Booming demand for goods and supply chain disruptions caused by Covid-19 have given the shipping industry one of its best years. Photo: Getty Images
- Booming demand for goods and supply chain disruptions caused by Covid-19 have given the shipping industry one of its best years.
- Revenues are skyrocketing for ships of almost all types.
- But for container ships, rates are climbing higher and higher to reach new records.
The global shipping industry is getting its biggest salary since 2008, as the combination of booming demand for goods and a global supply chain collapsing under the weight of Covid-19 is pushing up prices freight price more and more.
Whether it’s giant container ships stacked with 40-foot steel boxes, bulk carriers whose cavernous holds house thousands of tons of coal, or specialized ships designed to pack into cars and trucks, the revenues soar for ships of almost all types.
With the merchant fleet carrying around 80% of world trade, the push is reaching all corners of the economy. The 2008 boom brought a huge wave of new ship orders, but the recovery was quickly canceled out by a collapse in demand when a financial crisis triggered the deepest global recession in decades.
The causes of this boom are twofold – an economic reopening after Covid which spurred growing demand for goods and raw materials. At the same time, the virus continues to disrupt global supply chains, choking ports and delaying ships, limiting the number available to transport goods across the oceans. This has left the majority of the shipping industry with windfall profits in recent months.
The windfall is centered on container shipping – where prices are skyrocketing to new records, but it’s by no means limited to that. The shipping industry posted its highest daily earnings since 2008, according to Clarkson Research Services Ltd., part of the world’s largest shipping brokerage. The only laggards are the oil and tanker markets, where more bearish forces are at play.
“I’m not really sure the perfect storm is covering it – it’s just spectacular,” said Peter Sand, chief shipping analyst at the Bimco business group. “This is a perfect spillover from a burning container shipping market to some of the other sectors.”
Container transport remains the star. It now costs $ 14,287 to transport a 40-foot steel box from China to Europe. That’s an increase of over 500% from the previous year and pushes up the cost of transporting everything from toys and bikes to coffee.
These gains are already reflected in the profits of AP Moller-Maersk A / S, the world’s largest container line, which increased its estimated profits this year by nearly $ 5 billion last month.
As a sign of the sector’s profitability, CMA CGM SA – the world’s third largest carrier – has said it is freezing its spot rates to preserve long-term customer relationships. In other words, the company embezzles the profit.
As the demand for retail cargo lifts container markets, a recovering global economy is also generating more raw materials, which in turn increases the income of bulk carriers that transport industrial goods. In this sector, profits recently hit an 11-year high and show little sign of weakening over time, with consumption expected to remain firm for the remainder of the year.
“Strong demand for natural resources combined with logistical disruptions linked to Covid” are supporting on-time and future freight rates, said Ted Petrone, vice president of Navios Maritime Holdings, which owns a fleet of bulk carriers, on a call to the results last week. “The fundamentals of supply and demand going forward remain extremely positive.”
Such is the extreme strength of maritime transport that some bulk carriers have even turned to transporting containers on their decks. Golden Ocean Group Ltd. is among the companies that have said they are looking into the idea. While this may generate additional profits in an already exceptional year for owners, it is not without risks as bulk carriers are not designed to carry giant crates.
“It tells a story about the unique situation we find ourselves in,” Golden Ocean CEO Ulrik Andersen said earlier this month.
While for many sectors of the shipping industry, Covid has caused a boom, for tankers it has meant loss-making transactions for much of 2021 and owners have effectively subsidized the shipping of crude oil.
With OPEC + still keeping some of the supply offline, there are too many ships and too few cargoes, keeping profits down. It burned down one of the hottest trades in the industry earlier this year – the bullish positions of oil companies in the hope of a summer increase in demand for oil.
Yet with the decline in onshore oil inventories, analysts continue to anticipate a rebound. Rates could start to rise in October as stocks decline and demand for oil tankers increases, Pareto Securities analysts, including Eirik Haavaldsen, wrote in a note to clients.
But for now, the oil tanker market remains the only spot for an industry where freight capacities are constantly tightening. The ClarkSea Index, which tracks daily gains across a wide range of shipping industries, has already recorded its longest streak of monthly gains on record.
These exceptional gains are also observed in more esoteric markets. Car carriers are now the most expensive to rent since 2008. The rates for general cargo ships with heavy equipment are also increasing, adding to a boom in container and bulk transport.
“The charter rates reported in containers are crazy and the same is true for dry bulk,” said Alexandra Alatari, marine analyst at Arrow Shipbroking Group. “The fundamentals are so strong they are supporting rates that would be the highs of any other year.”
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