Watch Now


Inside container shipping’s COVID-era money-printing machine

Some ocean carriers are being much more aggressive on near-term fleet growth than others

(Photo: Shutterstock/Angel Soler-Gollonet)

It’s a seemingly basic shipping formula: Liners operate a fleet of container vessels, whether owned or chartered, with total capacity measured in twenty-foot equivalent units (TEUs). The more TEUs of cargo that liners can load per TEU of fleet capacity, the higher their revenues.  

Here’s where it gets more complicated: Freight income per TEU is now higher than it has ever been before — and the reason rates are so high is that the global transport network has been overwhelmed by COVID-era consumer demand for goods. As rising rates are supercharging revenues, liners are simultaneously losing effective capacity due to the same congestion that’s fueling the rates.

Sea-Intelligence CEO Alan Murphy told American Shipper, “We have an exceptionally high number of blank [canceled] sailings, not for commercial reasons, but for operational reasons. If vessels are stuck at a port for two weeks, they’re not going to make it back into the rotation.”

The situation is so bad that Maersk has had to unintentionally blank around 20% of its Asia-West Coast sailings year to date, the same level it intentionally blanked in Q2 2020 due to the sudden collapse of import demand when U.S. businesses were shuttered by nationwide lockdowns at the onset of COVID.

“It’s somewhat ironic that carriers have to blank sailings just at a time when these voyages would provide them record revenue,” said Stefan Verberckmoes, shipping analyst and Europe editor at Alphaliner.

Several liner companies specifically cited negative effects from congestion on their Q1 volumes. With the Ever Given accident fallout extending through April and May, ongoing congestion at California ports in the U.S. and at major European hubs, and COVID restrictions at Chinese exports terminals in June, some liners’ volumes could be lower in Q2 than in Q1.


“You could certainly see a reduction in volumes in the second quarter [versus the first]. Absolutely,” said Jefferies analyst Randy Giveans.

This has negative implications for cargo shippers — space could fall and rates could rise — and positive implications for the non-operating owners (NOOs) that lease ships to liners, companies like Danaos (NYSE: DAC), Costamare (NYSE: CMRE), Global Ship Lease (NYSE: GSL), Euroseas (NASDAQ: ESEA) and Navios Partners (NYSE: NMM).

‘Sky high’ rates boost revenues

For the liners, higher rates are more than offsetting lost effective capacity due to congestion, causing revenues to soar. “Rates are so high that overall revenues are sky high anyway,” said Verberckmoes. “Even if carriers have to blank sailings at a time when these sailings could provide them record revenue, their results will still be excellent.”

Q2 results will benefit from the new annual trans-Pacific contract rates, which are up 50% or more year on year, as well as from spot rates that continue to climb.

According to the Freightos Baltic Daily Index, spot rates from Asia to the West Coast reached $5,722 per forty-foot equivalent unit (FEU) on Monday, up 198% year on year, with spot rates from Asia to the East Coast at $7,598 per FEU, up 169%. These rates do not include additional charges, which can range from $3,000 to $5,000 per FEU.

Blue line = Asia-West Coast rates. Purple line (FBXD.CNAE) = Asia-East Coast rates. Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

Different strategies on fleet growth

Revenue per TEU carried is only part of the liners’ revenue equation. Another variable is fleet size; the larger the fleet, the more boxes can be carried and the higher the overall revenues.

One way to counter negative congestion effects on capacity is to grow the fleet. “Carriers obviously need more ships and containers to continue carrying the same amount of cargo,” noted Verberckmoes. “The more capacity a carrier can deploy in Q2, the more profit it will make.”

Near-term fleet growth stems from newbuildings ordered in previous years that are now being delivered, from ships that are chartered, or from ships that are purchased in the secondhand market.

Some carriers are not growing their fleets much, if at all. As of the end of Q1, Maersk’s fleet size was down 1.1% year on year, Hapag-Lloyd’s was down 0.6%, ONE’s was up 2.1% and COSCO’s was up 4%.

Other carriers are growing fleets rapidly via secondhand purchases and charter deals to capture more near-term upside.

“MSC and Wan Hai have been very actively buying ships,” said Verberckmoes. Alphaliner reported that MSC has been on an “unprecedented buying spree,” acquiring 49 ships since last August. MSC is simultaneously very active in charter markets.

ZIM (NYSE: ZIM) is growing entirely through charters. Between the end of Q3 2020 and the end of Q1 2021, ZIM’s fleet capacity jumped 34%.

As a result, ZIM has outperformed larger competitors in terms of volume growth. Its Q1 2021 volume was up 28% year on year. In contrast, Maersk’s was up 5.7% and Hapag-Lloyd’s was down 2.6%

Balancing risk and reward

The problem with growth via secondhand acquisitions or charters is that pricing for both options is now extremely high, and in the case of charters, durations are now multiyear. If freight rates fall sharply at some point in 2022-2025, it will be painful for future bottom lines.

“There is certainly an element of risk here,” said Verberckmoes. “It’s obvious that 2021 will be an excellent year for carriers, but there’s still no visibility on cargo demand in the next years. NOOs are now in the driver’s seat. Carriers who absolutely want to charter additional ships have no choice but to accept longish charters with the risk that the rates will be much higher than the market average over a few years. These ships, however, will already provide a very big income in the short term.”

According to Giveans, it makes sense for carriers to charter in ships at elevated rates for multiyear durations, even if they assume freight rates will fall in future years. That, in turn, bodes very well for the NOOs leasing ships to liners.

“For a liner willing to pay elevated rates for four years, they’re going to make so much money in the next six months that it will be profitable even if they bleed some cash in the out years. That will be more than offset by the huge cash flow in the near term,” he maintained.

“Look at some of these crazy fixtures for durations of three to six months,” he said. (As previously reported by American Shipper, a 15-year-old, 5,060-TEU ship was recently chartered for 45-90 days at $135,000 per day.)

If operators aren’t willing to do a multi-month charter for six digits a day, they’ll have to take a multiyear charter for five digits. Giveans explained, “A liner may be thinking, ‘We really just need the ship for the next 18 months,’ but no one is giving ships for 18 months. So, if they want it for 18, they’ll say, ‘We’ll take if for 48 months.’

“And they’ll pay $48,000 a day for four years, as was the case in one of Danaos’ recent fixtures, because they know they could probably pay $200,000 a day for the next year and still be profitable. They’re going to have a period of super profits. And yeah, after that they may have a period of flat or even negative [returns], but that’s OK, because the super profits will far outweigh that.”

Click for more articles by Greg Miller 

Greg Miller

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shih Tzus.