Report: Container lines back in black in Q2 2017

The majority of container carriers are posting profits in 2017 that are almost equal to the losses sustained in 2016, with recovery driven by greater price discipline, according to a recent report from maritime consultancy Drewry.    Container carriers are increasingly in the black in the second quarter of 2017, according to the latest report from London-based maritime consultancy Drewry.
   For most container lines, recovery has been driven by much better market fundamentals and greater pricing discipline, said Drewry.
   “Our preliminary operating margin estimate is that during second quarter of 2017 the industry enjoyed its most profitable quarter in two years, with margins hitting around 4 percent,” said Drewry. “The trend line is undeniable, and keeps the industry on track to meet our forecast that it will make a collective operating profit in the region of $5 billion this year, after losing a similar amount in 2016.”
   Of the 16 container lines analyzed by Drewry (omitting CMA CGM, which will release its results later this month), only four were still operating in the red at the halfway point this year, compared with 12 last year.
   According to Drewry, there are three reasons carriers are back in the black: “a shrinking pool of competitors, improving supply and demand fundamentals that went through the gears, and most importantly – the fact that carriers (in general) used this newly-found pricing power to good effect.”
   Data shows that companies focused on raising profits ahead of market share: as a result, Maersk Line, OOCL, “K” Line and ZIM saw greater increases in unit revenues than volumes, said Drewry.
   On the other hand, Korean carrier Hyundai Merchant Marine (HMM) was forced to offer “steep discounts on freight rates to recover lost volumes from when the company was in a much more perilous financial position,” said the firm. As a result, HMM saw volumes increase 46 percent but its unit revenues reduced by 6 percent during the second quarter of 2017.
   Overall, carrier margins for the first half of the year are positive, with CMA CGM’s results expected to raise those margins even more, said Drewry.

   “Even greater pricing discipline should prevail as more lines emerge from their own troughs,” the firm said. With an improved market outlook and fewer players, “should ensure the recovery is more sustainable than before.”

Clarification: Although Drewry said HMM had to offer “steep discounts on freight rates to recover lost volumes from when the company was in a much more perilous financial position,” an HMM spokesperson told American Shipper, “HMM did not offer any steeply lower freight rates than market price in order to recover the lost volume. On the contrary, HMM’s average freight rates in 2017 Q2 have increased year-over-year, considering its operating profits in container business (excluding chartering/other income). Despite increased freight rates from last year, dramatic growth (up 95 percent year-over-year) of capacity and volumes in Asia Trade of which rates are relatively lower than other trade engendered the unit revenue increase limit.”