Drewry: Less Congestion Means Less Profit for Container Terminals

The sudden fall-off in container spot rates has been well publicized, and it is likely to lead to leaner times for ocean carriers in the next few quarters. Some of the smaller start-up lines that launched during the pandemic are already finding it hard to cover the cost of charters signed at the peak of the market, and at least one carrier is beginning to scrap older vessels. But the impact on container terminal operators has been less studied. 

In a report released Wednesday, market intelligence firm Drewry predicted that the hefty profit margins of the pandemic era are unlikely to continue into 2023. The agency expects that shipping volume and port congestion will decline next year, cutting into the new revenue that terminal operators have reaped from excess storage fees (D&D). As the wharves begin to operate more smoothly, the revenue per container will go down, reducing terminal operators' margins. 

This will leave terminals more exposed to elevated costs for fuel, electricity and labor, the universal symptoms of runaway inflation. 

"Operating costs are expected to rise steeply through 2023 as a result of inflation-beating wage settlements," said Drewry senior analyst Eleanor Hadland in a research note. "Additionally, the drive for cost efficiencies that most operators made during 2020-22 in the face of the Covid pandemic results in fewer opportunities to make further efficiency gains."

Any localized disruptions - for example, the lingering COVID-driven shutdowns at Chinese megaports - could potentially support more congestion, boosting terminal earnings in some regions. 

Most analysts expect that the container market is going to enter a downcycle next year, and that profits for the leading ocean carriers will fall back to earth. Profitability could decline by 80 percent in the next two years, HSBC analyst Parash Jain forecast in September. Last week, Fitch Ratings predicted that next year's container line profits "will be much weaker than they were over the last three years," when the leading box lines were more profitable that the top names in tech.