Here is a perfect example of the boom-or-bust container shipping cycle.
In 2007, CMA CGM made a net profit of US$230 million. In 2008, that had fallen by 87 percent to $123 million.
In the first six months of this year, the French line plummeted to a net loss of $515 million. It is not the worst performer out there, but the carrier will certainly post a significant loss when the books close on 2009.
The company now owes $5.6 billion in debts, a chilling position to be in with the recovery on all the carrier’s trade routes sluggish at best and 60 new container ships on order.
Many of those vessels – 28 to be exact – are over 11,000 TEU, and six are 8,500 TEUs, all scheduled for delivery next year. If the bottom line looks bad now, imagine how much worse it will be should 400,000 TEU capacity come floating into service next year.
However, CEO Rodolphe Saade is deep into damage control mode. A French newspaper quoted him this week saying that the line’s first objective was delaying the delivery of 49 vessels on order.
Good idea, although some shipyards are asking for significant penalties, so delaying orders does not come without costs.
In the volatile shipping business, CMA CGM needs to move quickly to secure its future. We understand that a steering committee of banks and financials institutions is putting together a plan to return the line to profitability.
It may seem inconceivable that CMA CGM will be allowed to fail, but even shipping lines can’t keep bleeding money indefinitely. And if the French line can’t find a way to stem losses, trim down costs and boost revenue, its exit will leave a very large hole.
As one of the world’s Big Five, the carrier has a combined capacity of more than one million TEUs. There may be a lot of overcapacity out there, but it will be hard to find places for a million boxes.