourne website (2015)

The words show  the quantity of capacity, the picture the quality of  that capacity.

Constraints:• The Harbour Master’s instructions limit vessels

to 300 m LOA on most occasions;• Approach channels are limited to 14 m and 0.6

m tidal assistance (DUKC);• Beam restrictions within Swanson Dock

depending on conditions;• Westgate Bridge 50 m plus 2 m exclusion zone;• Webb Dock could possibly handle larger vessels

but the design vessel for the capacity upgradehas been limited to ships of 300 m LOA (some5,500 to 6,500 TEU);

• Port Phillip Heads while having 17 m draft, isdifficult due to currents and likely to restrict thetimes of departure.

• There is a danger that the new port owner mayattempt to restrict competition at Webb Dock toavoid pressure from the Swanson Dock owners.

• But there is hope ‐ the Bosphorus‐max.

Melbourne’s critical constraints

Australian container service vessel list ‐Q1 2016 (Drewry)

All of Australia's Eastern  container ports are constrained by Melbourne’s LOA

Source:  Drewry Maritime Research

2016

Ports smaller than Melbourne servicing 8,000 to 10,000 teu vessels

But there is hope for the Australian trade

Two of the most common ship sizes on order

Compact Neo PanamaxAKA Bosphorus‐max

ULCC 18 Class

64 in the fleet73 on order Typically 9,500 TEU capacity

Source:  Moorways Pty Ltd

Neo‐Panamax containerships matrix of Bay x Row (fleet 2015)

LOA (m) 299‐300 m 301‐320 m 321‐340 m 341‐360 m 361‐366 m 367‐370 m

Container rows across Beam (m)

17 rows across42‐43 m beam

432

6,300‐7,800 TEU

220

6,700‐7,900 TEU

1652

8,000‐9,600 TEU

400

8,600‐9,600 TEU

120

9,500‐9,700 TEU

00

18 rows across45‐46 m beam

230

7,500‐8,700 TEU

150

8,100‐8,600 TEU

981

8,400‐9,600 TEU

340

9,900‐11,000 TEU

160

11,300‐11,600 TEU

00

19 rows across48‐49 m beam

6473

8,600‐10,600 TEU

00

3146

10,000‐11,000 TEU

00

956

12,500‐14,000 TEU

00

20 rows across51‐52 m beam

00

00

00

00

4133

13,300‐14,500 TEU

3816

13,800‐15,000 TEU

Source:  Alphaliner

The design vessel for a modern Australian port

The Bosphorus‐max looks possible but not without risk

• The constraints are less critical at Webb Dock.• Therefore Webb Dock may gain a competitive advantage that 

could affect other terminal operations along the East Coast.   A competitive advantage of this size will see some losers and this may make the politics difficult.

Containers conclusion• The pace of ship upsizing has accelerated rapidly since the 

global financial crisis;• Australian ports have not kept pace with global ship size 

growth, other locations like New Zealand;• Ship upsizing affects Australia nationally – not just one State; 

and• Australia’s largest container port, Melbourne constrains the 

other ports as well, It is really a National productivity issue. • Note: this deficiency also affects New Zealand crossover 

trade.Next stepsDetermine the National cost of container ship size constraints.

Have we matched markets to ports?

• LNG ‐ yes• Dry bulk‐ probably for the mid term• Containers – we are falling behind and offer a less than good match.

Trends affecting the Australian maritime industry

Ports AustraliaCentennial Conference18 - 21 October 2016Melbourne

David BaynePort Economistbayne@drewry.co.uk