For the global economy, 2013 was largely dominated by continued uncertainty. Many of the world’s major economies showed signs of start-stop growth, which continued to impede progress towards a more broadly supported growth trajectory.
Once again, emerging and developing economies provided much of the growth in 2013; however the pace was noticeably slower than in previous years. This was especially visible in the recently thriving BRIC countries8, evidencing that they are by no means immune to market volatility.
Whilst this played out, what became clear was the gradual emergence of a new and sizeable middle class in many developing countries that has begun to engage with the global market. With 90% of trade by volume transported by sea9, the growing purchasing power of this demographic provides an ongoing positive boost for the container shipping industry.
For the shipping lines, 2013 was another difficult year. 2013 growth in container shipments is expected to be lower than recent years at 4%10 implying a GDP growth multiplier of 1.4 times. Even with record removal of container vessel tonnage, shipping capacity additions have again outstripped growth in demand, a trend apparent in six of the past eight years. This has predictably led to an overall decline in freight rates for the shipping lines.
Importantly, the additions in shipping capacity in recent years have been greatly weighted towards ultra-large container vessels, which have been specifically designed for increasingly superior fuel economy and lower unit costs. The introduction of these new vessels onto the main east-west routes means older large vessels are cascaded onto secondary trades, sometimes doubling capacity on a service overnight. Whilst this is part of the natural evolution in revised networks, it has meant that many formerly profitable routes have also experienced large fluctuations in liner freight rates.
The shipping lines’ response in 2013 to the pressure on rates was consolidation through partnerships. The announcement of ‘P3’, a vessel-sharing agreement on the Asia-Europe, Trans-Pacific and Trans-Atlantic trades between the three largest container shipping lines in the world, led swiftly to the ‘G6’, a partnership between two of the three major alliances (the Grand Alliance and the New World Alliance) as well as ongoing discussions between the third alliance which comprises South Korea’s Hanjin Shipping, ‘K’ Line of Japan, Taiwanese line Yang Ming and China’s Cosco, known as CKYH, and the few remaining non-aligned major carriers.
Customer consolidation is leading to step changes in capacity utilisation rather than gradual changes because any gain or loss is across a partnership of several lines. Reduced economic growth, in parallel with the increased consolidation of business, has meant that competition amongst container terminal operators to gain new vessel calls has increased.
For DP World, the impact of these trends has been largely positive because of our geographical spread and ongoing investment in infrastructure and equipment to enable us to handle the larger vessels. Our terminal capacity utilisation continues to outpace the industry and with this evolution of the customer network we will aim to continue this pace.
We maintain a geographical advantage with our broad portfolio stretching across both developed and developing countries, primarily focused on the core origin and destination markets. This, aligned with judicious acquisitions, timely capacity developments and consistent investment in new equipment and technologies, has enabled us to grow gross volumes by an average of 17% per annum since 2004; more than twice the average annual growth in the market over the same period11.