Container Lines to Outperform Year-old Profit Record by 73%

The world’s biggest container lines are on course to post profits in 2022 that will top last year’s record by 73%, according to a new forecast. Net income this year will likely reach $256 billion, roughly equivalent to the gross domestic product of Portugal, based on the 11 carriers monitored by industry veteran John McCown, the founder of Blue Alpha Capital. That’s an increase of $36 billion from his prior estimate in April. The figure last year hit an all-time high of $148 billion, according to McCown.

“These profit increases are being driven by continuing increases in the rates in contracts that cover the large majority of loads actually moving on ships,” McCown said, adding that even though spot rates have declined all year, they represent a small fraction of overall seaborne freight costs. Only 10% of ocean freight travels under spot-market terms while the rest moves based on contracts between carrier and cargo shipper that spell out rates and volumes for a year or more, according to McCown.

In McCown’s analysis, overall container-shipping pricing in the second quarter was 2.84 times higher than levels measured two years earlier. Average spot rates were 4.72 times higher, while contract rates are up 2.13 times.

“The financial results published by the shipping lines show the impact of customers protecting their supply chains by negotiating long-term contracts,” according to a report Monday from UK-based Container Trade Statistics. “The fear of congestion in the supply chain has meant that corporates have chosen to play safe rather than risk a spot market.”

The container industry, where nine of the largest companies are concentrated into three alliances that share capacity on vessels, has also seen more pressure from governments for charging soaring rates while performing a service where on-time delivery tracked by Sea-Intelligence is at 40%.

Source: American Journal of Transportation

Amid Slowing Global Air Cargo Market, Demand Drops 9% in July

Market intelligence from CLIVE Data services shows air cargo demand has dropped by -9% year-on-year (y/y), for the fifth month in a row. Demand was also down -9% versus the same month of 2019. The dynamic load factor fell by -8% y/y to 58% taking into consideration both the weight and volume perspectives of cargo flown and capacity available. In July, rates were higher by 11% y/y and up by 121% versus July 2019 (see Figure 1).

Xeneta chief airfreight officer, Niall van de Wouw, said the slowdown in the global air cargo market is due to the multitude of disruptions

 Xeneta chief airfreight officer, Niall van de Wouw, said the slowdown in the global air cargo market is due to the multitude of disruptions outside of the industry’s control, such as the war in Ukraine and the cost-of-living crisis which is increasingly affecting household budgets. Airlines and airports continue to face acute operational challenges due to the lack of ground staff. “Volumes are subdued, and while air cargo rates are still elevated, they are slowly but surely easing back towards pre-COVID levels. From a rates point of view, indicators suggest the market has yet to bottom out,” he added.

Van de Wouw noted airlines are monitoring the market closely so they can deploy their assets in the best possible way under quickly shifting market conditions. “We have already seen freighters moving away from Trans-Atlantic routes,” he said. Rates on the Trans-Atlantic trade are now below the year-ago level (see Figure 2).

“On the Atlantic, the decline in general airfreight rates we reported for the previous three months of 2022 seasonal, the slight increase in load factor across the Atlantic relative to June – from 58% to 61% – might be a result of carriers and forwarders redirecting their freighter operations to other lanes, hence pushing up the load factor for the remaining flights on these routes,” Van de Wouw said.

Source: Air Cargo News

Strong Demand Keeps U.S. Trucking Capacity Tight

Truck capacity may be easing in some markets or in some lanes, but it is not abundant universally, and constraints on the addition of new capacity will keep pressure on U.S. contract transportation rates despite the spot market price correction this spring, speakers said during a JOC webcast Wednesday.

“I would say if you’re expecting a very rapid decrease in your transportation budget as you move through the rest of this year and next year, you’re going to be sorely disappointed,” said Jason Miller, associate professor of logistics at Michigan State University. “I don’t see the prices going down substantially even from where they are now. Maybe a little bit here and there. We’re not seeing the demand destruction that you would need to start seeing a substantial price decrease in 2023,” he added.

Mike Regan, co-founder and chief relationship officer at TranzAct Technologies said the number of constraints on capacity is rising. “The reality is that today it costs a lot more money to operate a truck than it did a year or 18 months ago,” said Regan, adding that drivers are being paid 20% to 35% more than two years ago. The cost of equipment (when it is available), is also rising alongside the cost of trucking insurance. These higher rates are leading larger trucking companies to abandon market-based pricing that follows spot rates.

“Shippers have been used to market-based pricing for years, where the carrier said we’re going to price based on the fact that we want to capture as much freight as we can and become as big as we can,” said Regan. “The carriers have substantially abandoned that model in favor of cost-plus pricing. They know how much it costs to operate a truck and they know what their margin requirements are.”

Regan said that companies need a transportation spend management plan that is adaptable to events as they happen. That means more analysis of potential “black swan events,” and more collaboration with carriers. “You need to get ahead of being constantly in a reactive mode,” he said. “If you want to be proactive and strategic in 2023, it pays to have a game plan today.”

Source: Journal of Commerce

Eight-day Strike Action at UK’s Port of Felixstowe After Talks Fail

Over 1,900 workers at Felixstowe, the UK’s largest container port will move ahead with an eight-day strike starting August 21, after pay talks broke down.

The union has repeatedly called for the port to make “a reasonable offer”, citing the current 11.9% retail inflation in the UK. The union said that members while keeping the port functioning during the pandemic only received a 1.4% wage increase in 2021.

Around half of all the imports into the UK with annual volumes of more than four million TEU are handled by the Port of Felixstowe. It is the primary deep-water port for the UK included on the routes from Asia operated by most of the major container lines.

Reports indicate that the shipping companies are planning to blank stops in the UK from their route during the strike or possibly look to transship containers from other European ports on smaller vessels. While the strike is scheduled to last only eight days, union officials have predicted that “it will generate massive shockwaves throughout the UK’s supply chain”.

Source: The Maritime Executive

Weakening European Demand Could Significantly Impact Container Market

As demand continues to decline in Europe and the U.S., Sea-Intelligence has predicated the container market could be headed into a “downward spiral” with significant overcapacity once current bottleneck issues are resolved. Citing the latest figures from Container Trade Statistics (CTS), Sea-Intelligence highlighted weak demand on the European market.

CTS data showed import volumes declined in June by -9% compared to the same month last year and export growth also saw negative growth for nine consecutive months. European import demand has been negative in 22 out of the last 30 months, with export demand negative for 16 consecutive months. “This should be seen as an indication that when the bottleneck issues in Europe are resolved, a situation of significant overcapacity could develop quickly,” according to the analysis.

While global demand increased marginally in June, it was lower during the quarter as a whole compared to the same period of 2021. Although the biggest fluctuations in demand are found in India and the Middle East, where developments are positive, and in Australia and Oceania, where they are negative, developments in Europe play an important role in the overall picture.

There were two important elements in the development of the second quarter 2022, Sea-Intelligence pointed out. Firstly, the explosive growth in U.S. imports has been curbed, and secondly, European demand is continuing to fall. “This points to the potential for a sharp downwards spiral in market conditions, once the bottlenecks which are keeping capacity out of the equation, are fixed,” Sea-Intelligence concluded.

Source: Shipping Watch

China’s Trade Surplus Hits Record US$101 bn but Global Risks Darken Outlook

July’s strong export performance sent China’s trade surplus to a record US$101 billion however, cooling global demand, new COVID lockdowns and “no peak season” for Asian-Europe trades could result in cargo volumes declining. Exports measured in US dollars, jumped 18% in July from a year ago, while imports grew 2.3%, according to Chinese customs statistics.

Julian Evans-Pritchard, senior China economist at Capital Economics observed, “Exports held up well last month, thanks to a backlog of orders still being cleared. But it won’t be long before shipments drop back on cooling foreign demand. Imports continued to trend down, pointing to further domestic weakness.”

The recent strength of exports “reflects the easing of supply chain disruptions coming out of lockdowns and, most importantly, fewer bottlenecks at ports,” he said. Although activity at China’s ports have picked up recently, weaker domestic shipping demand has “freed up more port capacity for foreign trade”, Evans-Pritchard added.

Ongoing COVID restrictions are partially causing pockets of delays and congestion at Chinese ports such as Shenzhen and Shanghai, forwarders have reported. Meanwhile, Chinese military exercises near Taiwan have worsened delays at Ningbo and Qingdao.

“As several large Chinese cities have been rolling out more stringent lockdown policies, volume at the port of Shanghai has started to decrease since the peak in mid-July, down -19% since then. The 14-day average ocean shipment volume is now down -14% compared with 12 March [when the lockdowns began],” FourKites said.

Another freight forwarder noted that freight rates were trending down on both the Trans-Pacific and Asia-Europe trades despite widespread blank sailings. The company said that even though supply was constrained on the Asia-Europe corridor due to significant “blank sailings, vessel slidings and port omissions”, there was “no peak season and demand has been slowing down”.

Source: The Loadstar

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