Sun. May 29th, 2022

Container shipping companies are ready for another good year of earnings, as the supply chain norms show little sign of slowing down, to the misery of just about everyone else.

Operationally, the shipping crisis was a disaster for the box carriers supporting world trade: schedule reliability reached a record low of 32 percent in December, with vessels arriving on average more than a week later than planned, according to Sea-Intelligence, a consulting firm.

It has caused pain for importers and exporters who are paying more than ever to wait longer for finished goods and parts, but the congestion has done wonders for the container shipping industry’s profitability and balance sheets.

The constant question facing the industry – and world economy – is whether the shipping disruption has peaked and how long the journey to something more functional will take.

Lars Jensen, CEO of consulting firm Vespucci Maritime, says the supply chain storm is close to feverishness – except for any hiccups from coronavirus outbreaks in China to cyber-security attacks on critical infrastructure.

“It seems to me that we are reaching the peak of congestion,” he said. “It’s hard to see it getting worse in North America and Europe.”

Chinese New Year usually offers the industry a little respite as factories unload tools and the demand for the transportation of goods across the oceans experiences a seasonal decline.

Map animation showing congestion at Los Angeles and Long Beach ports.  Vessels must line up at least 150 miles from the port.  Vessels float along with the current in areas they cannot easily anchor, also in an effort to save fuel.  The animation shows the location of all container vessels around Los Angeles and Long Beach ports.  You can clearly see dozens of ships floating on the currents while waiting for a berth

But Jeremy Nixon, CEO of Ocean Network Express, one of the world’s largest container shipping companies, says carriers did not cancel or “block” voyages to ports this year, as is usual in the weeks after the new lunar year.

The intention is to eradicate the backlog, he added, but nonetheless, the disruption could last for a long time at crisis levels before any improvement is noticeable.

“We see a continuation of the same for at least the next three months, and the same in America for longer,” he said.

The lack of a noticeable tendency towards normality is supported by a new indicator, made by the Swiss logistics group Kuehne + Nagel. This shows the overall time that cargo ships wait to dock at major ports around the world, taking into account their size. For example, a ship capable of carrying 10,000 20-foot boxes, or equivalent units (TEU), waiting for three days, counts as 30,000 TEU waiting days. On Thursday, the global total reached 12.5 million TEU waiting days.

“It is normal when a container ship arrives at the terminal and does not wait. At the moment, it’s like waiting three or four hours for the gate as soon as the plane has landed, “said Otto Schacht, executive vice president of maritime logistics at Kuehne + Nagel. “Normally there will be less than 1m TEU waiting days.”

Sustained disruptions to global trade routes are one factor fueling analysts’ predictions that carriers could make more profits than they did in 2021. Another factor is the decline in higher spot market rates in the long-term freight contracts, which are currently being negotiated. .

Spot cargo market rates to ship a 40-foot container from Asia to Europe jumped from $ 1,450 before the pandemic to $ 14,700, according to Xeneta, an Oslo-based shipping data firm. As a result of this, contracts covering freight volumes for a quarter, a year or two almost tripled to $ 9,300, compared to $ 3,400 last year.

Parash Jain, head of shipping at HSBC, estimates that container shipping companies will make $ 163 billion in operating profit in 2022, an 8 percent increase over last year. It will be “mainly driven by strong winds in contract rates”, he says.

However, this week the IMF downgraded the economic outlook for the US and China due to multiple challenges, including inflation and record debt levels, which increased uncertainty about the continuing strength of consumer demand for goods. An acidification of the macroeconomic outlook will be a double-edged sword for the cyclical industry.

“Stager demand is what is needed for the whole logjams to relax and be less stressed. But it is also a warning sign, ”says Peter Sand, an analyst at Xeneta.

“It will first be welcomed by many in the industry, but then we look forward to the latter part of 2023 and 2024 when carriers add many ships to their networks.”

Cartography by Steve Bernard

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