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[Hongde Information] Shipping companies to fight a price war? 2023 profit is only equivalent to 5% of last year
Jan 10,2023
Hongde International learned that Deluli pointed out in its latest analysis and forecast of the shipping market that the shipping company has lost control of the market and has not actively managed the capacity, but has not changed its nature and returned to the old road of "price war.
A few months ago, Deluri also believed that shipping companies would take necessary measures to reduce capacity before the market was completely out of control. He also believed that structural changes have taken place in the shipping industry, and that the integrated shipping alliance will operate efficiently and help to get rid of the old habits of shipping companies (price war). However, in the latest forecast, Deluri admitted that his judgment was wrong.
Now, Dreary believes that only in the case of serious losses will the shipping company actively change. Earlier, when the shipping market began to show signs of weakness, shipping companies obeyed a deep-rooted instinct to secure short-term orders by cutting prices and guaranteeing volumes, rather than controlling capacity. In hindsight, at that time, the shipping company needed to take the initiative to take measures, not now exposed to external market forces, powerless.
Shipping companies didn't do nothing, they launched a large number of air flights, but it didn't take effect, and spot freight rates continued to fall, quickly approaching the five-year average price of 2015-19. Now it seems that the 2021-22 record orders (about 6.7 million TEU capacity) are redundant after the bust of the boom bubble in the shipping market.
Deluli said the capacity reduction will result in a very low fleet capacity growth rate of about 1.9 per cent in 2023, but supply chain congestion relief will release a lot of capacity, making effective capacity expected to grow by about 19 per cent and the market will return to oversupply. As a result, the current shipping contract offer is only a little compared to a year ago. According to Deluri's observation, the proportion of idle fleets is only slightly higher than three months ago, ship dismantling has only just started, the current capacity reduction measures have not taken effect, Deluri through the following chart to track the break-even point of the three major routes.
The survey shows that the profitability of the Asia-US-West and Asia-Nordic routes is falling rapidly, but it is still profitable, so shipping companies lack the motivation to drastically reduce capacity. However, if they do not rein in time, these two routes will soon fall below the break-even point. On the other hand, the profits of transatlantic routes are still considerable.
This is like a doomsday clock counting down the time when the shipping company will lose money. Deluli thinks that the profit and loss lines of the Asia-US-West and Asia-Northern Europe lines will converge, which will prompt the shipping company to take action. However, the shipping company does not want to act too hastily. They want to see whether there will be a peak in orders during the window period before the Spring Festival (January 22), and at the same time.
As a result, Dreary argues that, given the alarming rate at which volumes are declining and ocean freight rates are close to break-even, shipping companies will make significant capacity adjustments in 2023 to prevent freight rates from falling below break-even levels, rather than making margins above historical averages through effective capacity management.
Deluri estimates that in 2023, the comprehensive operating profit of the shipping industry will drop to US $15 billion, only 5% (US $290 billion) of 2022. Other consulting agencies have also expressed their views, Linerlytica that shipping companies are caught off guard in 2023 and may suffer losses this year. John McCown (the author of the quarterly liner company profit report) is relatively optimistic. He expects the shipping company to make profits in 2023, active capacity management will be the core factor for shipping companies to avoid financial deficits. Peter Sand, chief analyst of Xeneta, a freight rate platform, believes that idle fleets need to be paid attention to. Xeneta expects 25% of container ship orders to be postponed and no more than 10% of orders to be canceled (mainly executable orders, not costly direct cancellation orders). Peter Sand believes that shipping companies with more long-term associations will remain profitable, and companies struggling in the in stock market are already losing money and will continue to lose money for many months to come.
HSBC believes that inflation will continue to decline demand in 2023, and there will be a lot of capacity pouring into the market this year and next, which may trigger a new round of price war. According to the International of Maritime Strategies, a British maritime consulting company, the scrap of old ships this year may increase, and the scrap capacity at the end of this year will reach about 270000 TEU, with greater growth in the following years. Xeneta expects to scrap 400000 TEU capacity, which is still far from the 2016 record (696000 TEU). MSI also said that the balance has been clearly tilted in favor of cargo owners, some of which will not make large-scale contractual commitments unless they are given pre-epidemic rates, and neither the shipping companies nor the cargo owners have been able to get what they want.
The port circle (ID:gangkouquan) believes that the decline in cargo volume is obvious to all, and various consulting agencies have different opinions. The point of disagreement is how the shipping company will deal with the dilemma, or whether the shipping company can maintain profitability. The mainstream view was once that alliances could free the liner industry from the vicious circle of cycles and price wars, but in an industry with a solid history, the larger the number of participants, the more difficult it is to get rid of industry inertia.
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