Lars Jensen’s Post

I predicted this situation would arise more than 2 years ago. Not because of any particular skill in foresight, but because it was one of these predictable domino effects. And, no, the carriers (and container leasing companies) could not have acted differently despite the eventual outcome. Think back 2-1/2 years. There was an acute shortage of equipment available. At the same time some shippers were so desperate to get their product moved that spot rates 500-1000% above normal were seen in some cases (not for the market in total though). It was also evident that shortage of capacity was not really due to not having enough containers. There were largely enough containers. The problem was that the severe delays in the supply chain meant that each shipment held on to the container for much longer than usual. It was therefore clear that once the severe supply chain congestion was fixed, the equipment situation would also be fixed - without massively ordering new equipment. Should the carriers have abstained from ordering more equipment to prevent the current overcapacity? If they did, the shortage of equipment back then would have been worse for even longer, rates would have increased further and/or stayed at historically high levels for even longer. The current problem arises because the carriers acted to create a short-term solution to help more shippers than they otherwise could (and of course in the process make significant profits from it). When carriers are now stuck with higher than usual equipment leasing costs as a result, these added costs should in reality be seen against the profits generated in 2021-22 - and as such likely not a bad trade-off. https://lnkd.in/d9_RepDe

Sea-Intelligence has released new reliability data for October 2023. On-time performance is unchanged compared to the previous month, leaving the market in a state still roughly 10 percentage points below the pre-pandemic normality. The average duration of incurred delays increased further and is almost 5 days as a global average. The past 5 months show no indication of a trend back to normality. In the major trades especially the Asia to North America East Coast continue to perform exceptionally poorly and with October seeing even further deterioration. https://lnkd.in/e9T3zQA

The impact on container shipping due to the Israel/Gaza conflict continues. Maersk is replacing two vessels in the region in order to avoid problems presumably due to the Israeli ownership of the two vessels. Zim is re-routing some of their vessels resulting in longer transit times, also out of security concerns. One risk element which should be kept in mind is the risk of cyber attacks. The recent physical attacks in the region directed at Israeli shipping interests are visible - but it is quite likely that similar efforts are happening in the digital world.

Good example of how the growing importance of the Indian Subcontinent will also result in increasing new direct services. However there is one element which is worth noting. Westbound there is a call in Algeciras. This means ONE will be subject to the EU ETS (carbon tax) for 50% of the total vessel emissions from Damietta to Algeciras as well as from Algeciras to New York. Perhaps a switch to Tangiers instead Algeciras might happen at some point in order to avoid this cost element. https://lnkd.in/d5WFEXXE

The spill over from the Israel/Gaza conflict continues and now also a 15.000 TEU vessel from CMA CGM seemingly attacked by a small drone in the Indian Ocean. In addition Houthi rebels briefly took control of yet another vessel in the Gulf of Aden. The American navy took back control of the vessel. Then ballistic missiles were fired at a US navy warship. It appears the common denominator behind the attacks is israeli ownership involvement in the vessels. https://lnkd.in/d9__XrMh https://lnkd.in/d-fdZNHU

The weak market continues. This week’s spot rate data from Drewry’s WCI essentially show that the November rate increases which had at least some measure of success two weeks ago are almost all gone again. On the Pacific the Asia-USWC saw an effective increase of 329 USD/FFE. Of this there is only now 39 USD left after a 9% decline this week alone. The same is the seen to the USEC where an effective increase was seen at 109 USD/FFE and now after 2 weeks only 21 USD remain. In other words USWC has already lost 88% of the increase and USEC has lost 81%. Asia to Mediterranean saw an effective increase of 126 USD/FFE but now only 29 USD remain for an erosion of 77% over the past 2 weeks. Asia to North Europe is the only “positive” headhaul deep-sea trade. They saw an effective increase of 268 USD/FFE and at least 144 USD of this still remains. Hence essentially half of the increase still stands in this one trade. The head haul Atlantic is even worse off. Two weeks ago an all-time low was set in terms of spot rate measurement, but at least there was a rebound last week. This week saw another drop and the spot rate have now – again – recorded an all-time low since the commencement of WCI measurements in 2012.

AD Ports clearly on a path to increase their market presence, although please note the deal is not finalized. Over the past year they have already acquired a range of container lines including Global Feeder Shipping and Transmar. This is yet another example of the ongoing consolidation in the Intra-Asian container shipping space and also an example of the ascendance of both AD Ports and DP World into the container shipping space. More such consolidation in Asia should be expected in the years ahead. https://lnkd.in/d9tXsUiu

A worrying development as the ship in question is flagged in the Bahamas and owned in Britain, albeit with partial ownership by en Israeli citizen. One incident alone does not create a trend, but it likely will not take much additional escalation before also container shipping customers could be faced with increasing war risk or additional security surcharges for cargo between Asia and Europe https://lnkd.in/dxwqYSNM

Zim published their Q3 results. Given that the carrier already had a negative EBIT profitability in both Q1 and Q2 it is not surprising that this worsened further in Q3 to a loss of -213 Million USD equal to an EBIY margin of -17%. Volumes increased +3% which puts Zim in the middle of performance seen by some of the other major global carriers whereas the rate decline of -66% puts them towards the lower performing range on this parameter. They expect a total EBIT loss in the range of -400 to -600 Million USD for full year 2023. With the performance for the first 9 months of the year being -373 Million USD this in essence means they at best expect a loss of just -27 Million USD in Q4 – which is a significant improvement over Q3 – and at worst expect a loss of -227 Million USD in Q4. This means their worst case scenario presently is for a financial performance in Q4 that is essentially not any worse than in Q3. They have 5 charter vessels up for renewal in Q4 and an additional 34 vessels in 2024. Keep in mind that Zim took on quite a few very expensive charters when the markets were at their most extreme during the pandemic impact. This means they will gradually improve their costs by getting rid of these agreements in the time ahead.

CMA-CGM’s Q3 results are mainly in line with what we have seen from other global carriers – namely a confirmation of the rapid market decline, but also the best EBITDA margin. That being said, their performance does differ in a few aspects: Volume increased just 0.9% which is in contrast to ONE which grew 6.5%, Maersk which grew 5% and Hapag-Lloyd which grew 4.5%. But in a stagnant market this means CMA CGM did not lose market share. Average revenue per TEU declined just -52% which on the contrary was better than the other three carriers who saw average unit rates decline between -58% to -64%. This also led to CMA CGM having the best EBITDA margin in Q3 at 21.0% for the shipping part. For comparison Maersk had 14.3% for the Ocean division, Hapag-Lloyd had 16.6% and ONE had 14.0%. On the logistics activities CMA CGM had an EBITDA margin of 9.5% which was essentially the same as Maersk where the Logistics6Services division had an EBITDA margin of 9.6%. CMA CGM expects new capacity deliveries in 2024 to continue to pull down freight rates