Profits continue but the container market may be turning

The stream of dazzling container shipping results continued last week, with Yang Ming, Evergreen and HMM all reporting leaps in revenue and profits for the first quarter of 2022. Yang Ming saw operating profits increase by 148% year-on-year, whilst HMM saw a 100% increase in net profits.

Yet there are signs of a slowdown in the container shipping market. Publishing his own company’s impressive results last week, Rolf Habben Jansen, CEO of Hapag-Lloyd, commented that whilst the Hamburg-based line’s first quarter had “got off to an exceptionally strong start…there have been first signs that the market has passed its peak”. Hapag Lloyd’s results were not just impressive, they were informative. Despite the shipping line carrying only 0.4% more container volume as compared to Q1 2021, revenues almost doubled and EBITDA (Earnings Before Interest, Depreciation and Amortisation) leapt by US$3.397bn to US$5.307bn. The EBIT (Earnings Before Interest and Tax) margin was 53%, up from 31% in the same period last year. Of course, the key to the profit increase was the 83.9% increase in the freight rate.

What has been sustaining these high rates has not been overall higher demand but congestion. This congestion has been fuelled by the imbalance between US consumer demand and demand in much of the rest of the world. The state of the imbalance here is equivocal. Certainly, spending by individuals in the US is not collapsing. Inflation may be high, with price increases of gasoline having the largest impact, but employment levels are also high. This has resulted in the various trackers of consumer sentiment pointing in different directions. For example, the US-based ‘Conference Board’ index of consumer confidence edged down from 107.6 in March to 107.3 in April, yet actual spending in the US during April rose although it appears that there is a continuing drift toward services at the expense of durables.

The predictability of the picture is made even more opaque by the chaos in China. The impact of COVID policies on both production and logistics in Shanghai has been getting increasingly severe over the past couple of weeks despite the situation becoming less severe. The possibility is that a sudden burst of activity could send a wave of containers into major western terminal complexes. On the other hand, if production out of China remains suppressed it could drive down production elsewhere in the world.

For the medium-term, the container ship order book is looking evermore full, with 7m tonnes of new ships in the pipeline, implying a major shift in demand and supply of container shipping services could be getting closer.

Therefore, at present, the prospect for container freight rates and related logistics prices is still unpredictable, with a strong likelihood of continuing volatility, but the direction of travel seems to be markedly downwards. This marks a change in the market dynamics over the past year.

Download Ti’s Global Ocean Freight Rates Tracker for Q2 2022 for an in-depth look at the key data driving rate development in global ocean freight, covering major transpacific, transatlantic and Asia-Europe lanes. 

Source: Transport Intelligence, 17th May 2022

Author: Thomas Cullen