The year is nearly a third over, and with each passing month, shipping companies seem more likely to pocket even more money in 2022 than they did in record 2021.
New data and commentary released Tuesday by shipping company Maersk, freight forwarder Kuehne + Nagel and consulting firm Drewry underscores just how profitable this year is for shipping carriers – and how expensive it is for importers.
Drewry’s baseline forecast now projects that shipping companies as a group will earn $300 billion in 2022. That’s a 40% increase from last year’s $214 billion. He expects average full-year freight rates, including spot and contract rates, to rise 39-40% year-over-year.
“Recent events have not fundamentally changed our outlook,” said Simon Heaney, senior director of container research at Drewry, referring to COVID lockdowns in China and the Russian-Ukrainian war.
“Risks are much more heavily tilted to the downside from a carrier perspective, but we still believe this year will be characterized by extreme freight rates and carrier profitability.”
Guiding Carrier Hikes…Again
Maersk, the world’s second-largest shipping carrier, reported first-quarter 2022 results on Tuesday. It reported earnings before interest, taxes, depreciation and amortization of $9.2 billion, easily surpassing the previous fourth-quarter record. 2021 of $7.99 billion.
Despite all the market talk of moderating rates, Maersk earned $4,552 per forty foot equivalent unit in the first quarter, its highest quarterly average on record. This is up 71% over one year and 13.5% compared to the fourth quarter.
Volume decreased to 2,996,460 FEU, down 7% year-on-year and 8% from the fourth quarter.
Maersk already has visibility into the second quarter of 2022. It said market strength will continue through the current quarter and noted it has higher long-term contract coverage in the second half. As a result, it raised its full-year 2022 guidance to $30 billion in EBITDA, well above its previous guidance of $24 billion.
If he achieves this goal, he will earn 25% more this year than last year. And Maersk has a long history of guide setting too low and leveling repeatedly. For Maersk to earn just $30 billion this year, spot rates would have to fall sharply from this summer. “Current guidance is still based on an assumption of normalization in the ocean [shipping] at the start of the second half,” he said.
Maersk’s latest forecast also assumes that global container demand will only be in the range of -1% to +1% year on year, down from its previous estimate of +2 to +4%.
K+N: ‘Consumption is still robust’
Maersk’s views on demand, rates and earnings are at the bearish end of the range.
“Consumption is still robust,” Detlef Trefzger, CEO of Kuehne+Nagel, the world’s second-largest freight forwarder, said on his company’s conference call on Tuesday.
“Consumer behavior has changed,” he added. Merchandise feeds pass home, garden and fitness items (“we’ve seen so many sneakers shipped to the US that you’ve all had to buy 10 new pairs each in the past two years”) to goods used by service businesses such as restaurants and hair salons. “There is a different commodity structure in our network, which we believe is healthy and sustainable.”
Regarding freight rates, Trefzger commented, “Yes, they are down slightly. But we have to remember that they are still five times higher than before COVID. You probably won’t see freight rates at the levels seen in 2018 or 2019 [for the rest of] this decade.
K+N released results for the first quarter of 2022 showing a very similar trend to Maersk: rates rose and volumes fell.
Its first-quarter 2022 EBITDA was 1.306 billion Swiss francs ($1.36 billion), flat from the fourth quarter of 2021 and up 114% year-on-year. Ocean volumes totaled 1,148,000 twenty-foot equivalents, down 3% from the fourth quarter and down 8.5% year-on-year.
But its gross profit per shipping container rose to $966 per TEU, up 32% from the fourth quarter and 111% year-on-year.
Chinese exports down 15%
The “twin threats” to shipping carriers, Heaney said, are China’s COVID lockdowns and the Russian-Ukrainian war. “Both have the potential to create a kind of firewall in container demand and accelerate supply chain recovery,” he said.
Trefzger said Chinese exports have fallen 15% in the past two weeks due to Shanghai’s lockdown.
“We have traffic jams in the biggest port in the world, which is Shanghai, but we don’t have traffic jams in China. We have ongoing trade” from the country, he said, noting that cargo is being re-routed through other Chinese ports.
When export flows resume out of the affected areas, “we must not underestimate the power of China and the reincarnation of trade,” Trefzger said. He expects Chinese export volumes to return to pre-lockdown levels “within weeks” of the easing of lockdowns, causing “volume to increase”.
According to Heaney, “When it comes to profitability, what carriers are most concerned about is the COVID disruption in China and whether it will be felt most in ports and terminals, or in factories.
“COVID has been exceptionally good for the profitability of carriers. Because the main side effect has been to create shortages in virtually every link in the freight transport network at a time of very high demand.
“But any factory shutdown or slowdown in China is really bad news for carriers. It would forcibly stifle demand for their services and potentially fix some of the capacity shortage issues we’ve had for a few years,” he said. -he declares.
“The sweet spot for carriers is that logistics congestion is bad, but not so bad that it interrupts the flow of goods out of factories.”
“The party should go on” for shipping companies
If the congestion doesn’t ease over the next few months and spot rates don’t come down fast enough, Maersk should revise its annual forecast. Still.
The congestion doesn’t seem to be going away. Trefzger said K+N’s “disruption indicator” shows congestion is on the rise again globally. Heaney said Drewry’s congestion indicator shows growing delays.
“The main drivers of freight rates and therefore carrier profits have been container system inefficiencies, port disruptions and congestion,” Heaney explained.
“These factors are now integrated into the market. They have relegated the other more traditional factors of supply and demand and cost to the margins. Ultimately, the ability of carriers to charge customers extremely high freight rates will be dictated by the longevity of supply chain bottlenecks.
While container demand growth could slow — Drewry estimates this year’s growth at 4.1%, well above Maersk’s estimate — that’s not enough to address congestion, Heaney said.
“It is entirely possible that freight rates will remain extremely high at the same time as aggregate demand growth slows. As long as there is some form of growth and a sharp contraction can be avoided, the party should continue for carriers.
“If ports and terminals and the wider supply chain infrastructure are unable to cope with current volumes, hoarding even more, even if it is a small amount, will not help reduce congestion. We need a contraction in demand for that to happen.
Drewry had previously expected the market to normalize by the end of this year. Not anymore. He now thinks normalization “won’t happen until 2023,” Heaney said. “It’s going to mean another 12 months of long delays and high freight rates.”
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