In just three years, container shipping was as profitable as it has been in the last 60 years.
Boosted by post-pandemic post-pandemic demand, shipping groups have reached levels of profitability few dreamed of in a notoriously volatile sector.
Mediterranean shipping companies and container shipping groups from APMøller Maersk to his CMA CGM and Hapag-Lloyd are experiencing a ‘unique’ market boom.
“It’s exhilarating to make the money they’ve made in the last two years,” said Simon Heaney, senior manager of the marine research group Drewry.
The industry’s profits for 2021-2023 is projected to match the amount earned between the 1950s when it was first built too 2020.
Rolf Haben Janssen, CEO of Hapak-Lloyd, the German airline with the fifth largest capacity in the industry, said, “However, the container shipping cycle appears to have peaked.”
Port congestion is still high around the world, which is pushing up prices and improving profits, with ports such as Felixstowe in the UK going on strike. Analysts believe, however, that fares will fall by about a third and profitability will decline over the next year.
Add to this the fear of very high inflation and the possibility of a recession in many Western countries. So how would an industry accustomed to boom-bust cycles react and deal with it? Could container shipping lines have taken full advantage of the boom and prepared for worse? ?
Container shipping companies are the main players in globalization, transporting goods across oceans, from shoes to food, especially from producers in Asia to consumers in Europe and the United States.
After the first wave of Covid-19 in 2020, container shipping groups and consumer goods companies were surprised by a strong rebound in spending, especially online.
Drewry estimates that industry-wide operating income will be just $7 billion in 2019 and $26 billion in 2020. But in 2021, he expects operating profits to surge to $210 billion and reach $270 billion this year as businesses pay unprecedented prices to get the goods they need. It has been.
“I hope we never have another pandemic like this in my lifetime. It was a dramatic time. We look forward to a more normalized world. We believe we could have used this time to build a much better business,” said Maersk Chief Executive Officer Søren Skou.
Airlines have used record profits to repair their balance sheets, many of which have deteriorated even after his 2008-09 global financial crisis ended high levels of growth. I was.
In 2020, many airlines’ balance sheets were still classified as “deficit,” Heaney said, but now nearly all are “green” and healthy.
Many of the larger groups in the big three, including MSC, Maersk and CMA CGM, hope to use rising profits to dig deeper into logistics and provide the right balance for their more volatile shipping business. is.
Maersk has made a number of land-based acquisitions, including in December it acquired Li & Fung’s contract logistics business in Asia for $3.6 billion.
Sales in the logistics business are only about one-fifth that of the container business, but he has more than doubled in the last two years.
Shareholders are also benefiting from the boom, with exceptional dividends and buybacks from some of the publicly traded companies. “Shareholders have survived a decade of crisis by investing their money and are now being rewarded,” Jansen said.
Most importantly, using record earnings to buy more ships could hurt shipping groups’ performance during a downturn. Ships typically take two to three years to be delivered. That means many ships are expected to arrive in vastly different economic conditions, a typical bane of the industry.
Order vessel capacity compared to current capacity at sea has risen to 28% from a low of 8% in 2020, according to data specialist Alphaliner.
“Airlines will regret adding capacity this year,” Heaney said. “If a recession comes and container demand falls much faster than expected, it will speed up port recovery and free up capacity. ‘ said.
Jansen said he “hopes” that container shipping companies will be more rational in this downturn than they have been in the past, but admitted he wasn’t sure. “This industry is always cyclical. I don’t think that will change,” he added.
One of his differences from previous recessions is that the industry has become more integrated, with the largest players growing in size and part of networks with other airlines, so they are pulling capacity together.
Jansen said Hapag-Lloyd was focused early on in the pandemic as he was losing $7 million in revenue per day.
“Maybe it makes you more conservative because you know it hits harder when things go wrong. The magnitude of these numbers will probably make us move a little faster,” he added.
Copenhagen is particularly concerned about Europe, where consumer confidence is low, war continues in Ukraine and imports are returning to pre-pandemic levels.
Still, Maersk’s chief executive is relatively optimistic, expecting chronic congestion in his chain of supplies to ease later this year.
“We don’t see a hard landing for Maersk. If demand drops sharply, we will have to adjust capacity. ..I know how to behave in traffic jam situations.” “For global container shipping, it is not the number of ships that matters, but how much capacity is deployed relative to demand.”
He locks in higher freight rates as more customers sign up for long-term contracts, and forays into logistics are helping to “replace” some of the revenue that may have been lost in shipping. pointed out.
Carriers also have the tools to reduce capacity by scrapping or decommissioning vessels, delaying deliveries of new buildings, or canceling voyages.
There have been zero ship breakdowns in recent years as shipping companies put all their ships into service, but more ship break downs are likely as new environmental standards come into force.
However, there is little certainty, especially in an industry with an irrational trading tradition. Heaney said Drewry analysts were divided on whether this time would be different.
“It’s pessimistic that airline behavior has completely changed,” he said.”The airlines are better prepared than they were before. The odds are better than ever.”
Industry and analysts are predicting a gradual normalization for the foreseeable future.Revenue next year may be lower, but it’s still well above pre-pandemic levels. Supply chain issues provide support even as freight rates and volumes decline.
But the danger is that sudden economic slowdowns in developed countries will lead to sharp reversals, opening up supply chains and ports sooner than expected.subside.
“It’s the beginning of the end [of the boom],but it won’t happen overnight,”Heaney said. There are no guarantees at this time.”
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