Shipping line results are coming in and it isn’t pretty
Some lines are in the black, but fortunately there is a lot of red ink left over from last year to fill out the rest of the balance sheets.
There must be an upside to owning a global container shipping line. Maybe employees get discount rates when shipping personal stuff overseas. Maybe the captain can wear an eye patch and chase the bosun around growling, “Aaaaargh!”.
It can’t be the money, because even the world’s biggest carrier, Maersk Line, saw its profit last year falling by almost seven percent compared to 2012. Okay, so it banked US$1.5 billion profit, but that was still 100 million clams less than the previous year.
Down at APL, the container shipping unit of NOL, the carrier was $231 million short of the black line. OOCL’s results will be out in a week or so and while they may squeak in with a profit, it is unlikely there will be any fireworks.
Commentary from liner executives could be cut and pasted from one financial result to the next. Volumes increased (ie. the number of containers carried went up) but freight rates remained stubbornly low.
At Maersk, for instance, cargo volume was up eight percent but rates fell six percent. Bunker fuel prices also fell, which helped, as did a better utilization of the fleet.
But the business model of the lines has never been to carry more containers for less money. It may be cheaper to transport cargo by sea than by air, but as far as we know there are no successful low cost ocean carriers.
Overshadowing the financial results is the old problem of overcapacity. Maersk calls it the worst slump in prices for carrying cargo since the beginning of containerization in the 1970s.
And this year will not bring any relief. After five years of cutting costs there is nothing left to cut and only through reducing unit costs can the lines stay in reasonable shape (give or take a half billion loss). Everyone is scrapping ships as early as possible and ordering the biggest and most fuel-efficient ships they can stomach.
Banding together in mega alliances will help soften the overcapacity burden but it remains to be seen whether customers will be better served by these liner partnerships and whether freight rate volatility is smoothed out.
There are a couple of shipping conferences coming up soon where these questions will be answered, so stay tuned. As we say in the blog business: We may not be the first with the news, but we’re not the last.