Box liners reap windfall as fuel cost decline outpaces rate erosion

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Ship_in_BrofjordenRevenues for almost all major ocean carriers deflated midway through the year, yet profits were up thanks to lower fuel costs, according to Drewry Maritime Research, even as it warned that banking on reduced oil prices was skating on thin ice.

Of the 16 carriers in the “Top 20,” only Taiwanese carriers Yang Ming and Wan Hai were able to improve their sales in the first half of 2015, said Drewry’s latest weekly analysis.

“A nasty combination of slow demand growth and worsening freight rates meant that these lines—together controlling about 65% of the world’s containership fleet—between them collected just shy of $60 billion in container revenues in the first six months of 2015, down 5% on the same period last year,” it added.

Despite this lackluster sales performance, the 16 carriers managed to more than triple their average operating margin, which jumped from 1.7% in the first half of 2014 to 5.6% in the first half of 2015, raising their operating profit in dollar terms from $1.1 billion to $3.3 billion.

The jump in operating profit is seen as largely due to the fall in bunker prices that started in June and has continued to do so.

“The change in direction that fuel costs have taken means that carriers’ costs are falling faster than freight rates, enabling them to continue posting profits, albeit shrinking with each passing quarter,” said Drewry.

It estimates that industry-wide unit costs fell by about 11% in the first-half 2015 versus the same period last year, whereas unit revenues were down by about 7%.

Bunker fuel as a part of the overall operating expenses for Maersk was reportedly down by over 40% in the second quarter of the year, while Orient Overseas Container Line (OOCL) and China Shipping Container Lines (CSCL) reported similar savings for the first half. CMA CGM noted that its fuel cost dropped by 33% in the first half of this year.

Drewry however cautions against relying on lower fuel costs to sustain profitability, especially since the introduction of larger and more fuel-efficient ships, while contributing to cost savings, undermines efforts to impose general rate increases (GRIs) with the overcapacity they generate.

“Carriers need to somehow find a way to make GRIs stick and boost revenue before costs start rising again,” the shipping consultancy continued.

Based on prevailing fuel prices and freight rates in the third quarter, Drewry predicts a continuing pattern of “diminishing profitability.” This means that the accumulation over the first nine months “will be enough for carriers to walk away with okay sums for the full year,” regardless of what happens in the last quarter of the year.

The leading 16 carriers tracked by the consultancy were APL, Hapag-Lloyd, Zim, CSCL, Mitsui O.S.K. Lines, Hyundai Merchant Marine, Maersk Line, Hanjin Shipping, OOCL, Nippon Yusen Kaisha, K Line, Evergreen, Cosco, CMA CGM, Yang Ming, and Wan Hai.

Photo: Marcusroos