According to a new report from container veteran John McCown, who heads Blue Alpha Capital, second-quarter results for global shipping topped what has never been reported by any company in the historically low-margin transportation industry.
Seven individual container shipping companies posted Q2 net profit higher than UPS, still the world’s most profitable shipping company, with those carriers actually more than twice as big on average as the US logistics giant.
The combined net income of UPS, Fedex, Union Pacific and JB Hunt in the second quarter was $5.5 billion, or just 8.6% of container shipping industry revenue. Collectively, the net profit on revenue margin of these major US shipping companies was 9.2% in the second quarter of 2022, barely one-fifth of the actual container shipping margin.
Comparing the liners with the FANG quartet – namely tech giants Facebook, Amazon, Netflix and Google – also highlights the rarefied atmosphere that container shipping has entered over the past year.
People who focus on spot rates and predict a short-term earnings crash are substituting narrative for analysis
Container shipping industry profits were 14% higher than FANG’s total profits in the fourth quarter of last year, 103% higher than FANG’s first quarter profits and 145% higher in the second quarter. In addition, the container shipping industry’s net profit to revenue margin of 46.1% in the second quarter was four times higher than FANG’s overall margin and still nearly double if the low margin of Amazon is excluded.
McCown compiled the results for 11 global liner operators that publish financial reports, which account for almost two-thirds of total capacity, while assuming that other non-reporting operators had similar results per teu to expand the overall results of the container industry.
McCown argued that too much attention had been paid by analysts and the media this year to the decline in the cash market, which he said accounted for just 10% of boxes shipped. Contract rates remain massively high and that’s why McCown forecasts liner shipping to achieve a cumulative net profit of $244.9 billion for the full year 2022, a remarkable improvement of 65, 2% compared to the record results of 2021.
We may be at or near the top, but no earnings crash is imminent
“People who focus on spot rates and predict a short-term earnings crash are substituting narrative for analysis and will be wrong. We may be at or near the top, but no earnings crash is imminent,” McCown wrote.
A key tool to watch out for, according to McCown, are masked sails. “Look for this to be a key driver of industry performance for the remainder of 2022 and the years beyond,” McCown predicted.
Data from Container Trades Statistics (CTS) shows global container volumes were down 1.6% in the second quarter compared to the same quarter last year, continuing a downward trend from declining volumes 1.2% in the first quarter.
Many other analysts are cautious about the liner’s outlook. The spikes in demand seen during the pandemic that propelled container shipping to record revenues are now a thing of the past, according to recent analysis by Copenhagen-based Sea-Intelligence.
Sea-Intelligence has calculated supply and demand numbers in the age of covid, and its findings add to the growing consensus that volumes are falling, and that’s just chain chaos. supply, such as port congestion, which helps support tariffs.
Global demand was consistently 10% above capacity from November 2020 to January 2022, according to Sea-Intelligence.
However, the gap has narrowed and the most recent data from June shows a 2% deviation from pre-pandemic levels.
“Overall, what the data shows is that the extreme spikes in freight rates in 2021 were indeed due to a situation where demand suddenly exceeded capacity globally – but one can also clearly see that it was an effect primarily due to unavailability of capacity,” argued Sea-Intelligence.
The recent trend towards standardization has also been driven primarily by incremental improvements in schedule reliability and vessel delays, Sea-Intelligence suggested, predicting that the supply/demand balance will continue to fall and freight rates will rise. on the decline. pressure.
Sea-Intelligence warned yesterday that trends on the transpacific should worry carriers.
Long rates are starting to follow the spot market trend
“Currently, the forecasted capacity deployed across both Asia-North America trades for the coming weeks is significantly higher Y/Y, which will likely exceed even the most generous demand growth assumptions. If this level of capacity deployment is maintained, utilization levels are expected to decline further, leading to downward pressure on freight rates,” Sea-Intelligence said in its latest report.
The Shanghai Containerized Freight Index (SCFI) spot freight rate index stood at 2,848 points on September 2, down 10% week-on-week and now down 44% from at the peak of early 2022, though still more than three times higher than the 2019 average. Fares on the Shanghai-US West Coast route fell more than 20% week-on-week to $3,959 per light.
As long-term box freight rates continue to climb, they are finally showing signs of pressure.
Data from online platform Xeneta shows that long-term rates rose 4.1% in August, 121.2% more than the same period last year.
Nevertheless, there are signs that the new long-term contract rates are actually starting to fall on the main trade corridors. However, as they replace expiring agreements with significantly lower rates, the average paid by all shippers continues to increase.
“Volumes are falling and, as expected, long-term rates are starting to follow the spot market trend,” Xeneta CEO Patrik Berglund commented last week.
Unveiling record quarterly results on Friday, Rodolphe Saadé, Chairman and CEO of CMA CGM, became the latest high-level executive to highlight the changing fortunes in container traffic.
“The global decline in consumer spending, which was already noticeable this summer, will lead to more normal international trading conditions in the second half of the year as well as lower maritime demand,” Saadé said.