The stage of Profiteering in shipping has passed, the turning point has come
The performance of shipping industry has skyrocketed during the COVID-19
After the outbreak of the epidemic in early 2020, global shipping was blocked, which led to a skyrocketing freight rate. Shipping companies have benefited from this, and it can be said that they have achieved the best performance ever. In 2021, global container shipping companies have achieved a staggering profit of more than US$110 billion, which is more than twice the combined operating profit of all years from 2010 to 2020. The price of COSCO SHIPPING Holdings will rise sharply in 2021, and the highest peak is equivalent to 9 times the low point in 2020; Taiwan’s Evergreen Shipping will issue 40-month year-end bonuses to employees in 2021.
Profits began to decline, and even losses
With the relaxation of epidemic prevention and control in various countries, maritime transportation has resumed unimpeded, and the short-lived “good days” of the shipping industry are coming to an end. Shipping companies such as Maersk, CMA CGM, Hapag-Lloyd, Evergreen Shipping, Yang Ming Shipping, and Zim Shipping maintained profitability last year, but they also faced a performance slowdown in the fourth quarter of last year.
Take Maersk, a liner giant whose container volume accounts for one-sixth of the world’s total, as an example. The company achieved the best performance in its history last year, but its performance in the fourth quarter declined significantly. Maersk’s total revenue in 2022 will increase by 32%, and revenue in the fourth quarter will decrease by 3.7%, and operating profit will increase by 56.9% in 2022, including a decline of 22.8% in the fourth quarter.
In fact, the fourth quarter is only the beginning of the decline in the performance of shipping companies. Maersk expects full-year earnings before interest and taxes (EBIT) to be US$2 billion to US$5 billion in 2023, a decrease of 83.8% to 93.5% from US$30.9 billion in 2022. Hapag-Lloyd also expects EBITDA this year to drop by 68%-79% compared to last year. The downward trend is clearly reflected in the first two months of this year. Evergreen Shipping’s revenue in the first two months of 2023 fell by 59.94% year-on-year. Wan Hai Shipping’s revenue in the first two months fell by 70% year-on-year.
Ocean freight is still falling, and there are obvious signs of a price war
Now that the demand for containers has declined, the spot freight rate has returned to the level before the epidemic, and the contract freight rate is similar to that before the epidemic. Due to the competitive mechanism of the container shipping and liner industry, it is expected that the shipping companies, especially the industry giants will not hold back, the freight will be reduced to the cost price, and market mergers will also occur. The price war in the shipping field may have already begun.
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