Containers

Everyone’s a winner

Conditions remain firmly in liners’ favour for this year.

The container market bonanza continues unabated. OOCL is the latest to declare record 2021 profits, in its case, $7.1bn in 2021 compared to $903m in 2020. 70% of profits will be paid as dividends to shareholders. The top liner companies made more than $100bn in profit in 2021 assuming that MSC’s performance tracks that of Maersk and CMA CGM.

Non-operating owners are taking advantage of high newbuilding prices and blocked shipyards to negotiate eye watering time charter rates for tonnage that can be deployed this year. Seaspan reported in March that it has fixed 18 of its ships – mostly panamaxes - for one to two years at a total of $200m in “incremental cash flow” which may suggest “over and above current cashflow”. Seaspan’s parent, Atlas Corp, posted net profits of $142.3m for 2021, compared to a net loss of $26.1m in 2020.

Liner companies remain confident about 2022 as the main drivers of last years’ boom market largely remain in place. The vast new orderbook of around 600 ships has not yet begun to deliver. Congestion remains a problem as public health measures block ports around the world and as port operators have been slow to catch up with the 1m teu per month step-change up in demand for container shipping experienced during the pandemic. Demand is holding up well so far this year in spite of Lunar New Year, lockdowns in China, the rising cost of living in the major consuming nations and the war in Ukraine.

Bottlenecking remains a problem, with global waiting days estimated at 18m teu-days by Kuehne+Nagel. The lockdowns in China have resulted in several terminals running below capacity, forcing exporters to hold back cargoes and wait longer to get them onto ships. Shenyang in Liaoning province was the latest city to be locked down after only 47 cases, shuttering manufacturers including the BMW auto plant. So far, Shanghai has avoided a full lockdown. If its port should be shuttered, the liner trades would melt down. But China is now operating so-called closed loop systems in which some activity is allowed. For instance in Shenzhen, this prevented chip maker Foxconn from shutting down during that city’s lockdown as workers agreed to live on-site for the duration of the lockdown. Chinese health authorities fear the alternative to lockdowns, as the case load in a population of 1.4bn would swamp healthcare resources

In North America, bottlenecking has not gone away, it has simply moved from the west coast to the east coast.

The war in Ukraine is not disrupting the liner shipping markets very much as sailing schedules can be rearranged. But liners are increasingly avoiding calling at Russian ports. As western manufacturers and retailers exit Russia under sanctions, containerised shipping demand in and out of its ports is down an estimated 50%. Rail volumes from China into Russia are up instead as Chinese exporters enter the market vacuum created by western companies’ departure.

Freight rates remain elevated despite a mild downturn in March, a normal post-Chinese New Year easing.

The first quarter of 2022 has then been quite satisfactory for the liner companies. Their attention may turn to costs in the rest of the year as fuel prices rise and as they have to renegotiate time chartered tonnage at rather higher rates than they enjoyed last year. They will have to work hard to avoid a squeeze on profits. If they attempt to raise prices, they will incur further interference from regulators such as the US Federal Maritime Commission and even Congress, with its misguided bill trying to force liners to load US agriproduce into containers to ship to Asia, where the grain terminals are built to receive bulk carriers and not unload boxes. Sometimes, even well-meaning politicians don’t have to go to war to cause unintended consequences. ●