BRi USA NEWS - Shipping Line Profits Soar yet Service Levels Plunge and Air Cargo's Vaccine Distribution Plans
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Container Line Profit Soar, Service Plunges
The robust profits container lines reported in the third quarter, the best in a decade, stand in stark contrast to dismal service levels and worsening container imbalances out of Asia that comes with the sting of rates that have hit record levels in the trans-Pacific and six-year highs on Asia–Europe trades.
With rates up significantly compared with last year, and bunker prices down year over year, the carriers managed to shrug off growing supply chain disruption in the third quarter to report a slew of highly positive results.
Maersk Line, the largest container carrier by fleet capacity and a financial bellwether for the industry, reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2.3 billion in the third quarter, an increase of 39 percent compared with the same three-month period in 2019. CMA CGM grew its EBITDA 68 percent year over year to $1.7 billion for the quarter, Hapag-Lloyd increased its EBITDA 17 percent to $768 million, Zim Integrated Shipping Services reported an incredible 145 percent growth in earnings to $262 million, and Ocean Network Express saw its EBITDA surge 78 percent to $872 million. While Yang Ming did not provide an EBITDA figure, the Taiwan-based carrier posted an operating profit of $230 million in the third quarter compared with a $38 million loss in the same quarter last year.
Following the carriers’ solid Q3 results, Sea-Intelligence Maritime Analysis is expecting the industry to achieve an operating profit of $14 billion for the full year, while Drewry last month upgraded its operating profit expectation for container shipping in 2020 by 16 percent to $11 billion, a level not seen since 2010.
But even as carriers head for their most profitable year in a decade, frustration is building among their customers that are finding space in short supply, a lack of equipment, and global schedule reliability that in the third quarter tumbled to 65 percent, down almost 15 percentage points year over year.
To cover the sustained high volume on both the trans-Pacific and Asia–Europe trades, carriers have thrown all available capacity into the water, but the demand has quickly filled all vessels and is overwhelming terminals in the United States, Europe, and the UK. Shippers are facing lengthening port delays, cargo rollovers, soaring rate levels, and an array of equipment and congestion surcharges.
Containers were already left out of position during the extensive blank sailings program implemented during COVID-19 lockdowns in the second quarter, and the extreme rebound in demand since economies in Europe and North America reopened in June blindsided the capacity-cutting carriers.
“Everyone has been surprised by the cargo rebound and that is why a lot of the supply chains are under pressure,” Rolf Habben Jansen, CEO of Hapag-Lloyd, told JOC.com in an interview. “It is difficult for the terminals, for the truckers, there are not enough chassis, we can’t find enough ships, boxes are tight. Everyone is affected by this problem at the moment.”
Søren Skou, CEO of A.P. Møller-Maersk, said a stronger-than-expected recovery in demand following the slowdown in April and May led to the reactivation of all available tonnage, with Maersk reporting a 96 percent utilization of its fleet for the third quarter.
CMA CGM said the volume momentum that built through the third quarter had continued into the last quarter, and the carrier’s fleet was operating at full capacity.
Carriers blame their poor on-time performance on severe weather delays, congestion in ports and inland transport, and the container imbalance, all of which they say has been exacerbated by the surprisingly rapid rebound in demand. Some forwarders and shippers tell JOC.com they should not have to pay record rates for terrible service, but others say the factors leading to poor service levels are indeed out of the control of carriers.
As carriers struggle to reposition containers and transport boxes on time, there is not yet any sign of a decline in either demand or rate levels, a situation that could persist into the new year.
“The situation will definitely not improve before Chinese New Year. Importers should prepare accordingly, highlighting congestion issues at the ports of Los Angeles and Long Beach, which are delaying the return of urgently needed containers to Asia.
With the trans-Pacific generating the highest rates, forwarders say carriers have prioritized the repositioning of boxes to these higher-yielding routes, leaving shippers on other trades battling to find boxes and secure guaranteed bookings. Equipment shortages on Asia-Europe are also mounting as strong demand continues through November.
On the Asia-North Europe trade lane, the rate in the week of Nov. 20 rose 160 percent year over year to $1,644 per TEU, while Asia-Mediterranean rates jumped 134 percent to $1,797 per TEU compared with the same week last year. The weekly rate movements can be tracked at the JOC Shipping & Logistics Pricing Hub.
Unusual out-of-season demand
Carriers are reporting market strength continuing into the fourth quarter, and this out-of-season development virtually guarantees a good year in 2020.
“We now expect to deliver a Q4 which is stronger than Q3,” Skou told analysts in Maersk’s third-quarter earnings call. “This is unusual and not our normal seasonality, but it has enabled us to upgrade our EBITDA expectations for the full year to between $8 billion and $8.5 billion.”
Looking further ahead, the carriers have all expressed concern that increasing COVID-19 infections across Europe and the US could put the brakes on consumer spending, which through the third quarter was directed away from services and into the purchase of goods.
But with news that multiple COVID-19 vaccines are delivering positive test results, and may start being rolled out as early as the first quarter, the carriers are increasingly confident about 2021.
“If people become more optimistic, there is a chance of reasonable demand in 2021,” Habben Jansen said. “There was a catch-up effect in the rebound of August, September, and October. It will be a little less than that next year, which is good because otherwise everyone would struggle to find space for a long time.”
The Maersk CEO believes volume in 2021 will be approximately the same as that transported by the carrier in 2019, but added that ultimately, the pandemic would have the deciding role.
“The development in container trade will be determined by actions to contain the virus spreading, combined with continued fiscal support to households and businesses,” he noted during Maersk’s third-quarter earnings call.
HMM took a similar view, warning that the resurgence of the pandemic in the winter season posed “a serious threat to the global economy,” while ONE said future cargo demand remained “very uncertain.”
Major U.S. Ports Status Update
Below is a general overview of the operations BRi USA has been able to gather for most major ports. This list will be updated as information is made available.
Port of Seattle and Tacoma – The Northwest Seaport Alliance’s import volumes rebounded in October, jumping 4.7% compared to same month last year. Shipper demand during peak season remained very strong and is forecasted to remain so at least through the end of the year. The Ports of Seattle and Tacoma will be closed Thursday, November 26 in observance of Thanksgiving.
Ports of Los Angeles/Long Beach – The Port of Los Angeles processed an increase of 27.3% TEUs in October 2020 compared to October 2019. Propelled by replenishment of inventories and retailers preparing for upcoming holidays, October marked the busiest month in the Port’s 114-year history. In Los Angeles, vessel wait time is 4 days due to yard congestion, high import dwell and labour shortage. Currently 12 ships wait at anchor for berth space to open up at the port. Carriers and terminals for both ports are unable to confirm ETAs due to congestion. Some containers may get buried as many are stacked 4-5 containers high, the maximum allowed. Chassis shortages continue to persist at both ports although equipment providers are working overtime to remedy. Delays for port cargo or for cargo to be moved inland by rail can be excessive - up to weeks. Select terminals at the ports of Los Angeles and Long Beach will be open for incoming vessels, but most will be closed for the Thanksgiving holiday, with no gates available.
Port of Oakland – Oakland International Airport reported 116.6 million pounds of air cargo moved through OAK in October 2020, a 3.7% increase over October 2019; OAK is the top San Francisco Bay Area airport measured by air cargo traffic. The seaport will be closed on Thursday, November 26 in observance of Thanksgiving. The Port of Oakland will operate first shift on Friday, November 27, but is closed for second shift.
Port of Houston – Port Houston's container activity for September and October have seen record levels in 2020. The Port eclipsed the 2 million TEU mark for the year in September and continued to climb in October with a 15% container activity increase. According to Maersk, vessels are arriving at berth without delay. Port Houston will be closed Thursday, November 26 in observance of Thanksgiving.
Port of New York/New Jersey – The Port Authority of New York and New Jersey has posted their proposed 2021 budget, reflecting the consequences of the unprecedented drop in volumes across the Port Authority’s facilities and the steep reduction in revenue due to the COVID-19 pandemic. They are accepting comments from the public here through December 10. Select terminals at the ports of New York and New Jersey will be open for incoming vessels, but most will be closed for the Thanksgiving holiday, with no gates available.
Port of Virginia - The Port of Virginia will be closed Thursday, November 26 in observance of Thanksgiving.
North Carolina Ports - North Carolina Ports' terminals in Wilmington, Morehead City and Charlotte will be closed to commercial truck traffic Thursday, November 26 and Friday, November 27 in observance of the Thanksgiving holiday. The Ports of Wilmington and Morehead City and Charlotte Inland Port will reopen Monday, November 30 during normal business hours.
South Carolina Ports - South Carolina Port Authority is reporting that all inland gates and terminals will be closed Thursday, November 26 in observance of Thanksgiving, except Wando Welch and North Charleston Terminals, which are open for container operations only - no gates. Inland ports Greer and Dillon, as well as Wando Welch and North Charleston Terminals, will reopen all operations for normal business hours on Friday, November 27. Columbus Street, Union Pier, and Georgetown Terminals will remain closed on Friday, November 27. Wando Welch Terminal and North Charleston Terminal will have extended gate hours on Saturday, November 28; no reefer service will be available.
Port of Georgia - The Port of Georgia will be closed Thursday, November 26 in observance of Thanksgiving, but terminals will work overtime for incoming vessels as necessary.
Air Cargo's Vaccine Distribution Plans
With recent news that COVID-19 vaccines are showing outstanding efficacy rates, all eyes are now turning to the logistics sector to assess readiness for distribution.
Click on this link for greater detail - https://theloadstar.com/air-cargo-takes-to-the-world-stage-and-will-give-vaccine-distribution-its-best-shot/
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BRi Customer Solutions Team
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