The world’s most extensive container lines are on track to post profits in 2022, peaking at 73% in last year’s record, according to a new forecast, buoyed by logistics and labor stress squeezing capacity amid continued demand for imports.
Net income is expected to reach $256 billion this year based on 11 carriers overseen by Industry veteran John McCown, founder of Blue Alpha Capital. That increase of $36 billion from their previous estimate in April is equivalent to Portugal’s gross domestic product. Last year, the figure reached an all-time high of $148 billion, according to McConn.
“This profit increase is being driven by a steady increase in the rates of contracts that cover most of the burden that actually hovers over ships,” he said in an email, adding that, despite the drop in spot rates throughout the year, they represent a small portion of the overall marine freight costs.
Two years of economic disruptions have transformed an industry that has transformed nearly 80 percent of the global commodity trade from losing perennial money to one of the most surprising financial successes of the pandemic. Some people are investing cash flow in new vessels with cleaner-burning engines and more digital links with land-based computer networks.
The twist of fortunes, however, is fuelling critics beyond consumers of maritime noir as inflation grips economies from Australia to Germany and politicians seek scapegoats. Some governments are increasing their scrutiny of the profits of shipping companies to the rescue of logistics workers whose livelihoods are not seeing the same lift.
In the UK, dockworkers at the country’s busiest container port are unhappy with the wage benefits that are driving inflation, so they are threatening to strike later this month.
On the West Coast of the U.S., the leaders of the Longshoremen’s Union began ongoing contract negotiations in May, blaming “foreign-owned, billion-dollar shipping companies that troubled American industries by charging them 10 times the normal shipping rates and contributing to the rise in inflation.”
As economies around the world slow down in the third year of the pandemic and shipping problems worsened by Russia’s war in Ukraine, rising profits for container carriers were expected to slow down. But they are proving to be more resilient than they have been in recent history, where they have become victims of a boom-and-bust cycle.
McConn has been raising his outlook after a series of better-than-expected results for the second quarter were announced by some of the biggest shipping companies — the most recent of which was Taiwan’s Evergreen Marine Corp on Friday.
Copenhagen-based A.P. Moller-Maersk A/S, the No. 2 player, said earlier this month that it expects a record profit of $31 billion in 2022. Fifth-ranked Hapag-Lloyd AG announced the improvement that it now competes with Volkswagen AG as Germany’s most profitable company.
The windfall comes despite a nearly 30 percent drop in the spot shipping rate tracked by Drury since the beginning of the year. That’s because only 10% of marine noir travels under spot-market conditions — the rest of the move runs based on an agreement between the carrier and the cargo shipper that spells out rates and volumes for a year or more, according to McConn.
In McCown’s analysis, the overall container-shipping price in the second quarter was 2.84 times higher than the level two years ago. The average spot rate was 4.72 times higher, while the contract rate increased by 2.13 times.
Maersk said on August 3 that this year’s average contract rate is expected to be $1,900 for a 40-foot container, an increase of $500 from its expectation at the end of the first quarter.
According to a report by UK-based Container Trade Statistics on Monday, “The financial results published by Shipping Lines show the impact of customers securing their supply chains by negotiating long-term contracts.” “The fear of crowding in the supply chain has meant that corporates have chosen to play safe rather than risk the spot market.”
The container industry, where nine of the largest companies are concentrated in three alliances that share capacity on ships, has also seen more pressure from governments to charge sky-rocketing rates while doing a service where on-time deliveries tracked by Sea-Intelligence hover at 40%.
In July, France’s National Assembly rejected a tax on windfall profits targeting energy and transport companies.
Ahead of the vote, Marseille-based CMA CGM SA — the world’s third-largest container line — increased the rebate from 500 euros to 750 euros ($765) for shipments from Asia to France and added exemptions on exports amid government pressure to contain inflation on household goods.
In the U.S., President Joe Biden has blasted container carriers — the largest of which are located in Asia and Europe. In June, he signed the Ocean Shipping Reform Act, a law passed with bipartisan support, directing the Federal Maritime Commission to restrain carriers from unfairly refusing to fill open cargo space with U.S. exports and from investigating late fees charged by container lines.
