Container Shipping Profits Surge Amid Red Sea Diversions

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Container shipping, it appears, loves a crisis. With the pandemic supercharging carrier incomes, the latest dip has been abruptly halted by the Red Sea diversions which have boosted the major lines’ net income by over US$6 billion, reports Container News.

Turnaround in Financial Performance

Those same diversions could further boost carrier incomes as the peak season volumes see demand soar, according to consultants Maritime Strategy International (MSI).

A quarter-on-quarter increase from a US$700 million net loss in Q4 2023 to a net income of US$5.4 billion in the first three months of this year. That is still a major decline from the first quarter of last year when carriers achieved US$13.7 billion in profits.

However, Blue Alpha Capital’s analyst John McCown pointed out that the turnaround in profits comes on the back of six straight quarters of declining profits, which itself followed seven quarters, with each of these quarters a record profit for the industry.

According to the analyst, Asia to Europe trades a quarter of global container miles and has absorbed some 8% of capacity.

The absorption of that capacity has seen a rapid return to profitability for the lines as MSI noted in its March Horizon report, spot rates from Asia to Europe had declined US$3,189/FEU by late March, from US$5,492/FEU in January.

By May, MSI’s Horizon noted, “After three months of decline over February-April, spot freight rates shot up significantly and unexpectedly in the first half of May.”

Using Xeneta data, MSI said Far East-North Europe headhaul trades stood at US$3,805/FEU on 14 May, about 20% higher than at the end of April.

According to MSI, the General Rate Increases were successful because of a combination of reasons, including increased demand, the North European trades saw an increase of 7.7% in volumes; port congestion in Asia and Europe, particularly in the Western Mediterranean; and the diversions around the African Cape explains the surge in rates.

A significant increase in transshipment volumes in Spain and Morocco, particularly Barcelona, Valencia, and the Port of Tanger, has meant congestion due directly to the restrictions caused by Houthi actions in the Red Sea, which has seen vessels divert around the Cape, and using feeder vessels to service Eastern Mediterranean destinations, rather than calling direct after transiting Suez.

MSI data show that deployment on intra-Med routes increased by 36,000 TEUs and on North Europe-Med routes by 68,000 TEUs.

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Source: Container News