All bets are off – liner shipping will now make improved profits over 2021’s record earnings, even in the unlikely event that there is seismic crash in spot earnings in the remaining seven months of the year.
May saw the highest monthly increase in long-term contracted ocean freight rates since Oslo-based Xeneta started tracking these shipments, as the cost of locking in container shipments soared by 30.1%. The unprecedented hike, revealed in the latest Xeneta Shipping Index (XSI) public indices for the contract market, means that long-term rates are now 150.6% up year-on-year. In 2022 alone, costs have climbed by 55%.
“This is a staggering development,” commented Xeneta CEO Patrik Berglund. “Just last month we were looking at an 11% rise and questioning how such continued gains were possible. Now we see a monthly increase of almost a third blowing the previous XSI records out the water.
“The breath-taking gains reflect the sharp increase of the average of all valid long-term contracts, as older contracts, with lower rates, expire and are replaced by newer agreements with much higher rates. It’s certainly a challenging time to be a shipper.”
While the split between long-term contracted and spot cargoes has traditionally been 50:50, during the first couple of years of the pandemic, the volume of spot cargoes edged ahead, this is expected to reverse in 2022, with Xeneta’s chief analyst Peter Sand telling Splash he is forecasting a 55:45 split in contracted cargo’s favour.
In May, the most dramatic development was seen in US import costs, which jumped by 65.1% to stand 205.4% up year-on-year, as new long-term contracts, which usually run from the start of May to April, came into force. The XSI US export benchmark showed a less pronounced, but still strong, upwards move of 9.9%.
European long-term rates rose by 11.3% on the import index, and are 122% up year-on-year, while exports recorded their largest ever monthly jump of 27.6%, an impressive 138.3% increase on May 2021. Far East import and export indices both raced upwards, with the former rising by 17.4% and the latter soaring 35.4%, the largest monthly rise tracked by Xeneta for this measure. Seen from a year-on-year perspective, the respective benchmarks stand 57.1% and 174.8% up.
“It goes without saying that the main carriers are achieving astronomical results at the moment,” Berglund noted.
By the end of 2022, the container shipping industry will have earned an unprecedented half a trillion dollars of operating profit from two years of supply chain pain and record freight rates, according to estimates from research firm Drewry.
Having made a record $190bn last year according to Drewry estimates, the liner shipping industry is on track to post new profit heights in 2022.
Looking at the latest figures, John McCown from Blue Alpha Capital described liner shipping’s Q1 results earlier this month as “mind-bending”.
The 11 global carriers that publish their results posted a “staggering” $59.3bn net profit in the first quarter, the sixth consecutive quarter of the highest net income ever for the industry.
The container shipping industry profits in the first quarter of 2022 beat out those of FANG—an acronym for Facebook, Amazon, Netflix and Google—by 103%, expanding the gap from last year’s fourth quarter when liner industry profits beat FANGs by 14%, according to analysis by Blue Alpha Capital.
McCown has maintained his initial profit forecast of $220.5bn for the container shipping industry in 2022.
Shippers, on the other hand, are being “bled dry”, according to Xeneta’s Berglund, while the lockdowns in China, allied to blanked sailings from the carriers to protect softening spot rates, have, and may continue to, impact upon the supply chain.
“Not as much cargo as anticipated has been moved over the last couple of months and, with the peak season approaching, that could cause added disruption. That leaves shippers in a position where they’re paying through the nose for services that, to be diplomatic, may not always meet expectations,” Berglund said.