End of mega profits for container shipping lines as spot rates plunge

Date Added: 28 December 2022

End of mega profits for container shipping lines as spot rates plunge

With our comprehensive portfolio of international ocean freight forwarding services, Davies Turner notes various round ups of 2022 published online that suggests that whilst container shipping has enjoyed unprecedented earnings in 2021 and 2022, as this year has progressed it has become clear that this is not going to last.

2022 started with industry analysts Drewry upping its annual forecast for container shipping’s EBIT in 2021 from USD150 billion to USD190 billion.

As 2022 continued the profits reported by lines were to get even more staggering and in August they were hitting their peak. Maersk reported an underlying EBIT of USD8.9 billion for the second quarter but behind the 15th consecutive quarter of year-on-year earnings improvements, there were signs of change.

However, the extent of the plunge in container spot rates to come was to take even the most pessimistic by surprise.

In mid-October HSBC noted spot rates reported by the Shanghai Containerized Freight Index (SCFI) had fallen by 51% since the end of July – a decline of 7.5% per week. It was also highlighted that spot rates were now well below the levels of contract rates entered into at the start of 2022, especially on the Transpacific trade.

HSBC added that at this pace of a 7.5% week-on-week decline, spot rates may hit the average spot rates of 2019 by the end of 2022, a level where Davies Turner expects capacity discipline to meaningfully emerge, especially when rates go below cash costs.

As spot rates head back down to 2019 levels this is particularly concerning for container lines as they negotiate long term contracts for 2023, and there can be little doubt that earnings will be considerably impacted.

For more information about Davies Turner’s ocean freight forwarding and logistics services, please contact ocean@daviesturner.co.uk or visit the relevant pages of this website.

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