Geopolitics, the new master of the world, is proving to be the best ally to fill the coffers of container players by maintaining the supply of ships at a tight level. The container market could record its third best year even though the balance between supply and demand, which cost container ship operators so dearly in the two decades before the pandemic, is more than unfavorable.
Geopolitics has become the new master of the world. Its influence is such that it weighs much more on the economy than any political decision and/or commercial policy. This has always been the case for shipping – “ a good war and here we go again », summarized a large tanker owner in a conference – but since the lucrative Covid years, it has proven to be the best ally to fill the coffers of container players. Certainly in an ephemeral way but in recent times, there has always been a black swan that has come to chase the other.
Against its rules, the container market could record its third best year even though the main determinant – the balance between supply and demand, which cost container ship operators so dearly in the two decades before the pandemic – is more than unfavorable. The global container fleet has indeed increased by 10.6% over the last twelve months, with almost 3 MEVP added to the fleet, according to the most recent data from Alphaliner. Nearly 60% (1.76 MEVP) was absorbed by Asia-Europe traffic, the most capacity-intensive line (12 container ships of 18 to 19,000 TEU are needed for a single service). Additional ships were required by the widespread diversion of the world fleet from the Suez Canal to the Cape of Good Hope route to avoid the dangerous passage through the Red Sea.
The rerouting through Cape Town will have sucked up so much supply that the industry ended the year with almost the entire fleet in service (0.6% inactive). As during the pandemic, the shortage effect (this time artificial) generated millions of additional TEU-km (+ 20% in one year) and pushed spot freight rates which jumped by 40% compared to to 2023.
Hyper-resilient freight rates
In the week ending December 27, the Shanghai Containerized Freight Index (SCFI), which reflects spot prices from Shanghai to around twenty destinations based on panels composed of carriers, forwarders and shippers, stood at 2 460 points versus 1,760 points for the comparable period of 2023. An incredibly high level given the de-escalation observed since July, the peak of the year (3,734 points), to land around the 2,000 points since mid-October.
The furtive bouts of fever during the second half of the year are linked to the various series of general rate increases (GRI) and with regard to the transpacific, to the effects of panic generated by the first shots of the future American president Trump on tariffs. customs and the high probability of retaliatory commercial skirmishes which will ensue. The whole, which was added to the prospect of a large-scale social movement in the ports of the American east coast (ultimately aborted) and to a period traditionally marked by rushes linked to the Chinese New Year (January 29 ), public holiday in China when factories close, helped to extrapolate demand.
Trans-Pacific spot rates have soared 38% to the US West Coast and 23% to the East Coast over the past four weeks. At the end of December, according to Freightos indicators, calculated from spot rates announced by maritime carriers to freight forwarders in particular, the price of transporting a container between Asia and the American west coast was $4,825. per forty-foot equivalent unit (FEU) and at $6,116/FEU to the East Coast. “ With the Lunar New Year approaching and the GRIs announced in January for the transpacific, transport prices in this market could come under upward pressure in early 2025. A seasonal drop in demand from February onwards is expected to lead to a decreasing rates although Red Sea diversions and expected tariff increases will keep them well above long-term averages, just as they were through 2024 », Explains Judah Levine, in charge of data at Freightos. On the transatlantic market, in the Asia-Northern Europe direction, it cost $5,155/TEU. Asia-Mediterranean is the only route where freight rates are down, at $5,471.
Better vintage than 2020 and 2023
The financial results published by the major airlines are still partial. The full year will be communicated between February and March. But through nine months of 2024, the major carriers’ net profits were already higher than those of 2020 and 2023, with fiscal 2021 and 2022 out of competition.
The performances are all the more remarkable as they come against a backdrop of inflation in carrier operating costs due to the Red Sea crisis. The lengthening of routes has generated additional expenses in chartering additional ships, bunker costs, handling of containers, repositioning of empty boxes, transshipment of goods following the rerouting of networks… Costs that save the Suez Canal tolls only partially compensated ($1 million per transit).
From January to October, Maersk and Hapag-Lloyd, the only ones that provide access to a complete financial report, recorded a 7% increase in their total transport costs. Bunker expenses due to the rerouting of its ships are taking a toll. Bunkering costs increased by 23% and 19% respectively for Maersk and Hapag-Lloyd compared to the same period in 2023, before the Houthi attacks. The increase in transshipments increased container handling costs by 6% for Maersk and 7% for Hapag-Lloyd.
Financial ratings convinced
Last week, rating agency Moody’s upgraded Hapag-Lloyd’s credit rating from Ba2 to Ba1, with a stable outlook. This is the group’s best credit assessment since its coverage in 2010. The agency particularly highlighted its liquidity position and prudent balance sheet. At the end of the last quarter, the carrier retained cash in excess of its debt obligations.
This follows a series of credit upgrades for liner companies, starting with Maersk which was upgraded by one notch to Baa1 in February, returning the group to a rating it last held in 2017. The ship managers, Danaos Corp and Global Ship Lease (GSL), are also better oriented, with GSL awarded a Ba2 rating in June, and Danaos with a higher Ba1 in October.
Maersk remains the only “quality” rating in the container shipping industry. Ratings of other carriers and charterers remain “speculative” investments, the rating company says. Wan Hai, CMA CGM, Hapag-Lloyd and Danaos, however, remain only one step away from quality investment. It remains to be seen how credit ratings will evolve given the debt levels generated by ship orders.
CMA CGM will have moved up four ranks over the past decade, but has suffered from greater volatility, with the French carrier narrowly avoiding a second downgrade in 2019 due to its $20bn debt and insufficient liquidity.
Many risk factors
However, the factors likely to undermine the profitability of global shipping are numerous. Among the risks that will weigh during the next five-year term remain the excess supply of ships and its adjustment to a demand made hyper volatile by a fragile and fluctuating geopolitical environment (the threat posed by the Houthis is part of a more wide range of security concerns in international waters).
According to the most representative organization of container players, Bimco, the order book for container ships reached 8.3 MEVP at the end of 2024. A record following another (7.8 MEVP in 2023). Deliveries mark another unprecedented level (2.9 MEVP). Almost the entire order book will be delivered during the period 2025-2029: 1.9 MEVP on average per year while 2027 will be the critical year with a peak of 2.2 MEVP in 2027.
Furthermore, trade policies will tighten under the Trump era. The tone of the conversation between Washington and Beijing will become more and more concise. And even if the new president-elect has lowered his intentions regarding the customs duties he intended to apply to his essential import partner, the rhetoric is worrying and the potential for an escalation of the trade war is real.
“A trade war and here we go again” ? A little chaos has never harmed maritime transport, but disruptions are only profitable if they do not last forever.
Meanwhile, UNCTAD expects maritime trade to grow at an average annual rate of 2.4% between 2025 and 2029, while containerized trade is expected to increase by 2.7%.
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