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Tuesday, April 6, 2010

Shipping: Container History from 1985 and Outlook

We mentioned positive container shipping commentary from TAL International Group, Inc. (TAL) in late February. We're tracking the company because of our interest in container shipping companies Seaspan (SSW) and Global Ship Lease (GSL). From TAL's March investor presentation, we find the following slides -

Historical growth of container market dating to 1985 as well as a 2010-12 outlook:


This isn't "new" news and the container companies regularly mention the 10% historical CAGR of container volumes. Still, we share the slide to visually relay the prior growth trajectory. Despite negative/slow near-term expectations, we don't think it's a stretch expect a resumption of growth in the future, albeit perhaps more modest.

The benefit for TAL shareholders is that the supply/demand situation is significantly different than that of the container industry, thanks to shorter manufacturing lead times. Per the below slide, 2009 production was limited:


We've no position in TAL (*fantastic recovery in equity value this year), but are content with our SSW/GSL exposure despite a continued barrage of mixed industry headlines, including today's lead headline from The Journal of Commerce: Container Ship Deliveries Set to Soar. A few points from the article:
  • Shipyards to deliver combined capacity of 430,000 TEUs in three months
  • In April alone deliveries are set to reach 150,000 TEUs, the highest monthly level recorded since mid-2008.
  • “The new vessel deliveries are expected to contribute to a net fleet growth of 9.6 percent in 2010 after taking into account expected scrapping and slippage,” Alphaliner said.
  • The increased deliveries will be absorbed by the recovery in global demand and the start of the summer peak shipping season as well as slow steaming.
  • The main driver for demand in the second quarter was the launch of several new loops which absorbed new ships as well as idle tonnage which has now fallen below 9 percent of the world fleet, Alphaliner said.
Per our prior posts, we think the supply/demand situation will gradually normalize, helping our Seaspan and Global Ship Lease (*banking on CMA CGM solvency for latter - please see this JoC story for latest). On this point, please see this Lloyd's headline/story today: Container trade growth expected to hit 10% this year -
  • Asian demand to act as a catalyst as Clarksons and Alphaliner amend their 2010 outlook
  • GLOBAL container volumes are expected to recover significantly from last year’s collapse as economic conditions stabilise, with stronger demand contributing to a considerable decline in the size of the unemployed fleet.
  • Clarksons has revised its forecast for 2010 and now expects the container trades to expand by 7.5% this year....
For those interested in more shipping commentary/slide decks (from all sectors of shipping, including dry bulk), we recommend visiting Capital Link's Web site to see presentations from the firm's recent NYC conference.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SSW, GSL.

© 2010 Jeffrey Walkenhorst
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