Bloomberg News

U.S. Auto Revival Boosts Shipping as Jeeps Go to China: Freight

December 18, 2013

Ford Dealership in China

Ford Motor Co. vehicles are displayed at a dealership in Beijing, China. Photographer: Nelson Ching/Bloomberg

Saudis driving F-150 pickup trucks and Chinese coveting Jeep sport-utility vehicles mean more automobiles are filling up ships leaving U.S. ports, boosting revenue for vessel operators including Wilh. Wilhelmsen ASA. (WWASA)

The U.S. exported a record 1.8 million cars and light trucks last year, and shipments rose another 8.9 percent in the first 10 months of 2013, Commerce Department data show. Because the U.S. imports about twice as many cars as it sends overseas, more outbound shipments help companies such as Wilhelmsen fill up their carriers on return trips.

American carmakers are expanding sales overseas as the industry rebounds from the worst downturn since the Great Depression and after government bailouts for General Motors Co. and Chrysler Group LLC. Ford Motor Co. said this month it will sell Mustangs in 110 countries, the most in the car’s almost 50-year history. Foreign manufacturers such as Bayerische Motoren Werke AG are also increasing exports from U.S. plants.

“It’s another signal that the U.S. auto industry is out of firefighting mode,” said Jeff Schuster, senior vice president of forecasting an LMC Automotive, a research company in Troy, Michigan. “There is an opportunity and an expectation for the shipping industry to see more activity out of this region.”

Sea Salt

Average rates for ships able to carry at most 6,500 cars will rise 4.1 percent to $25,500 a day next year, the highest since 2008, according to RS Platou Markets AS. Utilization will advance to a six-year high of 87 percent as demand increases 3.6 percent and the fleet expands 2.7 percent, the Oslo-based investment bank estimates.

U.S.-made cars bound for global markets typically are carried by truck or train to a port such as Baltimore, the largest transit point for vehicles, where they’re wrapped for protection from sea salt and loaded onto ships. Those cargoes help increase earnings for ships that just delivered cars to the U.S. from countries including Japan, the largest exporter. The U.S. exports account for about 4 percent of world trade, according to Clarkson Plc, the largest shipbroker.

“Any time that you can maximize utilization of a vessel in a trading pattern is going to increase profitability,” said Richard Heintzelman, executive vice president at Wallenius Wilhelmsen Logistics Americas in Woodcliff Lake, New Jersey. “The U.S. is a bright spot certainly from an exporting perspective.”

Better Balance

More balanced trade helps ship operators earn more and at the same time charge less for each car, according to Denny Carpenter, Ford (F:US)’s international vehicles logistics manager and vice president of Ford Trading Co.

Back in the 1990s, “Japan was the major source of export product, so a lot of vessels went back to Japan empty,” Carpenter said by telephone Dec. 13 from Dearborn, Michigan. “Now these ships have a better balance of cargo. It clearly allows the vessel operators to utilize their equipment more effectively, which helps to keep the prices down.”

Wilhelmsen group companies, together the largest operator, own carriers and hire more when demand increases. They operated 147 vessels as of July, or about 24 percent of the global fleet, according to the Lysaker, Norway-based company’s website. The biggest owners of car carriers are Nippon Yusen K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., all based in Tokyo. The companies also have oil tankers, container ships and dry-bulk carriers.

Net Income

Wilhelmsen’s net income will rise 7 percent to $282.1 million next year, according to the average of 11 analyst estimates compiled by Bloomberg. The shares rose 11 percent this year to 55 kroner and will reach 63.54 kroner in 12 months, the average of nine analyst estimates shows.

U.S. production of passenger cars and commercial vehicles jumped 19 percent to 10.3 million vehicles in 2012, the highest since 2007, according to data compiled by Bloomberg Industries. Ford is poised to earn a record profit in North America this year, and GM (GM:US)’s earnings in the region surged 28 percent during this year’s third quarter.

The U.S. government sold its last shares of GM this month, marking the end of an industry bailout that saved or avoided the loss of $105 billion in transfer payments and the loss of personal and social insurance tax collection in 2009 and 2010, according to the Center for Automotive Research.

Foreign carmakers also are increasing exports from the U.S. BMW, based in Munich, ships about 800 cars a day overseas, or 70 percent of its U.S. production, making it the country’s biggest car exporter by value, according to Kenn Sparks, a spokesman for the company. The BMW factory in Spartanburg, South Carolina, which opened in 1994, was the first international auto plant in the U.S. designed for world markets, he said.

Cloth Seats

Honda Motor Co. exported almost 95,000 cars from U.S. plants in the first 10 months of 2013, 23 percent more than in all of last year, said Ron Lietzke, a spokesman for the Tokyo-based automaker’s North American manufacturing unit. Models developed for and built in the U.S. are exported because they are popular in other countries, he said.

Carmakers are tweaking their lineups to appeal to foreign buyers. For the Middle East, Ford strengthened its air conditioners and is offering cloth seats instead of leather, according to Greg Scott, Ford’s product marketing manager for exports and growth. Sales of the company’s F-Series trucks in the region doubled since last year, he said.

Ford’s new Mustang will feature a sleeker design and the option of a smaller engine to appeal to buyers in countries with high gasoline prices. The updated sports car was introduced Dec. 5 in Barcelona, Shanghai and Sydney, as well as in New York, Los Angeles and Dearborn, where the company is based.

Developed Infrastructure

While other countries have lower labor costs, the U.S. benefits from developed infrastructure and nearby suppliers, Scott said. Having to fly in parts or pay more to move cars within a country adds up, he said.

“In a lot of cases, getting sourced out of North America is cheaper than other sources, even ones closer to market,” said Scott, who focuses on the Middle East, Africa, and some parts of Asia and Latin America. “For the markets that I support, we almost prefer sourcing out of North America because the logistics provide a competitive advantage.”

Chrysler, the U.S. automaker controlled by Italy’s Fiat SpA, is spending $500 million to expand its plant in Toledo, Ohio, to produce Jeeps for the U.S. and for overseas buyers including China, with the goal of selling 900,000 worldwide in 2014, Shawn Morgan, a spokesman, said in an e-mail.

Local Manufacturing

The surge in overseas sales may spur new plants abroad. U.S. carmakers also produce vehicles in Europe, Asia and South America. GM’s strategy is to “build where we sell,” Jim Cain, a spokesman, said in an e-mail. The company still exports when the volumes don’t justify local manufacturing, he said. GM exports about 25 percent of the 200,000 full-size SUVs its plant in Arlington, Texas, can build a year, mostly to the Middle East.

The industry is increasingly selling cars made in the same region. Toyota (7203) City, Japan-based Toyota Motor Corp., the world’s biggest manufacturer, made 19 percent of its cars in North America in the fiscal year that ended in March, up from 15 percent in 2010, data compiled by Bloomberg show. The trend could curb cargoes for car carriers.

Toyota exported 124,084 U.S.-built cars in 2012 and expects more this year, said Javier Moreno, a spokesman for the company’s North American unit.

Strengthening domestic demand also may cap U.S. exports. Americans bought cars at an annualized rate of 12.6 million vehicles in November, the highest since 2007, according to data compiled by Bloomberg. The U.S. auto market is poised for a fifth year of growth, for the second time since World War II.

Euro Area

Sales in Europe will probably decline 5 percent in 2013 and won’t recover for several more years, Platou estimates. The euro area’s economy will contract for a second year, shrinking 0.4 percent in 2013, before returning to growth next year, according to the average of 59 economist estimates compiled by Bloomberg.

Car carriers also face declining demand to transport mining and construction equipment, known in the industry as “high and heavy.” BHP Billiton Ltd. and Rio Tinto Group, the world’s largest mining companies, are cutting capital spending after metal prices fell. The Standard & Poor’s GSCI Spot Index of 24 commodities dropped 2.9 percent this year, heading for the first annual decline since 2008.

Rising Exports

Exports from the U.S., to countries other than Canada and Mexico, will rise 15 percent to 1.35 million vehicles next year and another 12 percent to 1.51 million cars in 2015, according to LMC Automotive. The U.S. imported 3.5 million cars last year, Clarkson estimates. World trade will expand 7 percent to a record 22.4 million cars in 2013, the London-based shipbroker’s estimates show.

“Usually car carriers go from Asia to Europe and then some out to the U.S., so if the U.S. starts exporting to Asia, it will be better for the balance,” said Tian Tollefsen, an analyst at SEB Enskilda in Oslo whose recommendations on the shares of shipping companies returned 7.5 percent in the past year. “This is very good news for car carriers.”

To contact the reporter on this story: Isaac Arnsdorf in New York at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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