Transcript The U.S. Merchant Marine and Maritime Industry: A Review

Global Maritime Sector:
A Review
Shashi Kumar, Ph.D., Master Mariner
SK 2005
Outline
1. Introduction
2. Market Developments
3. The U.S. Merchant Marine
4. Global Issues
5. Outlook
Introduction
• “Not since the days of the Vikings”
• Concurrent highs in all three major
shipping markets
• Spectacular year for the industry
• Major drivers
–
–
–
–
PRC
India
U.S.A.
Other fast growing nations
Shipping Fleet Valuation: 2003 Vs. 2004
508
391
0
100
Source: R.S. Platou 2005
200
300
400
500
600
Market Developments—Newbuildings
Container
Source: LSE
Source: LSE
Dry Bulk
2003
Tanker
2004
VLCC
Suezmax
Aframax
Panamax
Handymax
Capesize
Panamax
Handymax
Handysize
7000 TEU
4000 TEU
2500 TEU
1000 TEU
140
120
100
80
60
40
20
0
Market Developments—2nd Hand Price,
5 Yr Old Ships
Container
Tankers
2004
VLCC
Suezmax
Aframax
Panamax
Handymax
Dry Bulk
2003
Source: LSE
Capesize
Panamax
Handymax
Handysize
5500 TEU
4000 TEU
2500 TEU
1000 TEU
100
90
80
70
60
50
40
30
20
10
0
Market Developments—Tankers
Average Freight Rate in $1,000/day
MR Product
LR2 Product
Aframax
Suezmax
VLCC
12
18.5
21.4
17.7
21.8
22.7
Source: R.S. Platou 2005
32.4
42
33.3
32.1
2004
47.5
2003
2002
65.2
39.9
50.6
88.7
Market Developments—Dry Bulk
• Capacity utilization -- 97%
• Capesize tonnage--$100K/day
max, $62,500/day average
• Average daily earnings doubled for
Capesize and Panamax size
Market Developments—Liners
• Revenue per 20 foot container rose
6.4%
• Trans-Pacific trade grew at 13%
• The Wal-Mart rumor
• NVO Service Agreement approved
in 2004
– Confidential contracts allowed for OTIs
from 2005
Market Developments—Cruise Industry
Carnival Cruise Lines’ Net Revenue Yield Changes
2004
2003
2001
145
150
155
160
165
170
$/PAX/Day
Source: AP
Best ever operating year for CCL
175,000 people on CCL ships at any one time
175
Market Developments—Shipbuilding
• S. Korean yards are now the undisputed
world leaders
• Record orders for new construction
• All three S. Korean yards posted losses
– Increasing price of steel
– Appreciation of the Won
• China State Shipbuilding Corp now is
among the top five shipyards
The U.S. Merchant Marine
• Some signs of life
• International Shipholding Group to build
an undisclosed number of LASH vessels
• New entrant eyeing the Hawaii trade
– Pasha Transport Hawaii
– Ocean Blue Express
– Matson’s aggressive response
• Puerto Rico trade
– Trailer Bridge bought out K Corp.
• Capital market developments
Shipping-related IPOs in 2004
$ million
Horizon Lines
Drytank AS
Hornbeck Offshore Svcs
Arlington Tankers, Ltd.
Teekay LNG Partners
U.S. Shipping Partners
Top Tankers
0
100
200
$ million
Source: LSE
300
400
Developments in the U.S.
• The American Jobs Creation Act
– Subchapter R to the Internal Revenue Code
• Tonnage Tax option
• Also amends subpart F of the tax rules
• Marad, Ex-Im Bank joint initiative
– Working capital loan for freight forwarders who could
extend credit to their export clients
• Security-related developments
– ISPS and MTSA went into effect on 7/01/2004
• USCG approved 9200 VSPs, 3100 PFSPs, 43 RSPs
– CSI operational in 33 ports, 21 countries
– C-TPAT has 8,200+ voluntary members
Developments in the U.S.
• Security-related developments
– Are our ports and facilities more secure
today?
– More vessel detentions for safety
reasons
– Highly vulnerable to nuclear threat
• Congressional Research Service Report
– Who should pay for the security costs?
• U.S. Gulf ports model
Developments in the U.S.
• Short-sea shipping
– Marad’s “blue highways” SCOOP
• Expansion of Osprey Lines’ gulf
coast container-on-barge service
• Columbia Coastal’s Albany
Expressbarge service
• PoNY/NJ’s Port Inland Distribution
Network
Developments in the U.S.
• Maritime Security Program
– Boost the nation’s military support capability
– Assist the merchant marine and the shipbuilding sector
– 60 ship fleet is now complete
• 47 ships approved in 2003
• 13 approved in 2004
– Have a balanced fleet
• 1st five slots to be issued to U.S.-flag product tankers
owned by U.S. citizens
• Temporarily assigned to three Maersk tankers under
charter to OSG and 2 heavy lift ships
• National Defense Tank Vessel Construction Assistance
program is now in limbo!
Developments in the U.S.
• Marad Ship Scrapping Program
– Ghost Fleet to be scrapped by
September 30, 2006
– 121 ships still at anchor
– Four ships sent to Hartlepool, U.K.,
have run into legal problem
– Marad’s leadership, management
acumen, and its contracting practices
under criticism
Developments in the U.S.
• East Coast Stevedoring Contract
– Six year master contract ratified in June 2004
– Considerable opposition from newer ILA
members
– Baltimore, Charleston, and Hampton Roads
rejected master contract as well as
supplementary local agreements
– Will cost employers $8.7 billion over the next
six years
ILA & ILWU Base Hourly Wages Comparison
35
30
35
30
25
20
15
10
25
20
15
10
5
0
5
0
1987
1990
1993
1996
ILA
Source: ILA
1999
ILWU
2002
2005
2007
ILA Investigation
• Investigation of mob influence
within ILA
– Several indictments in 2004
• Extortion
• Conspiracy
• Mail and wire fraud
– Many top ranking leaders behind the
slammer!
• Exec VP of ILA
• Member of the ILA Exec Council
• ILA International VPs in Miami & New
York
Port and Terminal Operations
• Massive bottlenecks at LA and LB
– Increased automation did not help
• Unprecedented growth in volume
• 80+ new Post-Panamax container
ships expected to enter the market in
2005
• Resurgence of all-water services to the
East Coast
– New distribution centers at East Coast
ports
• Panama Canal wins in the short-run
Panama Canal Rate Hikes
54
1/1/2007
49
1/1/2006
42
5/1/2005
0
10
20
30
Price/TEU($)
Source: PCA
40
50
60
The LNG Era
8
India
31
China
-1
Japan
-5
4
U.S.
0
5
10
15
20
Annual growth rate% 1994-2004
Source: EIA
25
30
35
The LNG Era
• Iran, Russia, and Qatar—dominant
LNG fields
• $30 billion investment in the next 20
years
• World LNG consumption to double in
the next 15 years
• LNG infrastructure controversy
– Local
– Regional
– National
The Human Element
• A two-year global collective bargaining
agreement between ITF and the Joint
Negotiations Group
• Significant increase in the cost of operating
specialized vessels
– Crew cost for VLCCs went up by 7.8% in
2004 and now comprises 40% of the total
– Crew cost for Panamax bulk carriers—
46%
• Very tight market for senior officers with
special endorsements like LNG
• As a career, shipping has lost its charm
Maritime Piracy
30
325
2004
0
100
200
Piracy Attacks
Source: IMB
21
445
2003
300
400
Crew Deaths
500
Outlook
• Will the brilliant market conditions continue?
• Will the Chinese economic miracle run out of
steam?
• The new Excelerate Energy Bridge terminal in
LA—harbinger of the future?
• The sea is too unpredictable to be lulled into
complacency