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Global Supply Chain News: Ocean Carrier Profits to Tank in 2024, but Should Avoid Crushing Losses

 

 

Bank HSBC Sees 80 Percent Fall in Profits after Two Boon Years

 

Sept. 14, 2022
SCDigest Editorial Staff

Ocean container carriers enjoyed about 18 months of soaring, almost unbelievable rates from shortly after the start of the pandemic in late Q1 2020 through the start of 2022. In 2021, for example, container rates soared by about 10 times on Asia to US West coast sailings, peaking at over $20,000 in September.

Supply Chain Digest Says...

 

While all this is bad news for shareholders of the ocean carriers, it will be great news for ocean shippers after two year of sky high rates.

 
 

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Not surprisingly, those rates led to blow out profits for nearly all container lines. For example, AP Moller-Maersk, parent company of Maersk Line, now the second largest ocean container carrier by capacity, reported its most profitable quarter ever in Q1 of this year.

Moller-Maersk saw $19.3 in revenue, a 55% increase in Q1 versus 2021. EBITDA more than doubled to a record $9.1 billion and free cash flow increased to a huge $6 billion.

For the industry as a whole, in 2021 ocean carriers generated an enormous $190 billion of annual profits according to maritime research consultancy Drewry Shipping.

But in 2022, rates are crumbling, falling 60% from the start of the year for Asia to US West coast ports on average.

However, Parash Jain, the, a shipping sector analyst at bank HSBC, wrote in a recent research note that even after the recent swoon that a down cycle is “unavoidable” for container shipping in 2023-24, and that profits will fall by some 80%.

However, Jain adds that he does not expect carriers to fall all the way into steep losses in this downturn, as has happened repeatedly from about 2009 through 2019.

“There are signs that spot rates could fall to pre-pandemic levels swiftly on the widening demand-supply gap, but we maintain that contract rates should settle above their pre-pandemic levels and that capacity discipline will keep spot rates from lingering at trough levels,” Jain said.

HSBC says the deep slide in rates from current levels will be driven by a mismatch between container growth and the supply of new vessels – as has frequently been the case in recent years in the sector, as carriers once again have ordered many new megaships.


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HSBC projects global container trade will decline 2% in 2022 and 3% in 2023 before recovering by 2.5% in 2024. By contrast, vessel capacity will increase by 6.2% in 2022, and 6.5% and 8% in 2023 and 2024, respectively

HSBC said it expected the sector to bottom out in 2024.

While all this is bad news for shareholders of the ocean carriers, it will be great news for ocean shippers after two year of sky high rates.

What are your thoughts on HSBC's forecast? Let us know your thoughts at the Feedback section below.

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