Archive for July, 2015

Rough Seas Still Ahead for Shipping Companies and Containers

Moody’s Japan K.K recently issued a stable outlook for the global shipping industry over the next 12-18 months. The forecast calls for moderate EBITDA in the range of 5%-7%; however, this growth is mainly reflected in cost cutting by shipping companies as opposed to a growth in demand. Moody’s continues to forecast supply for the dry bulk segment of shipping to outpace demand growth through 2016. The oversupply will keep freight rates low over the next 12-18 months and strain revenue and EBITDA growth.

Container scrapping rates were lower than forecasted in 2014.  2015’s expected deliveries of 1.75 million TEU’s will further exacerbate current industry overcapacity and expected scrapping rates are even below 2014’s figures.  The main driver was the fall in scrap prices over 2014, forcing companies to hold back on scrapping activities until prices rise. Consequently, this pushed the growth rate in overall container supply to 6.2% for 2014, compared to the originally forecasted 5.2%. We expect this issue to negatively affect shipping container valuations for at least the next few years until 2017-2018.

Tire Recycling – A Global Business

The overall market for shredded tire products is rather volatile but global in size. China, the largest market, uses recycled tire chips for fuel.  The market is moving more towards 2” chip size and “crumb rubber” products.  Bulk baled tires that were once shipped to Asian customers are falling out of favor as these areas have limited capacity to process the bulk bales.  Shipping rates, demand for road materials (rubberized asphalt) and political or environmental mandates are just a few of the factors that affect supply and demand for product.  Other significant markets include North and South America, Japan and Australia. 

The more diversified a tire processor can be, the better able they can compete in the global market. The ability to control particle size and separate materials (i.e. metals, ribbons) and deliver a purer and finer product will enhance their position in this fickle global market.

Ethnic Food Manufacturing is Booming

We’ve recently completed several appraisal projects involving specialty and ethnic food manufacturing operations.  I must say business is booming for these companies.  Specialty ethnic foods – particularly in Asian and Hispanic segments, have seen tremendous growth over the past 20 years.  There are now over 18,000 ethnic supermarkets in the U.S. that will generate $29 billion in sales in 2015 alone. Growth in ethnic food sales between 2015-2020 is expected to increase another 20%.  Even more interesting is that despite increases in immigration from Asian and Hispanic populations, the largest growth in demand is forecasted to come from an increase in interest from the general population.  Unique to the industry is the often specialized machinery used to produce egg rolls, wraps, dumplings and other assorted fare.  Often these equipment suppliers have limited U.S. representation but a growing installed customer base should force them to open domestic sales and support offices.  Our experience in this industry has grown exponentially and we expect to see more of these assignments in the future.