Container shipping has repeatedly defied odds the since the onset of the pandemic to enjoy remarkable levels of profitability. Every time it’s looked its coming to an end a new geopolitical and supply chain disruption has popped up to revitalise the boom.
It may seem hard to believe now but at the onset of the Covid pandemic in March 2020 doom and disaster was predicted for the container shipping sector. On 16 March 2020 we reported on analyst Sea-Intelligence as saying liner shipping potentially faced a repeat of the 2009 global financial crisis with a possible 10% drop in volumes or 17 million teu in 2020. It warned of a “realistic risk of bankruptcies”.
Pandemic supply chain disruption
What was to follow was an extremely different picture of massive supply chain disruption driven by Covid restrictions and huge consumer driven e-commerce demand from billions of people stuck at home in lockdowns and other restrictions. It was to push container lines to previously unthinkable levels of profitability. By November 2021 we were reporting on container lines surpassing tech giants Facebook, Amazon, Netflix and Google, or FANG, in the third quarter in terms of profitability with combined earnings of $48.1 billion for the three-month period.
The post-pandemic boom continued through to 2023 but was seriously starting to wane towards the second half of the year as the tonnage overhang of a large newbuilding orderbook loomed over the industry and Covid related supply chain disruption faded from view.
Container lines awash with cash had been spending tens of billions of dollars on acquiring logistics companies and ordering new ships. By Q4 2023 the newbuilding orderbook stood at around 7.8 million teu of capacity, or roughly 27% of the existing fleet, and despite the weakening market lines had piled on an additional 590,000 teu of new orders in that final quarter of the year.
In the fourth quarter of 2023 the world’s second largest container line Maersk reported a loss of $537 million at an EBIT level for Q4 2023 driven by a $920 million loss for its ocean business. For 2024 the shipping and logistics company forecast to breakeven at best with a profit guidance range at an EBIT level of -$5 billion to $0.
The Red Sea crisis
However, at the same time as container ship earnings were weakening significantly in Q4 2023 the Red Sea crisis was starting to unfurl with the Houthi in Yemen dramatically hijacking the NYK car carrier Galaxy Leader in November 2023. The Houthi then started attacking shipping in the southern Red Sea and by early 2024 a large-scale rerouting of vessels via the Cape of Good Hope was underway.