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Shipping Industry Shatters Profit Records, 2022 Projections Murky
Strong demand for goods among retailers and households throughout the pandemic combined with relentless supply chain disruptions have sent shipping rates surging, leading to record-shattering profits across the global shipping industry.
Global cargo carriers raked in an estimated $150 billion in profits last year, more than a nine-fold increase compared to 2020, following a decade of minimal gains, per Bloomberg. For comparison, the shipping industry was unable to turn a profit in 2019, reporting a net loss of $387 million.
AP Moeller-Maersk, which transports roughly 20% of the world’s containers at sea, saw its profits surpass $18.7 billion in 2021, nearly equal to the last nine years combined.
Despite expectations that port congestion would ease throughout 2021 and send shipping rates falling toward pre-pandemic levels, disruptions are forecast to persist through at least the first half of this year.
At the beginning of January, the Marine Exchange of Southern California reported the queue of vessels waiting to enter ports off the coast of Southern California reached a record 109 ships, noting that the disruptions that sparked bottlenecks throughout 2021 have spilled over into the new year.
Some of those factors include a shortages of truck drivers, container backlogs on docks and COVID-19 lockdowns in China, all of which are exacerbating the current crisis and keeping shipping rates severely elevated.
MRP highlighted shipping markets back in November, noting that while freight rates have cooled off from their peak, they still have a long way to go before they stabilize at pre-pandemic levels.
According to the International Monetary Fund, the Freightos Baltic Index, which measures global container freight rates, has fallen roughly 16% since hitting a peak of roughly $11,109 per 40-foot container in September.
However, in the first half of 2020 that same index hovered around $1,000-1,500, meaning current rates are still roughly 10 times higher than usual.
The IMF noted that while rates have slightly declined, they are likely to remain high throughout 2022 due to the fact port delays and labor shortages do not have immediate fixes.
AP Moeller-Maesrk and DSV, another global shipping giant, hold similar stances. Both companies announced this week that they are expecting another year of bumper profits, noting that 2022 earnings are projected to remain in line with 2021’s results , Reuters reports.
More specifically, Maersk CEO Soren Skou predicted a strong first half of 2022 and then some level of normalization early in the second half, yet it remains impossible to project just how long supply chain disruptions will persist with the uncertainty of COVID-related restrictions.
Not only is ocean freight expected to keep shipping companies’ profits robust, but ocean carriers continue to buy into the air freight business to capitalize on sky high demand.
Ocean Carriers Delve into Red-Hot Air Freight Market with Extra Cash
Not only did ocean freight boom in 2021, but air cargo demand soared to new heights as well. According to the International Air Transport Association (IATA), full-year demand for air cargo increased by 18.7% in 2021 compared to a year prior, and was up 6.9% compared to 2019 levels.
Air freight, historically the most expensive form of transport, experienced record demand last year as retailers and manufacturers looked to avoid port congestion and receive their goods quicker, often paying a premium on already high air transport costs. The IATA notes that airfreight accounts for less than 1% of global trade by volume, but 35% by value.
With the extra cash ocean carriers have on hand, the industry has been expanding further into other transportation sectors to capitalize on high rates and sustained demand.
The Wall Street Journal recently reported on the trend, noting that Maersk and France’s CMA CGM, which together operate more than 1,000 ships, are using planes to supplement their core ocean freight business due to the fact moving cargo on time is at a premium.
Maersk purchased German freight forwarder Senator International last year in a $644 million deal, which is forecast to double the company’s air freight volume once completed in 2022. CMA CGM also launched their own airfreight service in 2021, purchasing four Airbus A330 freighters with plans to add three Boeing 777s this spring.
Per Reuters, soaring e-commerce demand over the last year has been a key factor in the success of airfreight, which could continue through 2022. Ocean freight carriers could continue to diversify their transportation services with the excess capital the industry now has on hand.
According to Bloomberg, Maersk is also moving into land transport by purchasing Pilot Freight Services LLC for $1.68 billion, potentially offsetting the risk of a slowdown in ocean freight towards the second half of the year.
While supply chain disruptions should start to work themselves out throughout the year, ocean freight carriers are still projected to rake in substantially higher profits when compared to pre-pandemic levels.
Shipping costs are likely to remain severely elevated compared to historical norms as demand remains strong and COVID-19 related disruption prove to be unpredictable. Add in the fact ocean carriers are moving into airfreight and truck transport, the shipping industry looks poised for another impressive year of financial performance. |
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