Car Carriers In Sweet Spot Amid Asian Exports Boom
BMI View : As Thailand and India's export hub status grows more prominent, not least due to their port infrastructure, car carrier companies are enjoying strong demand for their RoRo carriers, which are needed by automakers producing in these countries to export their cars and trucks to other parts of the world. We expect this trend to continue, as global shipping liners such as NYK are increasing their fleet of car carriers to cater to this rising demand in the coming years.
While the global shipping industry is facing a tough business environment due to a glut of tonnage in the market ( see our online service, January 16 2013, 'Supply: Overcapacity To Remain As More Megas Saturate The Market'), car carriers are enjoying a boom due to the success of Japanese carmakers in selling their vehicles to export markets such as the Middle East and Latin America, from production hubs in Asia. According to investment bank RS Platou Markets AS, average charter rates for 7,000 capacity car carriers may reach US$24,800 in 2013 and US$28,000 by 2015.
The boom for car carriers shows a few of BMI's views playing out.
China's Diminishing Attractiveness As An Export Hub
Thailand overtook China as Toyota Motors third largest global production hub in 2012, after Japan and the US. This development does not come as a surprise to us. As China's manufacturing costs soar due to rising wages and increasing automation, it makes exports less cost effective and Japanese automakers have been increasingly using their Chinese production predominantly for the domestic market ( see, 'Rise Of Robots As Industry Moves Up Value Chain', December 4 2012). It has been BMI's view for some time that automakers operating in China will plan their domestic production such that it aligns with domestic demand. Furthermore, with the Sino-Japanese island dispute breaking out in late 2012, Japanese automakers were further forced to cut back on their vehicle production, in the wake of a consumer boycott of their cars ( see, 'Escalating China-Japan Tensions Spell Trouble', September 18 2012).
Thailand's Importance Benefitting Shipping Firms
BMI has a long-held view on Thailand's attractiveness as an export hub, particularly in South East Asia (SEA), after its strong recovery from the devastating 2011 floods. As Thailand produced a record 2.45mn vehicles in 2012, it exported about 1mn CBUs, also a record high. We expect Thai 2013 production to remain strong, and exports to grow even further. We remain bullish on Thailand's production potential because of its pro-business government and excellent port infrastructure.
This is supported by shipping as they enjoy brisk business at the country's upgraded ports. Nippon Yusen Kaisha (NYK), the world's biggest operator of roll-on roll-off (RoRo) ships (carriers used to transport vehicles), which has Toyota as its biggest customer, anticipates record 2013 Thailand car exports and Mitsui O.S.K. Lines, another Japanese transport company, is forecasting that it will ship a record 3.9mn vehicles globally this financial year, up 8.3% year-on-year.
Our bullish view on Thailand's 2013 vehicle exports is further bolstered by recent investment in the country by Japanese carmakers. Nissan announced in October 2012 that it is building a new factory which will produce 200,000 CBUs a year ( see, 'Nissan Increases Bets On Thailand', October 29 2012) and Honda announced a THB20bn (US$670mn) investment in February to build a new factory as well as expand existing facilities. Honda wants to boost exports and tap strong local demand.
|Exports To Make Up A Bigger Proportion Of Domestic Production|
|Thailand- Domestic Vehicle Production, Mn Units (LHS); Vehicle Exports, Units (RHS)|
We remain bullish on Thailand auto production and forecast average annual growth of 3.1% over the 2013-2017 period, to hit 2.9mn units by 2017. We also see exports continue to make up a bigger proportion of domestic production in the coming years and expect them to hit 1.3mn units by 2017.
India's Export Potential
Besides Thailand, India's strength as a low-cost vehicle production hub is also creating demand for RoRo ships. Automakers such as Ford Motor and Hyundai Motor have made India their global small car production hub and most recently Maruti Suzuki has decided to shift its small car production base to Gujarat ( see, 'Gujarat's Infrastructure Wins It For Suzuki', December 3 2012). India's comparative advantage in manufacturing is poised to remain in the coming years as its wages remain lower than many of its peer countries in the region. This, together with its burgeoning infrastructure, causes BMI to remain bullish on the country's export potential. As Gujarat's ports remain in expansionary mode, the ports of Tamil Nadu, Ennore and Chennai, are also key automobile exporters. In fact, OEM's such as Ford, Toyota, Renault and Nissan are poised to export around 300,000 cars from Ennore port in the next two years. Given such export-led demand, we see the trend of car carriers calling on Indian ports, continuing.
Onset of AEC Will Further Exacerbate Trend
As carmakers concentrate their production in a few key export hubs globally, we see car carrier companies continuing to benefit from the need to transport these vehicles to both emerging and developed markets around the world. RoRo carrier lines anticipate this and have repositioned their business to take advantage of this upswing in vehicle exports. NYK, which has a total of 121 car carriers from its total ship fleet of 837, ordered four RoRo carriers in October 2012 and wants to increase its car carrier fleet to 130 by March 2017. With the advent of the ASEAN Economic Community (AEC) in 2015, we see more automakers in SEA concentrating their production in hubs such as Thailand and Indonesia, which will bolster the demand for RoRo's to export their vehicles to other countries where there is demand.