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Supply Chain News: Good Times to Continue for Container Carriers, Drewry Predicts, with Rates Headed Still Higher

 

Carrier Profits in Two Years more than They could have Hoped for in a Decade

 

 

July 6, 2021
SCDigest Editorial Staff

2021 will be another highly profitable year for ocean container carriers, with clear financial sailing until at least 2023.

Supply Chain Digest Says...

 

Drewry also expects port throughput issues to continue into 2020, adding to cycle times and also putting upward pressure on rates

 
 

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So says the maritime analysts at Drewry, in some notes accompanying the release of its st atet“Container Forecaster” report.

Drewry estimates total industry profits will near $100 billion for the first time in 2021, with rates up some 50% from 2020. Carriers posted a record EBIT results in Q1 of $27.1 billion, up from what now looks a miniscule $1.6 billion in same period one year ago.

“Port congestion and equipment availability challenges have not gone away and continue to drive market prices,” Drewry says, adding that “What is different from three months ago is that some of the numbers are much bigger.”

Drewry expects container volumes to continue to rise through the peak season and to return to growth rates of more like 5%, as strong as consumer spending is expected to move back more towards services as Covid-related restrictions are lifted.

And both 2021 and 2022 will see container shipping capacity increase at lower rates than volume growth, putting more upward pressure on rates.

“Cautious new-build contracting of recent years means that we expect the cellular fleet to only increase by 4.2% this year and 2.8% in 2022, in both cases significantly below that of world port throughput projections,” Drewry says

But, as we have reported (see Led by MSC, Ocean Container Lines Back to Adding Lot of Capacity), that asset discipline seems to be gone amid a mass of new ships ordered this year.

Drewry notes that in less than six full months this year’s new ship orders are already close to the record 2.7 million TEU of capacity contracted in all of 2007.That includes Germany’s Hapag-Lloyd order 12 new megaships of 23,500 TEU capacity each, among the largest ships on the sea.


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That ordering spree may come back to haunt the carriers in 2023 when the new ships start being put into service, posing a risk of overcapacity returning to the market during that year.

However, Drewry notes that future supply requirements are heavily clouded by new environment regulations due to become law at the start of 2023. Those new rules could result in significant chunks of the containership fleet sailing at lower speeds in order to comply.

Drewry also expects port throughput issues to continue into 2020, adding to cycle times and also putting upward pressure on rates.

As can be seen in the chart below, port productivity was 11% below 2019 levels In 2020, and is expected to be down 16% in 2021.


Source: Drewry


In closing, Drewry says “Even if carriers do revert to type and the current new-build craze ends the upcycle in 2023, they will have made so much money between 2020-22 that they will be set up for years to come. They could potentially make as much profit in this window as they could have hoped in a decade, or more.”


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