SHIPPING lines must continue to lower unit costs to be profitable in the short-term as freight rates will decline, according to Drewry Maritime Research's Container Annual Review & Forecast 2014/15.
For more sustainable industry profits, carriers will need to reverse the unit revenue trend at some stage,
Second-quarter income statements show that more ocean carriers are emerging from the red.
From the 15 of the top 25 shipping lines (as measured by operated vessel capacity), the number of profitable carriers doubled from five in the first quarter to 10 in the second quarter.
However, the distribution of profits was still extremely uneven and insufficient for most to eradicate their first quarter losses.
The long road back towards profitability is now a very familiar one for most carriers: sizeable reductions to unit costs to compensate for lower unit revenues.
Unit revenues were down by an estimated four per cent year on year for the first six months of this year, however unit costs have been reduced by six per cent.
All carriers had lower estimated unit revenues (ie, revenue per TEU) in the first half than they did in the same period last year. Drewry's analysis reveals that the deepest rate cuts were felt by CSAV, Zim, HMM and Hapag-Lloyd, all of which lost money in the first half.
Lower unit revenue is not automatically a barrier to profitability so long as that decrease is matched or bettered by a corresponding reduction for unit costs.
The three carriers that found winning formulas for profitability in the first half were OOCL (EBIT margin of 4.2 per cent), CMA CGM (4.8 per cent) and Maersk Line (eight per cent).
Again, the shifting balance between unit revenues, costs and volumes was markedly different for all three carriers. OOCL as the smallest of three lines attracted new customers and volumes rose by a market leading 10.1 per cent in the first half without having to significantly lower rates.
OOCL's unit revenues were down by 2.8 per cent but even with all that additional cargo total costs only rose by 2.6 per cent, meaning that unit costs fell by an estimated 6.8 per cent.
French carrier CMA CGM saw its unit revenue decrease at the same rate as its unit costs in the first half.
Maersk Line' first-half profit margin was 3.2 points higher than its closest rival due to lowering total cost (by 0.2 per cent) at the same time as moving an extra 600,000 TEU. Its unit revenue decreased 2.2 per cent year on year, the third lowest behind APL and Hanjin.
Drewry estimates that Maersk made US$115 per TEU in the first half, up from $76/TEU in the same period last year. CMA CGM's profit per TEU was estimated at $66, with OOCL's pegged at $48.
MARKETS
16 October 2014 - 22:12
Carriers need to lower unit costs to remain profitable: Drewry
SHIPPING lines must continue to lower unit costs to be profitable in the short-term as freight rates will decline, according to Drewry Maritime Research's Container Annual Review & Forecast 2014/15.
MARKETS
16 October 2014 - 22:12
Carriers need to lower unit costs to remain profitable: Drewry
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