Fitch Ratings says that the performance of global container shipping firms is expected to be high in 2021 following a profitable 2020. In the near term, spot freight prices will remain high, exceeding contracts for 2021. Nevertheless, we consider existing prices unsustainable in the medium term, if they are vulnerable to rate fluctuations and threats of slow economic growth and trade protectionism, which entail constant prudent management of ability.
Combining the recovery in demand for 2H20 goods, supply chain disruptions – such as container shortages and port congestion – and strategically improved capacity management, container cargo prices have increased, particularly on the routes between China and Europe and the US. According to the Freightos Baltic Index, one 40-meter container is now being transported from China to Europe or the US West Coast to cost USD 8000 or US$ 4000 a year, respectively.
The recovery in the trade volume has been fuelled by the pandemic’s improvement in consumer purchasing habits—the order of more products generated while saving on utilities, such as recreation and restaurants. It was additionally helped by product re-storage of organizations experiencing acute disturbances in the supply chain and increased demand for personal protection equipment.
According to container trade figures, the cumulative volumes transported from Asia to North America in 2020 exceeded the 2019 rate by over 7%. A 5% fall in Asia-Europe volumes in 2020 suggests the opportunity for growth in 2021 with a rebound from demand. Container box shortages and pandemic-related port congestions have raised the turnaround time of container ships and have boosted the freight cost more. A quiet time normally may have alleviated congestion in the Chinese New Year, but as China retained its output volume, the market remained high. The continuing outbreaks of the virus and mobility limitations in many areas are expected to abnormally sustain freight prices in the near term. In the current spring contract season, these higher-than-average spot prices convert into higher contract freight rates. We consider uncertainty as an intrinsic sector possibility, however, and expected to decrease rates once pandemic-related supply disturbances are tackled.
More mature control of capacity during the pandemic prevented over-supply. The industry has experienced a radical consolidation through M&As and partnerships following over ten decades of overcapacity pressures. Transport partnerships have diminished military capabilities as demand decreased at the height of the pandemic and fleets are reactivated effectively by the 2 H20 trade.
In contrast to 60 percent seven years earlier, the three main partnerships are about 85% of the American-China highway, with almost all eastern Asian-Europe highways. The container order book is currently less than 10% as a percentage of the current float – in 2007 it was 57%.
The efficiency of the container shipping firms increased by 2020 because of higher freight prices at 2H20, although the volume was smaller. The output of individual container-shipping companies in 2021 is projected to continue to remain solid, based upon their route mix, their proportions of contracted volumes and chartered fleet exposure, and any further investment. Enhanced profitability led in 2020 to better measures of leverage.
While the pandemic was a high success of container shipping firms, we think the current shipping pace is unsustainable and we anticipate it to moderate medium-term as supply chains become very competitive after the disruption has been created. Geopolitical tensions and commercial protectionism, economic recovery path uncertainty in various regions, along with ESG-driven initiatives, such as IMO 2020, and other Emission Regulations remain at risk for the sector.
