Container shipping saw a monumental turnaround in financial fortunes in the first quarter, with the industry swinging from what was nearly a $700 million loss to close out 2023 into a $5.4 billion net profit to start the year.
The quarter is still well off the $13.7 billion profit taken in the year-ago period, according to analysis from container shipping expert John McCown, non-resident senior fellow at the Center for Maritime Strategy. But the total marks a serious reversal of what was six straight quarters of net income declines, leading into the first quarter net loss.
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Like the previous overflow of record profitability the industry experienced starting in the fourth quarter of 2020 through 2022, increasing freight rates were the top contributor to the spike to start 2024, McCown observed. Industry observers had been expecting ocean carriers to generate another short-term windfall as the ongoing Houthi missile attacks on commercial vessels in the Red Sea lingered.
These freight rates escalated from their 2023 lulls when the attacks began, forcing ocean carriers like Mediterranean Shipping Company (MSC) and Maersk to reroute their ships away from the waterway around southern Africa.
“That key [Asia-to-Europe] lane represents some 25 percent of global container miles and the one-third increase in typical voyage distance has the effect of shrinking worldwide capacity 8 percent,” said McCown.
According to calculations from maritime trade advisory service Sea-Intelligence, the average minimum transit time from the two sub-regions of Asia (north and southeast) to the three sub-regions of the Mediterranean (east, west and central) in the January-to-March period increased by 39 percent compared to the average during July-to-December 2023.
When it comes to the individual container lines, there is some variance as far as quarterly performance goes, with Cosco Shipping taking the top spot at $785 million in net income. Of the ocean carriers that report their numbers, Maersk had the only net loss at $166 million.
Seven of the 11 companies analyzed by McCown had lower net income when compared to the start of 2023, while four had a higher profit level. All 11 companies had decreases in comparisons of the last 12 months to the prior period.
“In contrast, most of the pandemic era quarters had tighter spreads among the companies,” McCown said. “The widening differences among the companies are primarily due to customer mix, trade lane mix and vessel utilization. Carriers whose volume is more concentrated in the key east-west trade lanes of Asia-Europe and Asia-North America showed the most robust sequential improvement in Q1 2024 compared to Q4 2023. Those were the lanes with the most pricing improvement.”
When illustrating the rise in freight rates to jumpstart 2024, McCown prefers to use the Container Trades Statistics (CTS) pricing index. According to McCown, the index is based on the loads that actually move on the vessels, both under spot rates and contract rates.
The CTS global pricing index shows that total revenue per load in the first quarter was 13.2 percent lower compared to the year-ago period, yet 25.4 percent up on a sequential basis.
With a base case set of 100, the CTS index averaged 87.3 in the first quarter, with March slightly lower at 85. The index turned up in December to 71, before jumping to 88 in January and 89 in February. Those were the first increases since a downward intra-month trend began following the June 2022 peak of the CTS global pricing index at 204.
McCown attributes the aggregate pricing changes largely to fuel costs, calculating that the variances in fuel cost made the change in the index 10.9 percent more than what it would have been a year prior, and 3.4 percent higher on a sequential basis. Based on actual fuel costs per ton, the total fuel expense for the container shipping industry is estimated at $7.8 billion in the first quarter, he said.
In addition, sector pricing has also been favorably influenced by strong volume, McCown said. He said the 9.2 percent increase in volume compared to last year’s first quarter was the strongest quarterly growth in worldwide volume in 11 quarters.
With the excess volume out at sea, it is likely that carriers will make more use of blanking sailings than they did prior to the pandemic. Although the container shipping industry anticipates 30 percent extra 20-foot equivalent units (TEUs) on order, McCown called the increase in capacity “manageable,” since it is still no more than a 15 percent increase in the number of vessels on order.
