The fourth quarter has container shipping line executives nervously gnawing their nails.
Visibility appears to extend into late September then dissolves into a murky and scary final three months in the run up to Christmas.
By the end of September, most of the retailers will be stocked up for the year-end party and the carriers are worried that demand will fall away sharply.
This is the problem, however. It appears that the demand that has seen carriers returning profitability in the first half was driven by retailers replenishing their inventory and not by consumer spending.
The carrier execs expect to see strong demand for consumer products continue into the last quarter but there is the nagging fear that everything could slow down drastically.
There is already evidence of weakening freight rates and these are expected to fall further towards the end of the year. A significant amount of newbuilding capacity will be coming online in the last half and in the first half of next year, which is bound to upset the supply-demand balance.
Contract rates on the transpacific were secured at better levels than the bargain basement of last year, and this has helped the lines get back into the black so far this year. For instance, OOCL reported a rate growth of 14 percent on the transpacific, and an incredible 86 percent on Asia-Europe.
The Asia-Europe trade is not about to maintain those levels, unfortunately, with economic upheavals threatening consumer confidence. Add in increased costs in vessel charter hire, buying or leasing new containers and you have an accountant’s nightmare.
The industry is certainly looking good all of a sudden. OOCL’s parent company, OOIL, reported a US$1.28 billion net profit in the first half, a far cry from its US$230 million loss in the same period last year. Remove the US$1 billion profit from the sale of its mainland property unit, Orient Overseas Development, and the carrier still ends up with a US$280 million first half profit.
Singapore-based Neptune Orient Lines just scraped into the black with a US$1 million net earnings for the first half, but it is the second quarter profits that carried the books. NOL made US$100 million net profit in that period.
It was the same at Hanjin, where the Korean carrier reported a first half profit of US$28 million. After a dismal first quarter it was a US$146 million profit in the second that pulled the figures into positive territory.
Expected this story to be repeated at most of the Asian lines. Moderate Q1, strong Q2 and Q3 … and then things get a little uncertain. The industry should have a profitable year no matter what happens in Q4, but everyone is hoping the momentum that pulled the lines back from then brink will propel them into a sunny 2011.
If the cyclical nature of shipping is still at work we are due for another gold rush.