Ocean container line earnings: Not a pretty picture

“That Sinking Feeling” – that’s the title for the cover story in this week’s Journal of Commerce regarding the dismal earnings reports from a number of listed ocean container lines:

The slew of earnings reports disgorged by publicly listed ocean container lines over the last few weeks had three things in common: Profits were down as much as 50 percent in their latest reporting periods; freight rates were down even as cargo volumes increased; and expenses were up – way up – because of the soaring cost of bunker fuel and inland transportation.
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Forecasts of capacity growth suggest it might be the same old bust story, but trade volumes continue to grow and other factors may soften the impact of rising capacity. Inland cost and port congestion, the growing popularity of all-water services, and fuel-cost-induced slower speeds may combine to erode effective vessel capacity even as more ships are delivered.
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As bunker costs increase, some carriers are trying to reduce fuel consumption by slowing their vessels, which effectively cuts capacity.
Further, the introduction of more all-water services from Asia to the U.S. East Coast effectively cuts capacity because the longer routing requires more ships, and the ships are smaller and take longer to reach their destinations. In addition, any congestion at the Panama Canal, such as that which occurred this spring and early summer, reduces capacity by tying ships up to await transit. All of these factors combine to cut effective capacity by 2 to 3 percent.

Unfortunately, as always with the Journal of Commerce, you can only access the article as a paid subscriber, but I highly recommend it. It touches on a number of items we have discussed in the past such as port congestion, capacity vs demand, and their effect on ocean transportation. Previous posts related to these items can be found here , here, here, here, here, and here.

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