Despite the brief pump in ocean freight rates in December and January as container ships avoided the Red Sea, spot rates have continued their descent in the two months since—and one ocean carrier giant is not thrilled about the prospect of sinking container prices.
Maersk CEO Vincent Clerc said rates have fallen at an “unsustainable level” since topping out in late 2021 and early 2022, when pandemic-era supply chains worldwide were snarled due to shifts in demand and labor shortages. During that period, port congestion was the norm, with vessels waiting in queue to dock for days at a time.
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“A large order book for the shipping industry has caused significant pressure on freight rates that have fallen significantly since the good years of 2021 and 2022—and have fallen actually at unsustainable level,” Clerc said at the company’s annual shareholders meeting.
Clerc attributes the pressure to the influx of new vessels that is entering the pipeline for the container shipping industry, with 9 percent more capacity coming online in 2023 and another 11 percent expected this year. This accounted for roughly 700 new ships, according to Clerc, with another 150 expected in 2025.
However, Maersk’s fleet has not changed in size during the time frame, he said.
“We have not participated in the increase of orderbook and fleet that have contributed to this oversupply of tonnage that will be with us for a couple of years,” Clerc said. “We have made some investment in ships over these years. These are simply linked to the renewal and the replacement of our existing fleet, where we are taking some of the old ships that we have, scrapping them and replacing them with the new ones that run on green methanol.”
The CEO already warned earlier this year that the oversupply of vessels out at sea will lead to compressed margins for the container shipping company, which anticipated in February that its underlying EBITDA (earnings before interest, tax, depreciation and amortization) for 2024 could be anywhere between $1 billion and $6 billion—down from $9.8 billion last year.
Maersk’s rough fourth quarter surely contributed to Clerc’s rhetoric, particularly as freight rates prior to the start of the Houthi attacks in the Red Sea had dipped from year-over-year totals. The company reported a net loss of $456 million in the fourth quarter on a 34.1 percent decline in revenue to $11.7 billion.
On Thursday, Maersk’s new alliance partner Hapag-Lloyd officially unveiled its fourth-quarter results, confirming a previous preliminary revenue decline of 49 percent to $4.1 billion. The company saw net profit swing from $3.3 billion last year to a $234 million loss to close out 2023.
In that earnings call, Hapag-Lloyd CEO Rolf Habben Jansen shared similar concerns about the wider orderbook’s impact on freight rates.
“We expect the market environment to continue to be difficult given the large number of ship deliveries this year,” said Habben Jansen. “We need to further reduce our per-unit costs in order to remain profitable and competitive going forward.”
Clerc’s comments came just days after credit ratings agency Fitch Ratings published a research note saying ocean carriers like Maersk are likely to see a boost in short-term profitability due to the pop in freight rates at the turn of the year.
Raman Singla, a director at Fitch Ratings, told Sourcing Journal that most of the benefits from the increased freight rates would likely come in the second and third quarters since a large part of container shipping is driven through contract business and not spot rates.
From Nov. 30 to Jan. 25, spot rates across eight major trade lanes skyrocketed 187 percent to $3,964 per 40-foot container, according to the Drewry World Container Index (WCI).
The prices appear to have peaked at that point, with a steady 20 percent decline in the time since to $3,162 per container as of Thursday. Every week since Jan. 25 saw a dip in rates, but the latest total is still more than double the Nov. 30 average of $1,382.
And despite Clerc’s concerns, the Drewry WCI composite index is still 123 percent more than average 2019 pre-pandemic rates of $1,420. On a year-over-year basis, the composite index remains up 77 percent.
Rates from the two major Asia-to-Europe trade lanes, which directly were impacted by the re-routing of ships around southern Africa’s Cape of Good Hope, have declined the most in the nearly two-month stretch.
Since peaking at $6,365 per 40-foot container on Jan. 25, prices on the Shanghai-to-Genoa route have declined 34 percent to $4,223 on average. And the Shanghai-to-Rotterdam trade lane peaked at $4,984 per container, but have since dropped 30 percent to $3,473.
