Container Shipping Enjoyed A Good Result

Damas Jati - 02/10/2017, 03:00

Ten global container carriers enjoyed a profit during second quarter (Q2) 2017, according to SeaIntel analyst.


Among the ten, Maersk Line was recorded the highest, reaching $376 million, more than three times the segment profit of second-best performing COSCO at $122 million. Maersk Line showed the greatest net improvement, turning a $123 million loss into a $376 million EBIT profit. The remaining eight carriers all had 2017-Q2 operating profits of less than $100 million, according to SeaIntel.


However, in view of revenue growth, COSCO showed the strongest, with a 47.3% year-on-year revenue increase. Evergreen and HMM followed COSCO, reporting the second and third-largest year-on-year revenue increases, of 30.3% and 30.1%, respectively.


Maersk Line, Hapag-Lloyd, OOCL, Yang Ming, and ZIM all saw their revenues grow 20-25% year-on-year in the second quarter, while Wan Hai and the three Japanese carriers, all saw much lower revenue growth of around 10% year-on-year. Of the 12 global leading container players, only two – HMM and MOL – recorded losses during the quarter. HMM posted a loss of $81.8 million USD for 2017-Q2, while MOL reported a loss of $55.1 million in the period.
China’s largest shipping group COSCO, which last month offered to buy a Hong Kong peer to become the world’s third-largest container liner, said January-June net profit was $288.32 million.


Demands up, freight rates increase


Having endured a lengthy slump, the global container shipping industry has shown signs of recovery this year as overcapacity eases and freight rates increase.


COSCO said it expected to see continued good demand in the market, but that there were still some uncertainties ahead as the industry was awaiting a new delivery of ships that would add more capacity.
Denmark’s AP Moeller Maersk A/S gave an upbeat outlook for container shipping earlier this month, saying market “fundamentals are at their best since 2010”.


According to analysis by Drewry, container shipping remains competitive in most of the main East-West trade lanes, although recent merger and acquisition (M&A) activity has created a “more concentrated” market where better capacity management will bring more stable freight rates.


Looking specifically at the Asia-Europe market, Drewry said recent container M&A will push the Asia-Europe trades from “competitive” to “moderately concentrated”, with other East-West trades moving in the same direction.
When all the recent container M&A activity has played out there will, in effect, only be seven major carriers with global scope and market shares above 5%, Drewry noted. The “move towards liner oligopoly” is one of the main reasons why Drewry is more bullish on the chances of sustained carrier profitability.


On an individual trade route level, research conducted by Drewry for its upcoming Container Forecaster report looked at the market concentration across the six main East-West trades, using the Herfindahl-Hirschman Index (HHI) method, revealing a much more concentrated environment than one year ago.


When comparing the nominal capacity deployed by carriers in July 2016 and July 2017 “ treating carriers involved in M&A, either completed or pending, as one single entity “ Drewry found that that the Asia-North Europe and Asia-Mediterranean trades had exceeded the 1,500 index threshold from a “competitive” marketplace to a “moderately concentrated” environment.


The two Transpacific routes (Asia-WCNA and Asia-ECNA) “remain competitive but moved much closer to the 1,500 threshold”, while the North Europe-North America route was largely unmoved, Drewry observed. The Med-North America route was already moderately concentrated one year ago, but was even more so this summer, it added.
“Drewry expects that increased concentration will dramatically reshape the container market of the future by changing some of the behaviour traits of ocean carriers that have sometimes scuppered their own fortunes in the past,” the analyst noted.


“One key area we that we think will change will be more responsive capacity management. In more concentrated trades, we believe that carriers will be able to respond more swiftly to set capacity levels that are more appropriate to the prevailing demand.”


By smoothing out some of the “lumpiness” that often creates steep fluctuations in ship utilization, the market should start to see more stable freight rates, Drewry said, concluding: “Container shipping remains competitive in most East-West trade lanes for the time being, but the trend is clearly moving towards greater concentration.
“One of the side-benefits for all stakeholders will be an end to some of the worst volatility in freight rates.”


Confident hits


In line with the increase in demand and freight rate as well a positive income, shipping confidence reached its highest rating in the past three years in the three months to end-August 2017, according to the latest Shipping Confidence Survey from Moore Stephens.


The average confidence level expressed by respondents to the survey was up slightly from the 6.1 out of 10.0 recorded in the previous survey in May 2017 to a three-year high of 6.2.


The improved rating was attributable mainly to increased confidence from owners, up from 6.1 to 6.5. Confidence levels on the part of brokers, meanwhile, fell from 6.4 to 6.3, while managers and charterers recorded more substantial drops – from 6.2 to 5.8 and from 6.4 to 4.7 respectively, the lowest levels in both cases since May 2016, Moore Stephens said.
Confidence levels were significantly up in Asia from 5.6 to 6.4, their highest level since May 2014. Confidence was also up in Europe, from 6.2 to 6.3, but down in North America, from 6.4 to 5.8.


Despite familiar concerns about excess tonnage capacity in many trades and continuing uncertainty over Brexit, several respondents saw reasons for optimism over the coming 12 months, not least as a result of what one described as “some green shoots of a relatively broad-based rebound in economic activity.”


This helped maintain expectations of major investments being made over the next 12 months. A concern, however, persisted over political instability, the incipient cost of increased legislation, and the probable entry into the market of low-cost newbuildings.