Capacity management to help container shipping liners double profits in 2020

New Delhi — Active capacity management coupled with lower fuel costs are expected to aid major container shipping liners in surpassing their 2019 profits in 2020 despite the pandemic, according to an analysis done by Copenhagen-based SeaIntelligence Consulting.

"Most of the carriers have now announced their half-yearly financial results, if we use that as an indicator then the industry is actually on track for a $15 billion profit. Based on what we are looking at so far the industry will more than double their profit as compared to last year in the midst of a pandemic," Lars Jensen, CEO of SeaIntelligence Consulting said Sept. 3 while speaking at the Digital Container Summit 2020, organized by Container Xchange.

The industry was facing a market where the level of pricing power had increased for carriers, which was a permanent change going forward, Jensen noted.

The container liner industry as a whole posted a profit just shy of $6 billion in 2019, according to the consultancy firm.

Major container shipping liners including Hapag Lloyd, AP Moller-Maersk, HMM, Ocean Network Express posted strong growth in net profit during the second quarter of 2020 despite an overall decline in volumes.

Major shipping liners had attributed increased profits to active capacity management, higher freight rates and lower fuel and operational costs.

"In the past whenever demand declined the knee-jerk reaction of the industry was to dump prices and try to fill their remaining ships. Nobody wanted to be the first to remove capacity, this time around it was completely different. All the carriers with basically no exception were pulling capacity within a week of it being clear that the pandemic was impacting demand," Jensen said.

The industry is projected to post a combined profit of $4 billion if freight rates remain at the same level as last year, while the industry is projected to post a combined profit of $13 billion if actual freight rates from year to date in 2020 are calculated, according to a forecast made by SeaIntelligence.

Under the worst case scenario where container liners engage in a price war and overall volumes decline by 5% the container liner industry is still projected to post a combined profit of $3 billion.

Carriers will continue to exhibit strong capacity management going forward. In the past the normal state of affairs was more or less overt price war intersperse with brief periods where rates would go up. Going forward there will be stronger capacity management and fairly high and stable rates interspersed with brief period of price war, Jensen noted.

Platts Container Rate 13 -- North Asia to West Coast North America -- rose sharply over July to August to an all-time high of $3,400/FEU on Aug. 24, from $2,700/FEU July 24.