Containers

How to spend those billions of dollars

Cash-rich liners are spreading their wings

Ocean Network Express (ONE) is the latest liner company to report record full year net profits, in its case for the year to March 2022. Its net profit increased near four-fold to $16.8bn as it put the last of its restructuring costs behind it and focused on wringing every dollar it could from the booming freight market.

The big liner companies have been spending their profits on massive quantities of newbuildings which now are approaching nearly 30% of the fleet’s capacity, a number which threatens to derail the prospects for the liner freight market, once they all deliver by mid-2025. This year alone 149 fully cellular ships have been ordered across all size ranges, but only two contracts have been inked in April and May, a pair of 2,713 teu vessels, both for clients of Columbia Ship Management.

Having maxed out on new ships, the liners are now looking for ways to integrate themselves more firmly into global supply chains. Air cargo is fashionable and CMA CGM is the latest to take to the skies, taking a 9% shareholding in Air France-KLM. The tie-up includes a 10-year deal to share and cross-sell freight capacity. CMA CGM will also contribute four air freighters it bought in 2021 to the six currently owned by Air France-KLM.

Across the border in Switzerland, MSC is jointly bidding with Germany’s Lufthansa to acquire ITA Airways, Italy’s successor to Alitalia. Maersk announced in April its new Maersk Air Cargo business, a physical aircraft operator to act as air freight provider to the rest of the group, taking over the old Star Air brand in the process. Maersk aims to control one third of its air freight directly.

The profits meanwhile look like they will keep coming in during 2022. The Freightos Baltic Containerised Freight Index has slipped further from its September 2021 peak to $8,236 on May 13, but that is still more than four times the pre-pandemic long term average of around $1,800. T

In part, these still high freight rates remain a function of shoreside bottlenecks. ONE’s CEO Jeremy Nixon told a recent analyst call that shortages of rail, port and trucking workers continue to hamper global supply chains. Congestion appears to be increasing now in Guangdong province as liners have moved port calls from Shanghai to Shenzhen. Genscape data show a huge rise in containerships in or near Pearl River Delta ports from 85 to 184 between April and May, as the count around Shanghai, Ningbo and Zhoushan has fallen from 230 to 187.

A May 2022 survey of 200 market participants for Container xChange found that 51% of respondents expect the 2022 peak season to be worse (as in more disrupted) than 2021, while 26% expect things to be better and 21% expect the level of disruption to be the same. 38% of respondents said they have been shipping early to beat peak season delays and costs, though the addition to inventory days carries its own cost burden.

The liner companies are incurring extra costs from chartering in tonnage to fill gaps in their schedules. The time charter indices are just as stratospheric as the freight indices though they also show a month-onmonth decline. Take for example the VHBS Time Charter ConTex index, which rates a 12-month time charter on a 5,700 teu ship at $119,067 per day in May compared to $46,210 in May 2021 – amazing numbers for a ship which was looking at being scrapped a few years ago when the new locks opened in Panama. These prices may explain in part why the liners have decided to order more ships and directly control more of their own fleets. ●