Yang Ming Expanding To Retain A-E Competitiveness
BMI View: Yang Ming Marine Transport is pushing forward with plans to further expand its fleet. The company wishes to expand its chartered in mega vessel fleet, a strategy which indicates Yang Ming is seeking to retain its coverage of the Asia-Europe trade route, where ship sizes continue to get bigger, despite the current tough operating environment.
Yang Ming is seeking, via a leasing partner, to order 10 new 14,000TEU ships. The ships would be owned by the leasing partner and chartered to Yang Ming for 8-12 years.
Yang Ming first announced its plan to expand via chartered-in tonnage in November 2011 (although the plan then was for five 16,000TEU ships), but the scheme was put on hold due to the weak market. Now with Yang Ming reported to be back in profit in Q312 the company has got approval from its board to order five 14,000TEU container vessels, with the option for five more. The plan is for the first newbuild to be delivered in Q115. The company is likely to opt for Taiwan's CSBC Corp and South Korean shipbuilders to construct the vessels.
The container line already charters in mega vessels, with five ships of 14,000TEU capacity. Yang Ming currently operates 18 vessels of 13,000TEU or above in its fleet and the introduction of more 14,000TEU ships would boost the company's competitiveness on the Asia-Europe route, where vessels are getting bigger; for example Maersk Line is due to launch its first 18,000TEU ship on the service in 2013.
|Yang Ming Chartered In Fleet of 13,000 TEU Plus|
The order signals Yang Ming's determination to retain its exposure to the Asia-Europe trade route, despite the tough operating environment on this route in the last few years. Yang Ming is a member of the CKYH Alliance and operates on the Asia-Europe trade route via this link up. In total Yang Ming operates seven routes between Asia and North Europe.
The order poses the risk of further overcapacity being added to the already saturated Asia-Europe trade route. BMI has previously highlighted that despite the projected pickup in demand as the eurozone starts its recovery from its double-dip recession in 2013 the massive influx of mega vessels due online in 2013 and 2014 will lead to ongoing issues of overcapacity, which will take time to iron out.
This is a sector-wide problem and Yang Ming's decision to order will be based on how it can best remain competitive on the Asia-Europe trade route. We also highlight that by 2015, when the first of Yang Ming's ships are due online, that market will have had time to adapt to the 2013-2014 mega vessel influx and demand will have strengthened somewhat to offer more of an equilibrium between supply and demand. We also highlight that carriers have become more confident in managing the problem of overcapacity in 2012 and have pushed rates up y-o-y by capacity management, with a number of container lines now back in the black in Q312.