News / Sinking rates and new capacity create crashing waves in box line financials

The deluge of new containership deliveries continues, the extra capacity driving down freight rates and prompting carriers to improvise new strategies as they face a depressing financial outlook .

According to Clarksons Research data, the container fleet will have grown by 7.3% by the end of the year, almost double the average of the previous four years, and next year this number is barely better, at 6.6%.

If the few carriers to have reported their results are anything to go by, the half-year results will have been a bloodbath. CMA CGM saw ebitda from its shipping activities plunge by 75% in Q2; this was on the back of crashing rates, which fell, from an average of $2,850 per teu in Q2 22, to $1,491.

Similarly, Ocean Network Express (ONE) saw its average rate fall to $1,333 per teu from $3,068 in Q2 22.

This more than halved the Japanese carrier’s revenue, to $3.8bn from $9bn the previous year, even though volumes lifted were comparatively stable. As a result, ONE’s headline figure was a precipitous drop in net income of 91%, from $5.4bn in Q2 22 to just $513m in Q2 23.

It said: “Further shifts in the market are expected as transport demand and trade patterns continue to alter, creating an uncertain outlook, which is difficult to predict. Under these circumstances, it is extremely difficult to announce a reasonable business forecast.”

However, today, Drewry’s World Container Index reported a modest increase over the previous weeks. The WCI composite index climbed to $1,761 per feu, which, though paltry compared with early August 2022, is its highest level since early May. But, added Drewry, this is still still below the average of the past decade of $2,684, “indicating a return to more normal prices”, although rates are still higher than the 2019 pre-pandemic average of $1,420.

According to Xeneta’s latest analysis, a gulf has opened between carrier and forwarder rates, which is much more pronounced in the long-term prices, where the latter are notably cheaper than carriers.

It said: “Although a steep Q2 rate fall of 39.6% shrank the spread between the two to just under $1,000 per feu, freight forwarder pricing remains more attractive in purely financial terms.”

However, analysis by Platts on Monday offered some encouragement, suggesting retail inventories, high at the beginning of the year, to the chagrin of carriers and forwarders, were diminishing, meaning a gentle increase in utilisation rates could be expected as customers replenished stocks.