Tuesday, October 13, 2020

Major Container Lines Make Hay Whilst the Pandemic Continues to Bite

Careful Restriction of Capacity by Alliances Sees Profits Steady
Shipping News Feature

WORLDWIDE – The tightrope which the world's largest container shipping companies have been balancing on of late seems to be a successful way to manage their share of what has been a particularly volatile time for the freight industry. So far that is.

Since the start of the Covid-19 pandemic container rates have risen steadily and the proof lies in the latest figures released by the carriers. Despite cries of woe at the start of the crisis that supply chains would collapse as trade dwindled, it would seem that the policy of rationing available capacity in the major markets has enabled the box lines to maximise their short term profits.

This week Maersk has changed its full-year guidance for 2020 based on preliminary Q3 figures and the current outlook for Q4. Despite casting doubts about future certainties due to the virus Søren Skou, CEO of A.P. Moller – Maersk, said:

“A.P. Moller - Maersk is on track to deliver a strong Q3 with solid earnings growth across all our businesses, in particular in Ocean and Logistics & Services. Volumes have rebounded faster than expected, our costs have remained well under control, freight rates have increased due to strong demand.

”The outlook for Q4 is solid for the same reasons, and we are therefore able to upgrade our expectations for the full year. The positive impact from stimulus packages may be less strong in 2021, potential new lock downs will impact demand and the timing and effectiveness of a potential vaccine will impact 2021.”

The major factor in these figures has been the ascendancy of the container alliances and the resultant consolidation as the box carriers have worked together to limit space which formerly they would have freely made available as they fought over the limited amounts of cargo, hence the ‘demand’ the Maersk boss speaks of. With the three largest aligned groups taking anything up to 80% of traffic on the most popular long sea routes profits were almost inevitable.

At the start of the pandemic spot rates declined but soon that situation was reversed as the contraction of available space became clear. Now rates are peaking as restocking accounts for much trade that was limited just a few months ago. With strong results from the likes of Hapag Lloyd and CMA CGM as well as Maersk the situation appears rosy, however things may change as fast as they improved for the carriers.

The US election looms large and the country’s continuing policy with regard to China will have an effect on the situation, particularly if a trade war ensues. Globally many companies are now looking to source product locally rather than taking the cheapest option no matter the shipping distance, and ocean freight rates play a substantial part in this, particularly if a slower but cheaper rail option is available.

Lower volumes then have not had the seemingly obvious impact on the container lines of lower profits, and in the current situation you picks your analyst and you takes your choice. Companies such as Fitch Ratings, Market Study and numerous others which make their money by predicting the markets, all have expressed opinions.

Certainly up to now the big boys in the trade seem to be doing better than other sectors. A look at a cross section of those involved in the logistics market by the DWF Group found 42% of those polled, a mix of transport and logistics providers, are unconcerned about the market’s ability to recover within two years (against 36% worried by it).

That survey revealed the biggest perceived influences on trade would be such as environmental regulations (42.5%) and those aforementioned geo-political tensions (42%) whilst cyber-crime concerns have faded to just 35.5% of worries, and meanwhile higher shipping rates and less capacity seems to have hardly rated a mention.

Photo: Image courtesy of Maersk Line.