Drewry Forecasts Record $100B Profit for Ocean Carriers
![ebitda](/media/images/article/Photos/Vessels_Large/maersk-line-maersk-cunene-container-ship-July-2021.d85ff2.jpg)
Shipping companies are projected to defy huge operational disruptions ignited by COVID-19 pandemic, port congestion and container shortage to post a cumulative profit of $100 billion in 2021.
Global shipping consultancy Drewry reckons in its latest Container Forecaster report that 2021 will be the first year in the history of container shipping when carrier profits approach $100 billion.
The impressive profits are being driven by freight rate hikes that have jumped by 50 percent, and will be realized despite congestion at seaports and a persistent shortage of containers.
Global port throughput is projected to be 873 million twenty-foot equivalent units (TEU), a 10 percent increase from last year.
“We are now forecasting industry earnings before interest and taxes (EBIT) of approximately $80 billion for this year, up from our previous estimate of $35 billion. If freight rates surpass expectations in the remainder of the year, we would not be surprised to see an annual profit line in the region of $100 billion,” said Drewry.
For 2022, it forecast EBIT to drop by around one-third due to softening of freight rates and rising costs that may stay higher for longer with many carriers locking into expensive longer-term charter fixtures.
“Nonetheless, it would represent another astonishing performance by historical standards,” noted the quarterly forecast.
In the second quarter of this year, box shipping rates reached new highs as spot rates and contract pricing continued to surge.
The situation is not showing any signs of let up as worsening supply-chain disruption continues to stoke pricing on a weekly basis.
“We are now getting accustomed to seeing triple-digit annual growth rates for spot rates on most lanes. That these instances are no longer shocking is further proof, if needed, that the market truly is crazy right now,” observed Drewry.
The extreme increases in freight rates have naturally translated into blockbusting carrier profits, with shipping lines posting a record EBIT result of $27.1 billion in the first quarter, up from $1.6 billion during the same period last year. So impressive are the latest quarterly results, they even eclipsed the full-year 2020 EBIT of $25.4 billion.
The historic financial performance comes at a time when the global shipping industry is grappling with challenges like port congestion, container shortages and COVID-19 related disruptions.
“Port congestion and equipment availability challenges, for example, have not gone away and continue to drive market prices, but what is different from three months ago is that some of the numbers are much bigger,” notes the forecast.
According to Drewry’s forecast, container volumes are expected to continue to rise through the third quarter peak season and end the year with annual growth of approximately 10 percent.
Next year, growth is expected to ease as consumer spending is expected to move back towards services as COVID-related restrictions are lifted.
The massive shortage of containers, which is not growing in tandem with demand, has forced some lines to scour the second-hand market for expensive new assets to add to the pile, but others can only supplement with newbuild deliveries - or are simply having to make do with what they have.
“Cautious newbuild contracting of recent years means that we expect the cellular fleet to only increase by 4.2 percent this year and 2.8 percent in 2022, in both cases significantly below that of world port throughput projections,” noted Drewry.
The industry consultancy contends that high levels of newbuild contracting for 2023 pose a risk of overcapacity returning to the market, although future supply requirements are heavily clouded by new environmental regulations due to become law at the start of 2023, which may or may not see significant chunks of the container ship fleet slow down in order to comply.
Drewry estimated that 16 percent of worldwide effective capacity (the slots available to the market) will be lost this year as a direct consequence of lower port productivity, following on from an 11 percent reduction last year.