The quarterly results from the major carriers are beginning to be reported, with ONE and Maersk having issued theirs at the time of writing and with OOCL having issued their quarterly operational update with revenues and volumes but without profit levels.

Overall performance has clearly improved compared to the fourth quarter of 2024, and this is fully expected as a consequence of the Red Sea crisis. The crisis led to a significant increase in freight rates on key routes directly and indirectly linked to the Suez Canal routing and consequently also led to an improvement in carriers’ profitability levels.

Both Maersk and ONE have cautioned that they expect the Red Sea crisis to persist for the rest of 2024, and given the resurgence in attacks on merchant vessels – hereunder on both Maersk and MSC vessels – in the past week, a prolonged timeline is indeed very likely.

Given the increase in profits, despite the increase in costs associated with the round-Africa voyage, it is clear that the freight rate increases more than compensate for the costs. This has caused an uproar amongst some shippers, although it should be noted that shipping - just as any other industry – is not under any obligation to price their products solely on the basis of their costs.

However, this does not mean that the increased profit levels seen by the carriers in Q1 2024 will be sustained. Given the increase in profits, despite the increase in costs associated with the round-Africa voyage, it is clear that the freight rate increases more than compensate for the costs. This has caused an uproar amongst some shippers, although it should be noted that shipping - just as any other industry – is not under any obligation to price their products solely on the basis of their costs. At the end of the day, the price is market driven, and hence also driven by supply and demand. In the early part of the crisis, the market situation led to a supply/demand situation where such higher rate increases would stick in the market.

However, this situation is slowly reversing, and in the spot market, half of the rate increases have already disappeared again. This is likely to continue going forward as more capacity is injected into the market in the form of more newbuildings with the global fleet presently having grown more than 9% year-on-year. Both Maersk and Yangming have in recent days warned that this continuing injection of capacity will cause a downward pressure on the rate levels going forward and hence Q1 2024 is likely going to be the best quarter of 2024.

The market is thus in a situation where the carriers’ financial well-being is dependent on a continuing level of crisis, and presently this appears to be exactly what is happening. As a spill-over effect of the Red Sea crisis, port congestion in key hubs, as well as in India and the Middle East, is worsening. As we saw during the pandemic disruptions, port congestion leads to worsened reliability of the services and an increase in blank sailings.

The market is thus in a situation where the carriers’ financial well-being is dependent on a continuing level of crisis, and presently this appears to be exactly what is happening. As a spill-over effect of the Red Sea crisis, port congestion in key hubs, as well as in India and the Middle East, is worsening. As we saw during the pandemic disruptions, port congestion leads to worsened reliability of the services and an increase in blank sailings. Adding to the operational woes, railway workers in Canada have voted to strike, and if they follow through this might happen in late May. This would significantly disrupt cargo flows, especially on the critical corridor from the Pacific Northwest into Central/Eastern US and likely cause significant congestion problems in Seattle/Tacoma, Vancouver and Prince Rupert. In addition, as is well known, port workers on the US East Coast have still not come to a new work agreement to replace the current one that expires in September.

It would be all too easy to depict these operational problems as negative news and compared to an expectation of a well-oiled supply-chain “machine” it certainly is. But the reality is also that despite all these problems, more containers than ever before in history have been shipped here at the beginning of 2024 where almost 5½ containers are shipped every second globally. In this context, it would be well to remember that the container shipping supply chain always appeared fraught with operational hiccups. There is always a problem somewhere – over the past 10 years we have seen plenty of strikes, cyber-attacks, vessel fires, collisions and a host of other problems. Yet the global supply chain always manages to adapt. This does not mean that each individual shipper adapts equally well to this turmoil. If anything, the turmoil has time and time again shown that the ability to manage problems in the supply chain is a source of competitive advantage. It is easy to plan a good supply chain when one assumes everything goes according to plan – but it rarely does.

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 20 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
 

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