Volatility persists in the container shipping market, with carrier freight rates and profitability pointing up, but risks remain that could shorten the up cycle, analysts said in a Thursday Drewry webinar.
Simon Heaney, senior manager of container research at the independent maritime research consultancy, said pandemic-driven supply chain disruption continues to roil the market. He cited, for example, the ongoing bottleneck at the Port of Los Angeles, where the average delays for container ships processing through the docks have been stuck at more than a week since March and are only now starting to ease to a more manageable six-day delay.
A separate report from Richard Thompson, international director of supply chain and logistics solutions at JLL, said ocean carriers have been deploying more and larger vessels from China to the twin ports of Los Angeles-Long Beach, and the incoming volume has been overwhelming.
“Since November 2020, there have been at any time 20 to 40 container vessels anchored outside the SoCal ports, waiting for a berth as long as 10 days waiting for anyone of 13 terminals,” Thompson wrote. “Shortages of workers due to Covid-19, truck chassis, railcars and container boxes exasperate the situation.”
He noted that ocean carriers have started to deploy or re-route more vessels to alternative U.S. ports such as Oakland, Seattle-Tacoma, New York, Savannah and Charleston port gateways. He said Southern California container terminals have responded by opening more truck gates and expanding hours of operation, while ocean carriers have increased shipping rates to ration spare capacity, but this has not deterred importers desperate to meet demand.
“You don’t get this huge inflation in freight rates…without the extraordinary and temporary factors brought about by the pandemic, in terms of the shifting consumption habit toward goods and the ensuing supply chain disruption that’s taken capacity out of the market,” Heaney said. “We have to remember that these things will pass and there is a risk that when they do, the market could be in for something of a sobering reality check. But as things currently stand, we think the industry will be able to manage this transition to a new normal when the ripple effects of Covid finally wear off.”
Heaney said no supply-chain fix that balances supply and demand is expected until the fourth quarter at the earliest. He said a rush of new container ship orders poses an over-capacity risk in 2022 and beyond.
But Nilesh Tiwary, manager of Drewry Maritime Financial Research, detailed how the improved financial status of major carriers such as Maersk, CMA CGM and Cosco has improved greatly in the past year or so after significant consolidation over the past decade sparked mergers and acquisitions and bankruptcies in the sector.
For example, Maersk reported first quarter earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $4 billion from $1.5 billion year on year. Revenue rose 30 percent to $12.4 billion.
The company said the results reflected a 5.7 percent volume increase, significant increases in freight rates of 35 percent and lower bunker fuel prices.
“A strange paradox exists where the worse the supply chain [disruption], the more profitable carriers become,” Heaney said. “Cargo volumes are showing no signs of relenting, fueled by a worldwide economic recovery and a restocking cycle that has a long way to run.”
Heaney said the global container carrier freight rate will rise 23 percent in 2021, before falling back to 9 percent in 2021.
“Following a 1 percent decline in 2020, global port throughput is forecast to bounce back by nearly 9 percent in 2021,” Heaney said. “Port productivity and equipment availability are the primary drivers of freight rates.”
Drewry reported Thursday that its composite World Container Index increased 9.8 percent, or $489 for the week and was 278.4 percent higher than a year ago. The average composite index assessed by Drewry for year-to-date was $5,110 per 40-foot container if equivalent (FEU), which was $3,272 higher than the five-year average of $1,838 per FEU.
Freight rates on the Shanghai to Los Angeles trade route gained $808 to $5,211 per FEU and Shanghai-Rotterdam rates rose $788 per FEU. Rates on Shanghai-New York routes surged $678 to $7,007 per FEU. Also, rates on Shanghai to Genoa grew $264 to $8,532 per FEU and those on Rotterdam-Shanghai inched up $26 to $1,394 per FEU. Drewry said it expects the index to remain stable next week.
Heaney said Drewry’s forecast for second-quarter ocean container freight activity is for 15 percent growth, a level not seen since 2010 in the rebound from the Great Recession, followed by 8 percent growth in the third quarter. For the year, Drewry sees global port handling to increase about 8.7 percent.
He expects the outlook for fleet growth to be below demand for this year and next.
“The conservative orders of the past few years will keep supply growth below demand through 2022,” Heaney said. “The recent order book frenzy, however, threatens to undo the rebalancing work.”