Carrier operating margins fall into single digits for first time in 3 years

There’s good news and bad news in the lead article in this week’s report from Alphaliner, the leading container publication from brokers BRS.

First, the good news. Analysing Q2 results for the nine global carriers who publish their earnings before interest and tax (EBIT) shows that volumes bottomed out in the first quarter

“The first quarter of the year proved to be the trough in terms of volumes,” Alphaliner stated.

The bad news? Combing through all the Q2 results, Alphaliner noted that the average operating margins for the leading container carriers fell into the single digits for the first time in three years in the second quarter of 2023, coming in at 8.9%.

The figure compares to an average margin of 13.1% in the previous quarter and 56.3% a year earlier.

Israeli carrier ZIM posted the weakest operating margin of –11.2%, while China’s COSCO, including subsidiary OOCL, was the best with a 27% operating margin thanks to a highly successful cost-cutting programme.

Analysts at HSBC argued in a recent report that with spot freight rates now settling above the contract rates, the industry should remain in the black this year.

“Having said that, we expect 2H profitability to sharply reset to a more normalised level,” HSBC warned.

“Although freight rates will receive a minor boost this week from the 1 September rate hikes, market sentiment remains poor with the [Shanghai Containerised Freight Index] giving up all of its gains in August in a repeated pattern of early month rate gains followed by rate cuts as the month progresses,” the latest weekly report from Linerlytica stated, noting that the transpacific rate gains have been more resilient than on Asia-Europe, but even there the momentum is dissipating quickly with the Panama Canal transit limitations proving to be less disruptive than what has been portrayed by the “clueless media”.

Container shipping tends to enjoy a privileged position when it comes to Panama Canal transits, paying early for confirmed slots and thus far in the ongoing waterway congestion saga the sector has not suffered greatly. Peter Tirschwell, vice president at S&P Global Market Intelligence, told today, shippers are only being “minimally inconvenienced” currently from the drought-linked disruption in Panama.

Speaking last week, Andy Lane, a partner at container advisory CTI Consultancy, said: “Much of the media’s frenzied coverage of the waiting times for a Panama passage are in clear conflict with the detailed and transparent reporting from the Panama Canal Authority.”

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Mr Sam Chambers

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