Despite low rates, ocean box carriers delivered in the first quarter of this year some of their best profits in a while, but Drewry predicts they will be hard put to stay in the black in the quarters ahead as more newbuilds arrive and bunker costs start to rise.
Drewry reports that the first quarter was the most profitable for the container industry in four years with a preliminary estimated operating margin of about 8%. Unlike in previous quarters when only a handful of lines, usually Maersk Line and CMA CGM, made significant headway, this time most carriers were in the black.
Carriers’ success in the first three months was achieved on the back of continued lower unit costs that have offset weakening freight rates, said the report. It calculates that average unit revenues were down by 6% year-on-year, but this was more than covered by an 11% fall in unit costs.
Over the traditional second and third quarter peak seasons, the disappointing volumes on the Asia-Europe trade lane in the first quarter are expected to pick up, but so is the deluge of newbuild ships that are scheduled to be delivered from this month onwards, threatening to tilt the supply-demand balance.
Drewry said that starting June a minimum of 100,000 TEUs per month will be joining the world containership fleet, with July seeing twice that amount. In total there are 35 ships of 10,000 TEUs or more that will need to find a home in the East-West trades by the year’s end.
“Worryingly for carriers, as freight rates continue to fall, bunker costs are creeping upwards,” said the global maritime consultancy. “After two months of the second quarter the World Container Index is averaging 28% lower than it was for the first quarter, whereas IFO 380 in Rotterdam has increased by 15%.”
It added: “The pressure to fill those new ships and maintain market share will continue to suppress freight rates through the remainder of the year. With costs now rising, the chances of carriers beating their first quarter performance seem remote.”
By focusing on costs, which are largely out of their control, carriers are subject to the whims of the energy market, it further said. “They will need the peak season to exceed expectations to achieve ship load factors that would support rate increases. Otherwise their income statements will turn red once again.”
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