Early forecasts of container carrier performance this year are being torn up following new evidence supporting a much brighter prospect for the sector this year.
With the onset of the coronavirus pandemic in February, initial estimates based on an expected fall in volumes led to scenarios that saw the box shipping sector as a whole losing up to $800m in a best case scenario that saw rates remain stable, and as much as $23bn if rates were to slide in line with volumes.
But a number of new data points have now led to a revision of those scenarios that could see carriers actually improve on the $5.9bn aggregate profit they made last year, according to analysts at Sea-Intelligence.
Throughput figures from Container Trades Statistics confirm that volumes have indeed fallen sharply this year. First-quarter liftings were down 5%, with a sharp 16.9% drop in April bring the year-to-date fall to 8.1%.
“With the levels of capacity reductions on key trades peaking in May, we are likely to see 15%-20% demand decline for the second quarter,” Sea-Intelligence said. “Hence for now we will maintain the 10% annual volume decline as a baseline.”
Freight rates, however, had responded far more positively than had been expected earlier in the year.
“In early April, it was seen as a success for the carriers if they were simply able to maintain rate levels in an environment of sharply dropping volume; they simply had never been able to accomplish this before,” Sea-Intelligence said. “However, they have done even better and increased the rates.”
Despite the fall in volumes, the China Containerised Freight Index is tracking 7.4% above the level it was at during the first half of 2019.
“The most optimistic earlier scenario was that carriers maintained rate levels, and this would lead to a combined loss of $800m,” Sea-Intelligence said. “But now, if the carriers hang on to their 7.4% rate increase, their collective profits in 2020 will actually be $9.7bn. If rates were to drop down to 2019 levels for the second half of 2020, the annual profits would still be $4.5bn.”
Even a “worst-case scenario” that saw capacity discipline falter in the second quarter, leading to a collapse in rates, would see carrier losses capped at $7bn, Sea-Intelligence added.
“In essence, only one thing has materially changed since early April: the carriers have been able to increase rate levels instead of just maintaining them,” Sea-Intelligence said.
There is still the downwards scenario where capacity, and hence rate, discipline falls apart. But for now there is nothing indicating that we will see such a collapse; rather the opposite in fact. The severity of the negative scenario is so material, that this is likely a key component in the carriers’ newfound ability to be very disciplined in their capacity management.”