Container Shipping Industry Passes Earnings Peak

The results are in. The container shipping industry earned profits of $58.9 billion in the third quarter, breaking a streak of seven straight record quarters for the sector and further confirmation that the industry’s earnings peak is now firmly in the rear-view, according to industry veteran John McCown.

While the $58.9 billion profit is 22.4% higher than the $48.1 billion profit from last year’s third quarter, it is 6.6% lower than the “mind-altering” $63.7 billion earned in this year’s second quarter, making for a slight sequential earnings downturn that is expected to continue in the months and quarters ahead as aggregate overall pricing in the sector continues to ease, McCown said in his latest container shipping quarterly report.

“The Q222 actual results can now be recognized as the peak in terms of earnings,” McCown said.

Throughout the pandemic, container shipping has benefitted from significant price increases across most lanes as strong consumer demand combined with widespread port congestion drove freight rates to records.

“The sharp upturn in the quarterly bottom line performance of the container shipping industry over the last two years is one of the most pronounced performance changes ever by an overall industry,” McCown writes. “It comes on the heels of results in the more than ten years following the financial crisis and preceding the pandemic that results in a negative overall bottom line. The container shipping industry has literally gone from being at the bottom related to overall industry performance to being at the top related to overall industry performance.”

McCown attempts to put the container shipping’s recent performance into perspective by comparing the industry’s profits to FANG, an acronym he uses for Facebook, Amazon, Netflix and Google.

“Container shipping industry profits were 14% higher than total FANG profits in 4Q21, 103% higher than FANG profits in 1Q22 and 145% higher than FANG profits in 2Q22. For 3Q22, that gap has expanded even more as container shipping industry profits have swelled to being 158% above total FANG profits.”

McCown’s report again hits on spot vs contract rate impacts on earnings, noting that industry earnings “are on a different curve than what has occurred with spot rates as the large majority of loads move under contract rates,” which remained near peak levels in 3Q.

“I suspect the folks who focus on spot rates and have been predicting a near term collapse will be surprised by the actual third quarter results. They will likely be even more surprised by fourth quarter results as they haven’t been focusing on the more relevant aggregate pricing metrics,” McCown writes, noting that much of 2022’s financial results are already “baked in”.

Nevertheless, McCown has adjusted his 2022 profit forecast down to $223 billion, from his $244.9 billion forecast at mid-year, which is still 50.6% above 2021’s record profits.

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