Bottom lines wallowing in red ink
If the container shipping business has not yet turned the corner, then it is in much deeper trouble than anyone thought.
Take a look at the figures. It would be hard to find a more dismal set of interim results than the first-half financials of container shipping lines, and that is without including the Japanese carriers.
Just for fun, I have added up the first half losses of the AP Moller-Maersk Group, China Shipping Container Lines, China Cosco Holdings, Evergreen, Hanjin, Hyundai Merchant Marine, APL and OOIL.
They total almost US$3 billion, and that’s in just six months. AXS-Alphaliner went even further and found that the 17 public shipping companies had lost double that in the first half. Freight rates at ridiculously low levels and a steady stream of new buildings entering service are making 2009 a year to forget.
The speed at which losses mount is incredible and it is difficult to see a clear way out for the carriers. Attempts at raising freight rates on the transpacific are facing strong opposition from shippers, most of whom hold service contracts until April next year and are unwilling to tear them up.
On the Asia-Europe westbound trade, most carriers are trying to get rate hikes through with varying levels of success.
With demand at an all time low, failure to improve rates will be catastrophic for the lines. You would think some of the carriers would collapse under such mounting losses, yet will there be consolidation? The answer is no.
No one is going to acquire the top four carriers, and look at what happened when NOL considered buying Hapag-Lloyd. A German consortium kept the troubled carrier in German hands, which, as it turned out, was a blessing for NOL. Imagine the size of their losses if they had Hapag-Lloyd on the books during the current downturn. Beijing will never allow its lines to be acquired, and neither will the South Koreans.
So even operating on the optimistic premise that the corner has been turned or the bottom of the downturn has been reached, there is little in the way of good news ahead.
No one in the industry is even mentioning the words “peak season” this year - at least not with a straight face - with so much capacity lying idle. A bleak Christmas is coming, for sure, but the depressing financials may continue well into the future.
The effect the US recession has had on consumer spending patterns is yet to be established, and it could be several years before the container exports that filled ships in 2007 are once again flowing out of China.