Profitability Rests in Carriers’ Hands

Marinelink.com
Monday, April 08, 2013
Source: Drewry Maritime Research (Container Forecaster report)

As expected the industry just about scraped over the break-even line in 2012, albeit only because of the results of a handful of leading lights. There is every chance that lines will make decent money in 2013, but only if they refrain from old habits and stick to pricing and capacity discipline.

Drewy’s latest Container Forecaster report gives our headline industry operating profit estimate for 2012 of $280 million. Clearly, this is a very poor return for moving nearly 170 million teu of loaded containers, although any sort of profit seemed highly unlikely after the heavy losses sustained in the first quarter of 2012.

It also represents a significant improvement on the estimated $7.7 billion loss endured in 2011. Whether or not carriers are satisfied is debatable.

Spooked by that awful start to the year, carriers avoided another 2009 and 2011-esque financial meltdown and turned things around through a combination of prudent capacity management and unity on freight rate increases.

Worryingly for carriers, the revival in fortunes that saw all carriers back in the black for the third quarter has quickly dissipated and many lines lost money again in the fourth quarter.

Estimated carrier industry EBIT profit/loss and EBIT margins, 1Q08-4Q12

Our previous forecast for 2012 profitability did anticipate a weaker fourth quarter, but judging by the sample of available results we were slightly too optimistic. Drewry estimates that the average operating margin of carriers in the fourth quarter shrank to 0.1%, down from 6.6% in the third quarter, as spot market freight rates plummeted on the key westbound Asia-Europe (-23% quarter-on-quarter) and eastbound transpacific (-11% Q/Q) trade routes.

Subsequently, only three major carriers (CMA CGM, Maersk Line and OOCL) returned a meaningful operating profit for the full year, although Hapag-Lloyd did salvage a tiny profit of $3 million. Ultimately, these select few “winners” neutralised the losses accrued by the rest so that our industry average balanced out at close to zero.

EBIT profit /loss of selected carriers in 2012, $ millions

The mixed-bag of results for 2012 tells the tale of how successful (or not) individual carriers were at getting a grip on costs as well as their exposure to high or low yielding trade routes. Unquestionably, that focus on cost optimization will need to be maintained and intensified if carriers are to see improved profitability in 2013.

The slide back into the red during the fourth quarter clearly does not bode well for carrier profitability in 2013. However, there is some cause for mild optimism among carriers. For 2013 we remain optimistic that carriers can return a decent profit as average freight rates and volumes for the year are expected to rise by around 3% and 4% respectively, while bunker costs are predicted to come down by 1.5%, the first year-on-year decrease since 2009.

Drewry container industry profitability forecast, 2012-13

We do expect carriers to make money again this year, but it should be reiterated that carriers themselves are the biggest risk to this forecast. While there are significant profit gains to be had through cost-cutting, if lines were to lose their pricing discipline and enter into a new rate war heavy losses will undoubtedly follow.

With so many variables to consider any industry-wide profit forecast is a hostage to fortune, but we have to believe that ultimately carriers will do what is in their best interest. Particularly so when you consider that the last five years have essentially been a lost half-decade with a cumulative loss of $700 million between 2008-12.

  • Source: Drewry Maritime Research (Container Forecaster report)

    Source: Drewry Maritime Research (Container Forecaster report)

Maritime Reporter November 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Diana Shipping Announces $53.5m Drawdown

Diana Shipping Inc. announces signing and drawdown of a $53.5 million term loan facility with BNP Paribas; announces time charter contract for m/v Nirefs with Glencore   Diana Shipping Inc.

Maersk to Continue Russian Operations

Denmark's A.P. Moller-Maersk said its four subsidiaries with activities in Russia continue to operate as planned despite the recent sharp drop in oil price and the rouble's collapse.

Denmark Arrests Former OW Bunker Manager

Denmark has arrested a former manager of collapsed ship fuel supplier OW Bunker and intends to hand him to Italy, where he is suspected of fraud, the Danish public prosecutor said on Thursday.

Offshore

Teekay Petrojarl Contracts Damen for FPSO Upgrade

Damen Shiprepair Rotterdam (DSR), part of Damen Shiprepair & Conversion (DSC), has been awarded an EPC contract by Petrojarl I LLC for the upgrade of its FPSO Petrojarl I.

DNV GL Targets Safer Approach to Subsea Lifting

The completion of a joint industry project (JIP) to improve existing standards and regulations around subsea lifting operations has resulted in a new recommended practice (RP).

Polarcus Awarded 3D Project Off West Africa

Polarcus Limited has signed a letter of intent with Perenco Oil & Gas Gabon S.A. for a 3D marine seismic acquisition project offshore West Africa.   The project,

Finance

Diana Shipping Announces $53.5m Drawdown

Diana Shipping Inc. announces signing and drawdown of a $53.5 million term loan facility with BNP Paribas; announces time charter contract for m/v Nirefs with Glencore   Diana Shipping Inc.

Maersk to Continue Russian Operations

Denmark's A.P. Moller-Maersk said its four subsidiaries with activities in Russia continue to operate as planned despite the recent sharp drop in oil price and the rouble's collapse.

NSRP Awards $11m for R&D Project Portfolio

The Executive Control Board of the National Shipbuilding Research Program (NSRP) has selected a new round of research and development projects for award, as part

Container Ships

Maersk to Continue Russian Operations

Denmark's A.P. Moller-Maersk said its four subsidiaries with activities in Russia continue to operate as planned despite the recent sharp drop in oil price and the rouble's collapse.

Marseille Fos Unveils Multimillion Growth Strategy

The Marseille Fos port authority has set out a vision for growth over the four years to 2018 in a strategic plan that puts developments costing $560 million at

NZ Report: Human Error to Blame for Rena Grounding

New Zealand's Transport Accident Investigation Commission (TAIC) published its final report into the grounding of containership Rena in October 2011. The TAIC’s

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Standards Pod Propulsion Port Authority Salvage Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.3276 sec (3 req/sec)