After Lackluster First Quarter, Second Quarter Could Be Even Worse for Container Lines

shipping container
Photo: MOLPIX / Shutterstock

By Mike Wackett (The Loadstar) – With the second quarter now two-thirds done ocean carriers look to be heading for a second successive H1 loss, making a good peak season more essential than ever for the sustainability of the liner industry.

Last week CMA CGM completed the set of container lines that publish their financial results recording a less than inspiring $22m net loss from its container business in Q1 to add more gloom to what turned out to be a generally disappointing first quarter for the sector.

In contrast to 2018 the year had started with carriers appearing to hold many of the cards needed to get off to a strong start, with spot container rates at a reasonably healthy level, thanks to the front-loading boost on the transpacific tradelane, and “satisfactory” contract increases on the Asia-Europe routes.

But of the top six carriers that publish their financials and do not receive state subsidies it was only Hapag-Lloyd with a profit of $109m that managed to record a result in the black in the first quarter.

And carriers are now facing a number of headwinds in the current quarter that look set to ruin their voyage results for Q2.

On both the major tradelanes spot rates have fallen significantly since the beginning of the year.

Since the first week of January rates from Asia to the US west and east coasts have slumped by 22% and 16% respectively, while carriers between Asia and North Europe have seen rates drop by 24% since January and by 17% to Mediterranean ports.

Notwithstanding the predictable transpacific rates correction following the front-loading burst at the end of last year, on the Asia-Europe tradelanes one carrier source told The Loadstar recently that headhaul trade had been “sluggish” since the Chinese new year and was taking “longer than normal to bounce back”.

Indeed, the slow recovery has reportedly led to some discounting on the trade with for example CMA CGM cutting it 40 ft FAK rate by $100 and Maersk slashing its FAK rate by $300.

Speaking during the company’s earnings call last month Hapag-Lloyd’s chief executive, Rolf Habben Jansen said he expected the second quarter to be tougher.

“I would not be disappointed if the result was a little bit lower in Q2; that would still be in line with our expectations,” Mr Habben Jansen told investors and analysts.

On the cost side of the equation carriers are facing substantial hikes from owners for charter hire as the market tightens in the mid to large vessel sectors due to a combination of higher demand caused by preparations for IMO 2020, such as scrubber retrofits and tank cleaning, and a dearth of newbuilds, a consequence of the industry’s focus on ordering ULCVs in the past few years.

MSC, which has a large scrubber retro-fit programme for its fleet and also has one of the highest ratios of chartered in tonnage at 69% of its capacity is likely to be hit hard, along with CMA CGM with 61% of chartered tonnage and ONE with 64% of its ships chartered in.

In terms of using owned tonnage, Hapag-Lloyd has one of the highest ratios at 39% with Maersk at 43%, which is expected to give both carriers cost advantages on their rivals.

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