With demand likely to remain high and additional capacity not due for a few more years, the shipping lines look set to reap a revenue harvest until new vessels begin to be delivered in 2023.
Container shipping rates are likely to to remain high well into 2022, as disruption continues to restrict capacity and new vessel deliveries remaining low until 2023, when the addition of significant capacity is very likely to change the supply-demand dynamic.
Quarterly carrier operating profits in 2020 have been massive, almost doubling in each subsequent quarter, leading to a best ever end-year result at an estimated $26.6 billion, with an operating margin of 13%.
The container industry has been accustomed to low margins, with occasional peaks and troughs and while past experience would suggest that the market will cool down fairly quickly, these are strange times and many industry experts, pundits and analysts believe that the container shipping lines are likely to enjoy another two very profitable years.
The record-breaking freight rate rises experienced from the second half of 2020 onwards were the consequence of a confluence of extraordinary factors, including a sustained demand surge caused by the pandemic, away from services to goods and supply chain disruption that reduced port efficiency, which in turn diminished the availability of equipment and restricted capacity in the market.
Port congestion and container equipment shortages are very likely to remain an unwanted feature throughout most of 2021 and while the hope this will alleviate as the months pass, IMF projections suggest demand will remain high into 2022, which will further restrict the availability of capacity and lead to substantially higher freight rates.
While the hope is for some erosion in freight rates in 2022, as carriers lose the inflationary impact of the current supply chain disruption, we suspect that the lines will maintain the high-ground with skilful capacity management.
Things may not be so easy for carriers post 2022, thanks to a flurry of new ship build orders triggered by the current ‘high demand’ situation. In 4Q20 alone, the volume of new orders was more than three times that of the previous nine months and contracts signed in the first three months of this year equal an astonishing 1.45 million teu of capacity.
Driven by today’s demand driven profits, lines and vessel owners are seeking as many containerships as they can find, but these new ship orders won’t arrive in time to cash in on the pandemic-driven boom time and they risk paying for assets that could potentially reverse the demand/supply equation.