Net profit exceeding $220 billion annually! The era of high profits in the shipping industry is over

2022-12-12 09:00

Although container shipping rates have plummeted since the second half of the year, shipping companies are expected to achieve a net profit exceeding $220 billion this year, surpassing the combined profits of the world's four largest internet giants and exceeding last year's record level by about half. However, the unprecedentedly lucrative era in the history of container shipping is soon to become history.

US consulting firm Blue Alpha Capital recently estimated that shipping companies are expected to earn $223.4 billion this year, a year-on-year increase of 50.6%. The second quarter of this year was the peak of shipping companies' profits, and profits remained strong in the third quarter, mainly due to the fact that most freight volumes were transported under high-priced long-term contracts rather than spot freight rates.

Blue Alpha Capital stated that the profits of shipping companies in the third quarter were 158% higher than the combined profits of the four internet technology giants "FANG." "FANG" is an acronym for Facebook, Amazon, Netflix, and Google.

According to Blue Alpha Capital's statistics, in the fourth quarter of last year, the profits of shipping companies were 14% higher than the combined profits of the four "FANG" companies. This year, the gap widened significantly, with profits exceeding by 103% in the first quarter, 145% in the second quarter, and further expanding to 158% in the third quarter.

In the third quarter, the net income to revenue ratio of shipping companies was 43.9%, 4.2 times the profit margin of the four "FANG" companies. Compared to the combined profits of the two profit giants, Apple and Microsoft, the total profit of shipping companies was 54% higher, and the profit margin was 1.6 times higher.

However, with shipping rates continuing to fall, the high-profit era for shipping companies has become history. Alphaliner predicts that shipping companies' profits will decline significantly in the fourth quarter of this year, with some companies' profits declining by as much as 70% compared to the third quarter.

Alphaliner pointed out that the profit decline of ZIM, the world's tenth-largest shipping company, may be the largest in the fourth quarter. It is estimated that ZIM's earnings before interest and taxes (EBIT) in the fourth quarter will reach $439 million to $739 million, a decrease of 50% to 70% compared to the third quarter. This is a larger decrease than ZIM's own prediction of a 41% to 57% decrease. ZIM's net profit in the third quarter of this year was $1.17 billion, down 20% year-on-year.

In addition, Maersk, the second-ranked shipping company in terms of capacity, is expected to see its EBIT in the fourth quarter decrease by 45% compared to the third quarter. Hapag-Lloyd, ranked fifth, will see its EBIT decrease by 30% to 60% in the fourth quarter, and ONE, ranked seventh, is estimated to see its EBIT decrease by 45% in the fourth quarter.

As of last Friday (December 9), the Shanghai Containerized Freight Index (SCFI) fell 33.27 points to 1138.09 points, marking its 25th consecutive week of decline and reaching a new low since late August 2020. Freight rates on major routes continue to decline across the board. European route freight rates have fallen to their starting point in 2019.

Data from Container Trades Statistics (CTS) shows that global container freight volume fell 3.9% year-on-year in the third quarter of this year, continuing the downward trend of 0.2%, 0.9%, and 1.6% declines in the fourth quarter of last year and the first and second quarters of this year, respectively.

It is reported that shipping companies are currently negotiating long-term contract prices for European routes next year. Based on the current market conditions, it is expected that the new contract prices will be halved year-on-year, and the performance of shipping companies in January and February next year may show a landslide decline.

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