LONDON: The Container shipping industry is set close the year with an operating profit of around $1.5 billion, driven by higher freight rates and rapidly growing cargo demand, according to Drewry Shipping Consultants.
The market rebound will reverse the heavy deficit incurred in 2016 and the losses booked by a majority of carriers in the first quarter of this year, the London-based consultancy forecasts.
“Exceptionally strong demand growth in first quarter 2017 and far higher annual contract rates will create even more profitable conditions for the remainder of the year than we had envisioned,” said Drewry.
Only five of the 13 carriers that published first quarter results made a profit, with a wide gap between the best performer CMA CGM, with a 5.5 percent operating margin, and the worst, Hyundai Merchant Marine, with a -10.1 percent margin.
“The disparate set of results is perhaps the most interesting takeaway from the first reporting season of the year, showcasing how despite claims the industry is increasingly becoming commoditized, there remain significant differences between companies in terms of scale, cost structures, trade coverage, customer base, and spot-contract ratios.”
“Over time, as the effects of mergers and acquisitions filter through, it is likely that we will see greater homogenization of operating margins.”
The current combined operating loss of $16 million in the first quarter compares favorably with the year earlier period when the aggregate deficit was close to $500 million “but is hardly a start to the year to make pulses race.”
“While we were expecting better for the first three months, our profit forecast already built in that the market recovery would only really push on from the second quarter onwards, when new contracts roll over.”
Carriers were hit by “old” contract rates in the first quarter, according to a survey of available freight rate information.
Many of the annual service contracts signed at historically low rates that ran from May 1, 2016, through April 30, 2017 were set to expire,
so beneficial cargo owners (BCOs) pushed some shipments forward before new, higher rates took effect on May 1.
As the May 1, 2017, deadline approached, “Many shippers tried to ship cargo before May,” a BCO said, indicating that BCOs got ahead of the higher rates, as carriers resisted extending the 2016 and 2017 contracts even for those BCOs who had not yet signed new contracts for the coming year.
Of the six carriers that provide revenue per TEU data, Maersk Line achieved the highest year-over-year increase of 4 percent.
This was despite spot freight rates being 35 percent higher in the first quarter, according to Drewry’s Global Freight Rate Index.
This will change in the second quarter as more of the higher-yielding contracts feed into carriers’ accounts, Drewry forecasts.