Sea freight companies are facing a sharp drop in profits Ship’s crew

From Mike Wackel (The Loading Star) –

The outlook for ocean freight companies this year is a sharp drop in revenue as average freight rates fall and inflation drives cost increases that negatively impact bottom line.

Last week both CMA CGM and Hapag-Lloyd released record results for 2022 and warned that this year would be very different.

On Friday, CMA CGM reported net income of $24.9 billion for last year, but said there was a “significant slowdown” in the fourth quarter that is expected to continue in 2023.

The group reported a 33% increase in revenue to $74.5 billion, of which $59 billion came from its core liner operations, at an average rate of $2,711 per TEU, compared to $2,055 in 2021.

Lifts were down just 1.3% yoy to 21.7 million TEU, an above-average performance compared to, for example, OOCL’s 5.6% volume decline and Maersk’s 14% volume decline.

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Still, the drop in demand in the fourth quarter caused CMA CGM to transport 5.4% fewer containers during the period, and its average rate fell to $2,402 per TEU.

Group CEO Rodolphe Saadé said: “As trade returns to normal and freight rates fall, our strategy and recent investments will prove all the more relevant and allow us to look to 2023 with confidence.”

CMA CGM’s logistics business posted a steep year-over-year revenue increase of 48% to $16.1 billion, driven by an expansion of its freight management business and recent acquisitions, resulting in a 39% increase in ebitda from $1.2 billion led.

Meanwhile, Hapag-Lloyd has updated preliminary results announced in January and reported net profit of US$18 billion for last year.

Revenue increased 38% year-on-year to $36.4 billion, driven by a best-in-class shipment volume of 11.8 million TEUs at an average rate of $2,863 per TEU. This compares to an average of $2,003 last year.

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And the German carrier managed to sustain its Q4 lifts versus Q4 ’21 but also experienced rate erosion during the period.

It also reported high inflationary fare increases for its line operations, with transportation costs rising 18.5% year over year to $14.5 billion. CEO Rolf Habben Jansen said: “The costs for fuel, charter ships and container handling have increased significantly.”

He said “a significant earnings decline remains inevitable,” and forecast this year’s ebit to be in the range of $2.1 billion to $4.3 billion.

Mr Habben Jansen said he expected freight rates to recover this year. They argued that high inflation would require them to “normalize above pre-pandemic levels,” adding, “Interest rates will not stay below unit costs for long.”

CMA CGM has an order book of 818,000 teu, while Hapag-Lloyd expects around 362,000 teu of new tonnage. And notwithstanding the airlines’ huge order books – MSC, for example, expects a whopping 1.8 million teu over the next few years – Mr Habben Jansen said he expected a three to six month drop in deliveries this year.

This, he added, is partly due to delays, but also due to carriers and NOOs pushing back delivery dates.

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