Red ink in container market despite higher demand

CMA-CGM, which is the third largest container line, did comparatively well over the past year, with net profits increasing by 22.8% on flat revenue. However the profit was flattered by the sale of assets and what CMA-CGM called ‘core EBIT’ was down 26% to US$756m. This was on a 7.5% high container volume over the year.

Hapag-Lloyd saw similar results. Again container volumes increased, up by 4.6%, but revenue fell slightly due to currency effects. Operating profits increased by more than half to €67.2m but in terms of net profit the company still remained in the red with a loss of €97m, although this was an improvement on the €128m loss suffered last year.

Alongside continuing higher fuel costs, Hapag-Lloyd’s management blamed what it called “irrationality” in freight rates which fell by US$99 per TEU (Twenty foot Equivalent Unit) from the average 2012 rate of US$1,482. The company complained that it could not “push through sustainable rate increases in the market from the second quarter, despite good ship utilisation” leading to no peak-season. Its profits were in great part due to aggressive cost-cutting.

The pain of weak rates is being felt even more acutely amongst smaller carriers as well with China Shipping Container Lines and Zim Lines facing heavy losses, which in the case of Zim increase pressure on a company already engaged in financial restructuring.

Yet the underlying demand does appear to exist in the market with substantial increases in container volumes. Rather, it’s the over capacity that is driving-down freight rates, something that might also ask questions about the strategies being employed by shipping companies. Competing with each other is to be expected however it may also be the case that they are looking to take back business from freight forwarders which could be expensive.