The average operating margin of the 13 major container carriers that have published their second-quarter results fell to -9.2%, down from -5.5% recorded in the first quarter, as plummeting freight rates pushed earnings down to a level not seen since 2012, according to new research published by Alphaliner.
The weak performance is expected to persist in the second half, despite a recovery in freight rates recorded in the third quarter, following the withdrawal of Hanjin Shipping’s services in September.
However, these rate gains had already started to fall off, with carriers focussing on winning market share at the expense of pricing discipline, Alphaliner said. The onset of the winter slack season would put further pressure on freight rates as demand waned.
Among the lines reporting, Wan Hai was the only carrier to post positive earnings in the latest quarter. Even Maersk Line posted an operating loss of $111m for the quarter, for a negative margin of -2.2%.
While weak earnings were behind the collapse of Hanjin, its negative operating margin of -14% was not the worst in the sector, Alphaliner said. Compatriot Hyundai Merchant Marine posted the weakest margin of -26.7%.
Weak earnings had also highlighted worsening balance sheets at many carriers, particularly Zim, whose equity base had been wiped out by its persistent losses.
Zim posted a core operating loss of $40.5m and a net loss of $74.6m in the second quarter, as it sank to a negative equity position of $62.7m against total debts of $1.4bn at the end of June this year.
“Zim’s working capital deficit reached -$70m, while it delayed the release of its second-quarter results by a month as it waited to reach an agreement with its creditors for rescheduling of debt payments totalling $115m,” Alphaliner said.
“This is the second time that Zim was forced to restructure its debt since 2013 and it follows the debt-for-equity swap concluded in July 2014 that saw the company convert and write off some $1.4bn of outstanding debt.”
But while the situation looks dire for many carriers, Alphaliner is optimistic that another Hanjin-style collapse is not imminent.
“Despite the weak financial position of some carriers, notably Zim and HMM, the risk of another carrier bankruptcy in the near term is likely to be low, as stakeholders in these financially distressed carriers will want to avoid another Hanjin fiasco and would want to opt instead for an orderly financial restructuring and transition into creditor control,” Alphaliner said.
“However, their ability to successfully navigate through this difficult period will depend on their ability to retain the support of customers who have been badly unnerved by the Hanjin Shipping collapse.”
While the fallout from Hanjin’s collapse had yet to be fully measured, most of the company’s assets were expected to be liquidated and it was likely to emerge from rehabilitation only as a much smaller niche carrier, Alphaliner said.
“The poor handling of the Hanjin Shipping crisis would serve as a useful lesson for shippers and other carriers to avoid the pitfalls in the event of another carrier’s collapse.”
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