Trade disruptions give container shipping a temporary reprieve

Tides are easy to predict; business cycles much less so. Six months ago, AP Møller-Maersk warned it could sink into the red this year; now the world’s second-largest container shipping line reckons operating profit could be as much as $6.5bn. Last month, rival Hapag-Lloyd of Germany said that it, too, expected to avoid what formerly looked like a looming loss.

This is a sector that knows all about being buffeted by shifting currents, be they global or more parochial in origin. Right now, disruptions at sea and bottlenecks on land are pushing rates well above the industry’s Plimsoll line.

The cost of shipping a 40-foot shipping container, based on spot rates, hit $4,526 last week, twice the price a year earlier, according to the Drewry World Container Index. Bad for those paying to ship stuff, but helpful for the ship owners’ bottom lines.

This bump is unlikely to last. Already, shipping companies had taken advantage of the windfall from the fact they could charge higher rates in the period following Covid-19 to order more vessels. Disruptions from the closure of the Strait of Hormuz have also given rise to a spending spree.

The upshot is that the current order book is bigger than ever before, equivalent to more than 40 per cent of the current fleet according to Kuehne Nagel.

Maersk, previously among the more conservative when it comes to adding to its fleet, also expects to get a boost from creaking ports and other landside infrastructure.

But there will need to be rather a lot of chokepoints: ships currently being built will provide 13 per cent more capacity on the seas in 2028, when demand — tracking real global economic growth — is expected to grow at about 3 per cent a year. Maersk’s share price is flirting with a five-year high.

It’s not a given that the shipping industry will go from drought to deluge. Some older vessels go to scrap. And even if they overshoot somewhat, ship owners have some ballast on their balance sheets. Maersk is sitting on net cash; Hapag-Lloyd’s net debt is less than one year’s worth of ebitda.

The Iran crisis has proven a time for facing new truths about the way the world works. Hopefully shipping companies, which have paid the price for shouldering excess capacity time and time again, have had an epiphany on that front too.

Source: Financial Times

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