Mediterranean Shipping Company (MSC)


Overview

Mediterranean Shipping Company (MSC) was founded in 1970 in Geneva, Switzerland. It launched its first service between the Mediterranean and South and East Africa in the mid-1970s. In 2003, it became the second second-largest container shipper in the world, and remains in that position.

The carrier operates 200 direct and combined services weekly, calling at approximately 335 ports. It has 421 offices in 145 countries and employs more than 30,000 staff.

SWOT Analysis

Strengths

  • MSC is the second second-largest container shipper in the world.

  • The company has a forward-thinking strategy, with a fleet of 14,000 000-twenty-foot equivalent unit (TEU) vessels.

  • MSC is not averse to chartering, which has allowed it to expand its fleet.

  • The line is managing its capacity and exposure during volatility in the container shipping sector via link ups with other carriers and an alliance with CMA CGM.

  • The company is increasing its exposure to the US, operating the largest vessels on the transpacific trade route.

Weaknesses

  • With such a large fleet, MSC is constantly running the risk of overcapacity, which could be a drain on resources if business slows.

  • With 23 vessels on order, at a time when overcapacity remains a major issue for container lines.

Opportunities

  • The sector has managed to push up rates in 2012 following a rate war in 2011 that decimated carriers' bottom lines; BMI believes that MSC will continue to rate push strategy into 2013.

  • The shipping sector has proved lucrative in the past two decades, with trade volumes growing year-on-year since 1982. Although the downturn affected the company, the medium-to-long term opportunity for trade growth is ever present, and MSC is well positioned to capture these volumes.

  • The company is seeking greater exposure to emerging trade routes, specifically in South America, which offer new growth opportunities.

Threats

  • MSC is heavily exposed to Europe, not only on its Asia-Europe routes, but also its intra-Europe portfolio. The slow growth outlook in the region will be a threat to demand, and growth in volumes on these routes are is likely to remain sluggish.

  • MSC's desire to become number one could be hampered by Maersk Line's plan to order a fleet of 18,000TEU vessels.

  • Overcapacity is set to remain a major threat for lines in the short term.

Strategy

MSC continues to snap at Maersk Line's heels, with a global market share of 13.3% compared with Maersk's 15.4%, according to AXS Alphaliner. BMI believes that MSC will continue to battle for the top position.

By some measures, it has overtaken Maersk Line to claim top position, with Containerisation International reporting in February 2011 that it had overtaken the Danish carrier in terms of capacity. This measurement takes into consideration only Maersk Line and not the whole Maersk Group, which includes Safmarine and MCC Transport. Taking the group as a whole into account, Maersk Line still holds the top position.

In December 2011, the US-based Journal of Commerce reported that, based on US import and export trade, MSC had replaced Maersk Line as the top container line serving the US in the first nine months of 2011, with MSC's operations almost balanced between imports and exports.

BMI highlights that MSC operates the largest vessels on the transpacific route. The company now utilises vessels with capacities of between 11,600-13,000TEUs on the trade route and in October docked the largest box ship ever into the port of Long Beach, with the MSC Beatrice a 13,800TEU capacity vessel calling there there.

Routes

Despite the uptick in rates on both the Asia-Europe and the trans-Pacific routes, container lines are still battling the threat of overcapacity and are starting to link up to better manage the problem. MSC has formed an alliance with France's CMA CGM on the trade routes of Asia-Europe, Asia-Southern Africa and South America. The alliance will considerably impact influence the market share of lines on the Asia-Europe route: the two carriers are operating a four-route service, including 44 ships with capacities of over 11,000 TEUs. The effect of the alliance on this route was immediately felt, with the members of the Grand Alliance and New World Alliance announcing at the end of 2011 that they would join together to form a mega alliance of six operators, called the G6 Alliance.

MSC is heavily exposed to the 'big money' routes, particularly the trans-Pacific, with the line operating five services from Asia to US West Coast ports. The line also caters to the US East Coast market with an all-water service.

It operates four Asia-Europe services: two (Silk Express and Lion Service) to Northern European ports and two routes (Dragon Express and Tiger Service) to ports in the Mediterranean.

MSC also caters for intra-Asia trade, with its New Shogun service linking China and Japan and its TongKing Service connecting China with Vietnam. Some of the line's other services serve a number of countries in Asia before linking elsewhere in the world. The Cheetah Service links Chinese ports with the Taiwanese port of Kaohsiung, before travelling on to Africa.

BMI believes that there is room for expansion in MSC's intra-Asia portfolio, with the potential for more intra-Asia specific routes either operated solely or in partnership. In comparison with its peers, MSC has only a small exposure to the intra-Asia market, which is set to be a major growth area for box carriers in the medium term.

Fleet

MSC has the second second-largest container fleet in the world, operating 457 vessels with a total capacity of 2.2mn TEUs. The fleet's dynamics are weighted toward the charter market, with chartered in ships accounting for 53.2% of the total.

It has an owned fleet of 195 vessels with a capacity of 1mn TEUs, while its chartered fleet of 262 vessels has a combined capacity of 1.19mn TEUs.

An exact breakdown of MSC's fleet is unavailable, but the line is a member of the ultra-large container ship club, with a fleet of 14,000TEU vessels. The company stated in December 2011 that carriers must deploy the largest vessels on the Asia-Europe trade lane in order to minimise losses. Vice-president Diego Aponte said that he expects the Asia-Europe trade route to remain unprofitable until 2013.

MSC is preparing to take on more box ship tonnage, both owned and chartered. The company's order book currently stands at 23 vessels with a total capacity of 254,774 TEUs.

While the carrier operates 14,000TEU vessels, it does not appear prepared at the moment to order larger ships. In an interview with Lloyd's List, MSC's founder and chairman Gianluigi Aponte stated that the company had no intention of following Maersk Line's lead and ordering 18,000TEU vessels. Aponte said that he was 'only interested in ships up to 14,000 TEUs'. It should be noted, however, that Aponte initially denied interest in ordering 14,000TEU vessels, yet his company has since done so. BMI will therefore not completely rule out the development of vessels larger than 14,000TEUs by MSC in future.

Financial Results

2011

Not available.

2010

MSC does not publish its financial results. However, its operating fleet and the amount of cargo carried increased in 2010. In that year, the line operated 432 vessels, a year-on-year increase of 14.3% from the 387 ships operated in 2009 and above the company's pre-downturn fleet of 410 vessels. Despite the downturn in 2009, the fleet's capacity continued growing, from 1.4mn TEUs in 2008 to 1.47mn TEUs in 2009 and 1.82mn TEUs in 2010.

However, the real indicator of improvement in MSC's operations is the volume of containers carried. This grew by 17.6% y-o-y to reach 12.1mn TEUs in 2010, following a year-on-year decline of 10.5% in 2009. In 2010, levels reached and surpassed the pre-downturn handling level of 11.5mn TEUs, indicating that MSC has recovered from the downturn. Coupled with rate increases during the year, which were implemented across the board, this meant that the company was in the black in 2010.

Latest Activity

Expanding Intra-Regional Coverage

MSC has concentrated on expanding its intra-regional routes over the quarter. In December 2012 the company expanded its intra-Asia service connecting south China to South East Asia by adding the Chinese port of Fangchang on the Beibu Gulf. The service operates four vessels with a 2,076TEU capacity. Via the service the port of Fangchang will now be linked to Singapore, Laem Chabang, Ho Chi Minh, Kaohsiung, Hong Kong, Fuzhou, Shantao and Qui Nhon.

MSC has also been expanding its regional coverage in Africa. From December 23 2012 MSC will offer a direct service between South Africa and West Africa. The new service will utalise utilise five vessels with a capacity of 3,000TEU per ship.

MSC, as the world's second largest container line, already boasts considerable exposure to the major trade routes, but this quarter's intra-regional focus highlights how the shipping line is keen to develop the whole package by expanding its feeder operations.

Rate Push Won't Let Up

Overcapacity and rate declines have remained a problem for shipping lines over the quarter and are expected to continue to be an issue in 2013 as well. The problem has been felt most acutely on the Asia-Europe trade route; and MSC and some of its peers have tried to force up rates, initiating a rate increase strategy on December 15 2012. While rates have ticked up w-o-wweek-on-week on the back of this push they have not achieved success and are unlikely to achieve MSC's full increase of US$600 per TEU.

MSC has also joined the industry industry-wide rate push in the reefer sector, which was initiated by Maersk Line. MSC is planning to implement a rate increase of US$1,500 per TEU on its reefer shipments on January 1 2013.

It is not only on the major trade routes, that MSC has been managing its rate levels. Over the quarter the company has announced rate increases on its Asia-Africa services, and its Asia- Latin America rates.

This article is tagged to:
Sector: Shipping
Geography: Global

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