Shipping company profits at full throttle as trade chaos shows few signs of slowing
Container shipping lines are poised for another bumper year of revenue as supply chain grunts show little sign of abating, much to the chagrin of nearly everyone.
Operationally, the shipping crisis has been a disaster for the carriers that underpin global trade: Schedule reliability hit an all-time high of 32% in December, with ships arriving on average over a week later than expected, according to Sea-Intelligence, a consultancy. .
This has caused pain for importers and exporters who are paying more than ever to wait longer for finished goods and parts, but the congestion has done wonders for the profitability and bottom lines of the container shipping industry.
The perennial question occupying the industry – and the global economy – is whether the shipping disruption has peaked and how long the journey to something more functional will take.
Lars Jensen, chief executive of consultancy Vespucci Maritime, says the supply chain storm is about to come to a head – barring any setbacks ranging from coronavirus outbreaks in China to cybersecurity attacks against critical infrastructure.
“It seems to me that we are reaching the peak of congestion,” he said. “It’s hard to see the situation getting worse in North America and Europe.”
The Chinese New Year usually brings respite to industry as factories run out of tools and demand for freight transport across oceans experiences a seasonal decline.
But Jeremy Nixon, chief executive of Ocean Network Express, one of the world’s largest container shipping companies, says carriers have not canceled or ‘masked’ sailings to ports this year, as they usually do in the weeks following the Lunar New Year.
The intention is to eliminate backlogs, he added, but even so the disruption could reach crisis levels for an extended period before any improvement is noticeable.
“We see a continuation of the same for at least the next three months, and the same in America for longer,” he said.
The lack of a discernible trend towards normality is supported by a new indicator, produced by Swiss logistics group Kuehne + Nagel. It shows the total time cargo ships wait to dock at major ports around the world taking into account their size. For example, a vessel capable of carrying 10,000 20-foot boxes, or equivalent units (TEUs), on standby for three days counts as 30,000 TEU standby days. On Thursday, the global total reached 12.5 million TEU wait days.
“Normal is when a container ship arrives at the terminal and does not wait. Right now it’s like waiting three or four hours for the gate once the plane has landed,” said Otto Schacht, executive vice president of marine logistics at Kuehne + Nagel. “Normal would be less than 1 million TEU waiting days.”
Continued turmoil on global trade routes is one factor fueling analyst forecasts that carriers could make more profits than they did in 2021. Another factor is falling higher rates of the spot market in long-term freight contracts, which are currently being negotiated. .
Spot freight market rates for shipping a 40ft container from Asia to Europe have risen from $1,450 before the pandemic to $14,700, according to Xeneta, an Oslo-based shipping data company. The increase led contracts that cover cargo volumes for a quarter, a year or two years to nearly triple to $9,300 from $3,400 last year.
Parash Jain, head of shipping at HSBC, estimates that container shipping companies will make $163 billion in operating profit in 2022, an increase of 8% from last year. This will be “primarily driven by strong tailwinds in contract rates,” he says.
However, this week the IMF downgraded the economic outlook for the United States and China due to multiple challenges including inflation and record debt levels, heightening uncertainty over continued strength. consumer demand for goods. A deterioration in the macroeconomic outlook would be a double-edged sword for the cyclical industry.
“Slower demand is what it takes for the overall traffic jam to relax and be less stressed. But it’s also a warning sign,” said Xeneta analyst Peter Sand.
“At first it will be well received by many industry players, but then we are looking at late 2023 and 2024 when carriers add many ships to their networks.”
Cartography by Steve Bernard