The world’s major container shipping lines made estimated collective operating losses of $3.5 billion in 2016, their first annual deficit since 2011, despite a strong end to a bad year, reports container shipping analyst Drewry. But things are looking up for 2017 and beyond.
Most of the last few carriers published their annual financial results last week, Drewry noted, enabling the company to fully assess the extent of the damage wrought in 2016, although Cosco was too late to include in its report today.
After analysing the results, Drewry noted: “The first thing that we see is that our previous operating-loss estimate of approximately $5 billion made at the end of September was too severe. A better-than-expected fourth-quarter, when carriers collectively just about broke-even, combined with favourable revisions to both our loaded-container and average-revenue-per-teu estimates - two key drivers of our profit model - means that we now believe industry operating losses were closer to $3.5bn.”
With a number of major carriers, such as the world’s second largest container line MSC declining to publish results, Drewry said it was impossible to give a precise figure.
Despite better demand and pricing fundamentals that gathered momentum in the second half of the year, only four of our 15 sample carriers posted any kind of operating profit in 2016: niche operator Matson’s ocean transportation division and Hapag-Lloyd equal best with $141 million (Hapag-Lloyd reported an overall net loss of $100.5m), followed by the Intra-Asia-focused Wan Hai ($58m) and CMA CGM ($29m). At the bottom end of the scale, the heaviest operating losses were incurred by the Hyundai Merchant Marine group (-$716m), Yang Ming (-$453m), Maersk Line (-$396m) and MOL’s container unit (-$345m), Drewry said.
“Being small was beautiful in 2016 judging by the stand-out operating margins from Matson (9.2%) and Wan Hai (3.3%), when no global carrier could break 2%,” Drewry observed.
It said the wide spread of operating results from carriers had been a consistent theme in recent years, and was a consequence of companies having often very different exposures to specific trade lanes “that continue to diverge in the profit and loss stakes, as well as running at contrasting operating expense levels that are hugely affected by the size of ships deployed and charter terms. We expect the variance trend in financials to continue in 2017, only with more winners than losers.”
In terms of the outlook for container lines for this year and beyond, Drewry said: “It may not seem like it right now in the aftermath of a raid at the last Box Club meeting in San Francisco, but life will get better for senior executives of major container shipping lines. With freight rates slowly climbing off the floor and demand also recovering, it seems that the worst has passed for carriers, and for most lines 2017 should be a year of small profits, giving an industry margin of about 1%, according to our latest Container Forecaster report due to be published this week.
“Taking a longer view, with fewer competitors thanks to the recent M&A wave and the ability to manipulate the supply and demand balance more in their favour through newbuild delays, there is a big upside there for the taking,” said Drewry. “Whether they do or not is another matter.”
Drewry concluded: “Last year was a bad one for ocean carriers, but as painful as it might have been, it did give the industry the wake-up call it needed to mend some of its ways. The days of propping up failing carriers need to be a thing of the past.
“While we are more positive for 2017, if our profit forecast is correct there is very little room for error and it would not take too much – say a sudden spike in bunker costs or more rate wars in the key trading corridors – to condemn them to another loss-making year.”