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Shipping line profits at full steam as trade chaos shows little sign of abating

Container shipping companies are set for another bumpy year in earnings, as the supply chain’s snarl shows little sign of slowing down, to the misery of almost everyone else.

Operationally, the shipping crisis has been a disaster for the merchant ships that support global trade: schedule reliability hit a record low of 32 percent in December, with ships arriving more than a week later than planned on average, according to Sea-Intelligence, a consulting firm.

It has caused pain for importers and exporters who pay more than ever to wait longer for finished goods and parts, but the congestion has done wonders for the profitability and balances of container shipping.

The eternal question that preoccupies industry – and the global economy – is whether shipping has peaked and how long the journey to something more functional will take.

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Lars Jensen, CEO of the consulting firm Vespucci Maritime, says that the supply chain storm is close to reaching fever height – excludes any hiccups from coronavirus outbreaks in China to cyber security attacks on critical infrastructure.

“It looks like we’re reaching the peak of congestion,” he said. “It’s hard to see it getting worse in North America and Europe.”

Chinese New Year usually gives the industry a respite, as factories reduce tools and the demand for transporting goods across the oceans experiences a seasonal decline.

Map animation showing still congestion at the ports of Los Angeles and Long Beach.  Vessels must be queued at least 150 miles from the port.  Ships operate with the current in areas that they cannot easily anchor, even in an attempt to save fuel.  The animation shows the location of all container ships around Los Angeles and Long Beach ports.  You can clearly see dozens of ships drifting on the current while waiting for a berth

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But Jeremy Nixon, CEO of Ocean Network Express, one of the world’s largest container shipping companies, says shipping companies have not canceled or “blanketed” sailings to ports this year, as they typically do in the weeks after the lunar new year.

The intention is to remove the backlog, he added, but still the disruption can run at crisis levels for an extended period of time before an improvement is noticeable.

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

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

“Normally, when a container ship arrives at the terminal and does not wait. Right now, it’s like waiting three or four hours on the gate when the plane has landed,” said Otto Schacht, executive vice president of maritime logistics at Kuehne + Nagel. Normally would be less than 1 million. TEU waiting days. “

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Sustained ructions on global trade routes are a factor fueling analysts’ predictions that airlines could make more profits than they did in 2021. Another factor is that higher spot market rates are dripping down in long-term freight contracts, which are currently below negotiation. .

Spot freight market prices for shipping a 40-foot container from Asia to Europe have risen from $ 1,450 before the pandemic to $ 14,700, according to Xeneta, an Oslo-based shipping data company. This increase has led to contracts covering freight volumes for a quarter, a year or two years, nearly tripling to $ 9,300, up from $ 3,400 last year.

Parash Jain, head of shipping at HSBC, estimates that container shipping companies will earn 163 billion. USD in operating profit in 2022, an increase of 8 percent over last year. This will “mainly be driven by strong tailwinds in contract prices,” he says.

However, this week the IMF downgraded the economic outlook for the US and China due to several challenges, including inflation and record-high debt levels, increasing uncertainty about the continued strength of consumer demand for goods. A deterioration in the macroeconomic outlook would be a double-edged sword for the cyclical industry.

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

“At first it will be welcomed by many in the industry, but then we look forward to the latter part of 2023 and 2024, where shipping companies will add a lot of ships to their network.”

Cartography by Steve Bernard

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