Shipping Lines Profits and Capacity Utilization Near All Time High

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Global Trade, Logistics

Never mind what the economists tell you, what is the global economy really doing? Well look no further than the fortunes of the container shipping industry, what the Baltic Dry Index is to the bulk ore/coal/agricultural commodities markets what the container traffic industry is to manufacturers and the global consumer markets. Of course profitability can be distorted by too much or too little capacity so utilization rates make a better measure of activity than profitability.

A series of Financial Times articles covering both the shipping markets and the fortunes of the principal players AP Moller Mearsk, DP World dock operators, Neptune Orient Lines and so on show a robust return to near full capacity. From the depths of the dip last year when shipping lines were parking 12% of the world’s container ships in lochs and fjords nearly all have now been returned to service, and most over just the last few months. According to AXS-Alphaliner only 1.7% of the world’s container ships are still laid up.

The return to health is due to two factors. On the one hand, container demand has picked up dramatically with traffic to and from developing markets. Container volumes this year are said to be up 35%, driven initially by supply chain re-stocking. Dubai’s DP World, one of the biggest container terminal operators, said volumes grew by 7% in the first half of the year. According to port statistics quoted in the Journal of Commerce, imports in Los Angeles were up 21%, 11.5% in Long Beach and 16.85% in Oakland compared to July 2009. Exports were also up 5.95% in Los Angeles, 13.1% in Long Beach and 0.4% in Oakland.

Total container volume, including imports, exports and empty containers, increased 26.8% in Los Angeles, 9.2% in Long Beach and 16.3% in Oakland. How much longer this trend will continue is uncertain. Activity in some markets is still expanding Germany, China, India, Brazil, whereas in others it is flat and short term prospects are uncertain. The second factor is in response to the dramatic slow down last year, shipping lines deliberately put their vessels onto slow running to save fuel and soak up extra ship capacity as more ships are needed to provide a service if each vessel is tied up longer on one voyage. The shortage of capacity means that, as lines carry more containers, space on ships is growing scarcer and lines can charge customers more. Neptune Orient Lines is quoted in the FT as saying the average rate it charged to move a standard container was 39% higher in July this year than in the same period in 2009.

Some shipping lines are fairing better than others though. France’s CMA CMG, the world’s third largest, is said to be struggling to fund huge orders of large expensive ships placed during the industry’s boom. Israel’s Zim Lines has needed massive bailouts but Evergreen of Taiwan declined to order during the boom and is doing well. Maersk said it expected 2010 to be its best year since 2004, when the container shipping boom was at its height.

Although comparisons with 2009’s appalling collapse of traffic can be misleading, still Maersk is quoted in an FT article as saying rates per 40-foot container were 30% higher for the first half this year than last year, while Neptune Orient Lines has seen a 15% improvement in the year to July 23. Volumes too are up on long distance routes generally by 13% in H1 2011 with Trans-Pacific routes seeing an 11% increase and Latin America an 18% improvement.

Having engineered rate increases by slowing ships and idling capacity when needed, even if there is a drop in global growth it is unlikely we will see rates fall back to where they were last year. Shipping lines say they expect rate increases to slow in the second half of the year but they will still be higher by year end. So anyone booking forward may be well advised to fix rates now, the good times in terms of low rates appears over.

–Stuart Burns

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