Global shipping lines have their best year since 2008 as economic reopening after Covid-19 spurs demand for goods
- The shipping sector has seen bumper earnings because of two main reasons – rising demand for goods and disruption to global supply chains, as the pandemic has limited the industry’s ability to move goods quickly
- Container shipping costs have risen more than 500 per cent year on year; it now costs US$14,287 to haul a 40-foot steel box from China to Europe
Whether it is giant container ships stacked high with of 40-foot steel boxes, bulk carriers whose cavernous holds house thousands of tonnes of coal, or specialised vessels designed to pack in cars and trucks, earnings are soaring for ships of almost every type.
With the merchant fleet hauling about 80 per cent of world trade, the surge reaches into every corner of the economy. The boom back in 2008 brought with it a huge wave of new vessel orders, but the rally was quickly undone by a demand collapse when a financial crisis triggered the deepest global recession in decades.
This boom’s causes are twofold – an economic reopening after Covid that has spurred surging demand for goods and raw materials. Alongside that, the virus continues to cause disruption in global supply chains, choking up ports and delaying vessels, all of which is limiting how many are available to haul goods across oceans. That has left most of the shipping sector with bumper earnings in recent months.
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The bonanza is centred around container shipping – where rates are spiralling ever higher to record highs, but it is by no means limited to it. The shipping industry is posting its strongest daily earnings since 2008, according to Clarkson Research Services, part of the world’s biggest shipbroker. The only laggards are the oil and gas tanker markets, where more bearish forces are at play.
“I’m not really sure the perfect storm covers it – this is just spectacular,” said Peter Sand, chief shipping analyst at trade group Bimco. “It’s a perfect spillover of a red-hot container shipping market to some of the other sectors.”
While the demand for retail goods is lifting container markets, a recovering global economy is also churning through more raw materials – boosting the revenues of bulk ships that carry industrial commodities. In that sector, earnings recently hit an 11-year high and are showing little sign of abating down the line, with consumption expected to remain firm for the rest of the year.
“Strong demand for natural resources combined with Covid-related logistical disruptions” are supporting spot and future freight rates, Ted Petrone, vice-chairman at Navios Maritime Holdings, which owns a fleet of bulk carriers, said on an earnings call last week. “Supply and demand fundamentals going forward remain extremely positive.”
Such is the extreme strength across shipping that some bulk carriers have even turned to carrying containers on their decks. Golden Ocean Group is among the companies that said it is looking at the idea. While it could spur additional profits in an already windfall year for owners, it is not without risks as bulk carriers are not designed to carry the giant boxes.
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“It tells a story about the special situation we are in,” in the container market, Golden Ocean’s chief executive officer Ulrik Andersen said earlier this month.
While for many shipping sectors Covid has brought a boom, for oil tankers it has meant loss-making trades for much of 2021 and owners effectively subsidising the shipment of crude oil.
With Opec+ still keeping a chunk of supply offline there are too many ships and too few cargoes, keeping earnings depressed. That has burned one of the hottest trades in the sector at the start of the year – bullish oil tankers positions on the hope of a summer surge in oil demand.
Still, with on-land oil inventories declining, analysts continue to anticipate a rebound. Rates could begin to move higher in October as stockpiles dwindle and demand for tankers grows, Pareto Securities analysts including Eirik Haavaldsen wrote in a note to clients.
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But for now, the tanker market remains the only blot for an industry where freight capacity is ever tightening. The ClarkSea index, which tracks daily earnings across a diverse range of shipping sectors, has already posted its longest run of monthly gains on record.
Those bumper earnings are also being seen in more esoteric markets too. Car carriers now cost the most to hire since 2008. Rates for general cargo ships with heavy equipment are also surging, adding to a boom that is being led by container and bulk shipping.
“The charter rates reported in containers are crazy and it’s the same for dry bulk,” said Alexandra Alatari, a shipping analyst at Arrow Shipbroking Group. “The fundamentals are so strong they support rates that would be the peak of any other year.”