News / Carriers continue to report big returns, but the horizon looks murky

As container spot rates continue to wane and close in on contract rates two more ocean carriers have reported record first quarter earnings.

Taiwanese carrier Yang Ming posted a net profit for Q1 of $2.2bn, achieved from a 71% increase in revenue, compared to the first quarter of 2021, at $3.8bn.

And South Korean flagship carrier HMM saw Q1 net profit hit $2.4bn on revenue of $3.8bn, 103% higher year on year.

Yang Ming said: “The record results were driven by a higher level of freight rates resulting from solid demand, persistent Covid-related port congestion and the pre-Chinese New Year rush.”

HMM said these “best ever quarterly profits” had been “mainly driven by high freight rates and efficient fleet operations”. It said the uncertainties related to the war in Ukraine and the strict lockdowns in China were “widespread” and that market volatilities were “expected to continue in the coming months”.

The carrier expressed particular concern on the outlook for its biggest trade, the transpacific, due to possible disruption arising from labour contract negotiations on the US west coast, as well as a decline in American consumer demand.

“The high inflation pressure can negatively impact demand growth in the Asia-North America trade,” said the carrier.

Meanwhile, Asia to US west coast container spot rates, as recorded by the Freightos Baltic Index (FBX), took another tumble this week shedding over $2,000 per 40ft, down to $12,189. This component of the FBX has now fallen by 25% since its mid-March peak.

However, the decline in rates may have more to do with the unavailability of cargo from China during the strict Covid lockdowns. As and when the lockdowns in Shanghai are eased, export containers will begin to move again, unhindered by transport restrictions and shuttered warehouses.

Jonathan Gold, VP for supply chain and customs policy at the US National Retail Federation, believes there could be a spike in imports associated with retailers pulling orders forward.

“Retailers are importing record amounts of merchandise to meet consumer demand, but they also have an incentive to stock up before inflation can drive costs higher,” he explained. “Whether it’s freight costs or the wholesale cost of merchandise, the money retailers save can be used to hold down prices for their customers during a time of inflation. In addition, retailers are preparing for any potential disruptions because of the west coast port labour negotiations.”

Meanwhile, while spot rates on the Asia-North Europe tradelane were fairly stable this week, with, for example, the FBX component unchanged at $10,565 per 40ft. According to Project44 data, carriers have been obliged to cancel over a third of their sailings to support the market.

Nevertheless, in the longer-term, ocean carriers appear resigned to a significant erosion in spot rates. During Hapag-Lloyd’s Q1 earnings call yesterday, CFO Mark Frese said that, in the second half of the year, the carrier anticipated spot rates would see “the beginning of a strong reduction”.

“Maybe, over time, we will see even the changing between long-term and short-term rates,” said Mr Frese, raising the possiblity that spot rates will fall below contract levels.