News / 'Two-tier' market surfacing as gap between mega and smaller box lines widens

With the Q2 earnings season reaching its finale, an Alphaliner survey this week shows the profitability growth of the biggest carriers greatly exceeds that of the small and medium-sized lines.

Moreover, the consultant suggests, a “two-tier market” may be developing between the contract-focused carriers and those that tap the short-term and spot markets for their liftings.

As the European Commission begins its review of the liner Consortia Block Exemption Regulation, to decide if it should be extended after it expires in April 2024, the commissioners will no doubt take this growing profit imbalance into consideration.

“Earnings for the medium and small lines typically increased by between 100% and 700% between 2019 and 2021,” said the consultant. “By contrast, the top 10 carriers increased their profits by between 1,000% and nearly 6,000%.”

And, “following widespread consolidation at the top of the table”, Alphaliner said, “there is now a large gap between the leading carriers and the rest of the field”.

Noting that liner consolidation had “attracted the attention of politicians and regulators”, Alphaliner compared the industry in 2017 with the current market. Currently the top ten carriers are operating 21.8m teu of capacity, while the next 20 lines have a combined capacity of just 2.5m teu.

In contrast, five years ago in mid-August, the cumulative capacity of the top ten carriers was 15.4m teu, with 3.2m teu of capacity operated by the lines ranked 11-30.

Alphaliner added that the gap between the current leading carrier, MSC ,with its 4,476,201 teu of capacity, and 20th-ranked SM Line, with 93,410 teu, had grown by over 1m teu in the past five years.

“Further emphasising that consolidation has been concentrated at the very top, the number of ‘supercarriers’, operating more than 1m teu, has risen by just one, from six to seven in the past five years,” said Alphaliner, adding that this was due to the merger of three Japanese lines into ONE, rather than due to growth from lower-ranked carriers.

Meanwhile, Alphaliner noted, some Asian lines that grew their profits more rapidly than their peers, due to their greater exposure to the transpacific spot market, are now seeing their earnings decline more quickly.

“Yang Ming and Wan Hai became the latest carriers to report a drop in earnings and net profit for the latest quarter,” said Alphaliner. Both carriers posted a decline in their earnings in Q2 22 from the previous quarter and South Korean carrier HMM had reported its first decline in quarterly operating earnings after seven consecutive increases.

“The results contrast with competitor lines Maersk, Hapag-Lloyd, Evergreen and ONE, which all reported higher earnings for April-June, compared with the first three months of the year,” said Alphaliner.

In conclusion, Alphaliner said, its survey results suggest “a two-tier market may be forming between those carriers with high contract cover versus those more reliant on the spot market”.