Global News Red-hot ocean carrier profits face cooling volumes

The container shipping industry is enjoying its highest-ever profitability after carriers banked record first-quarter earnings, but a new trade forecast shows a softening in global volumes that will continue into next year.

Global Trade Analytics Suite (GTAS), a product within S&P Global, the parent company of JOC.com, has forecast that global container volumes in 2022 will decline 1.7 percent year over year to 165.4 million TEU. In absolute volume numbers, it is a steep drop from the 168.2 million TEU transported in 2021 when the year-over-year growth reached 7.9 percent.

A slowdown in global volumes can also be seen in the retrospective view of the market from Container Trades Statistics (CTS), which shows volumes this year through April down 3.6 percent from the same period a year ago. After rising 1.4 percent in January, global volumes fell for the next three months, plunging 9 percent in April alone.

Niels Rasmussen, chief shipping analyst at maritime trade association BIMCO, said signs of weakening volumes were becoming more apparent, especially in Europe, as the global economy slowed. The International Monetary Fund (IMF) in April lowered its January forecast for global GDP growth from 4.4 percent to 3.6 percent for 2022 and from 3.8 percent to 3.6 percent for 2023.

“In the Europe and the Mediterranean region, consumers have reported the second-lowest confidence level on record,” Rasmussen noted. “As in the US, retail sales have remained remarkably steady from April 2021 to March 2022. It does, however, seem reasonable to expect that the low consumer confidence level will eventually hurt retail sales, especially if or when interest rates also increase.”

The US Federal Reserve this week hiked interest rates 0.75 percent, the biggest upward move it has made during a single meeting in 28 years. US inflation has risen to its highest level since the 1980s.

While there is a slowing of container volumes overall, US imports from Asia set a new monthly record in May, according to data from PIERS, a JOC.com sister company within S&P Global. Asian imports totaled almost 1.74 million TEU last month, up 5.7 percent year over year and a huge 25.1 percent jump from pre-pandemic May 2019.

North European import volumes from China are heading in the opposite direction. May figures for China-North Europe volumes are not yet available, but in the first four months of the year, volume declined 3.8 percent to 2.53 million TEU, CTS data shows. The drop can be partly blamed on the two-month Shanghai COVID-19 lockdowns, with May data likely to reveal a clearer picture of European import demand. Volumes ease, but no slowdown in profits For now, however, carriers are surfing a tsunami of profitability. In the first quarter, elevated rate levels across the major trade lanes saw carriers report combined earnings before interest and taxes (EBIT) of $43.93 billion, higher than the combined Q1 EBIT of the last 11 years, according to Sea-Intelligence Maritime Analysis.

The high rates through the first quarter saw HMM and Zim Integrated Shipping Services record the highest EBIT per TEU of over $2,600/TEU, followed by CMA CGM, ONE, and Hapag-Lloyd in the $1,400 to $1,900 /TEU range, and Maersk and Cosco Shipping in the $1,000 to $1,200/TEU range, Alan Murphy, CEO of Sea-Intelligence, wrote in his latest Sunday Spotlight newsletter.

“Putting it into perspective, even in Q1 2021, no carrier had recorded an EBIT per TEU of over $1,000, whereas in the previous decade, the highest EBIT per TEU was $213, and that was back in 2010,” Murphy noted.

Following the first-quarter earnings announcements, the CEOs of several major carriers told analysts their profitability for 2022 and beyond has been locked in through long-term contracts already signed at significant premiums, despite falling prices on both the trans-Pacific and Asia-Europe trade lanes.

Spot rates on the Asia-US West Coast trade fell below contract rates at the beginning of June, although the rate of $7,517 per FEU is still up 17 percent year over year, according to rate benchmarking platform Xeneta. The long-term rate of 90 days of more of $7,852/FEU is 45 percent higher than the same week last year.

Spot rates on the Asia-North Europe trade are down 30 percent since January to $5,942/TEU, but the rate is still slightly above the year-over-year level, Xeneta data shows. Contract rates on Asia-North Europe are not far behind the spot market at an average of $5,531/ TEU.

The carrier executives also dismissed suggestions from analysts that rate levels could tumble as the record 6.6 million TEU of capacity on order, or 26.7 percent of the existing fleet, was delivered over the next two years.