Profitability of Container Shipping Hinges on Low Cost Bunker Fuel  



Bunker prices take a nosedive and the profit curve of containers looks North.  The continuous steep fall of bunker prices saved a lot of money for container shipping lines.  Drewry Maritime Research, has analysed carriers under the conditions of

  1.  The group that represented 65% of global slot capacity
  2.  Saw a revenue of around $60bn in the first half of the year 
  3.  5% less in the first six months of 2014

Only Taiwanese carriers Wan Hai, a specialist on niche trades such as intra-Asia, and Yang Ming managed to increase sales year-on-year.  The decline was the result of low demand combined with low freight rates.

However, despite this decline in revenue, operating profits in the same period actually tripled.  Henceforth, 16 carriers posted a combined operating profits of $3.3bn, compared with $1.1bn during the first six months of 2014, as margins increased from 1.7% to 5.6% in the first half of this year.  It shows how decisive fuel costs have become to the liner shipping industry.  In January 2014, the average price of one tonne of IFO 380 bunker fuel bought at Singapore or Rotterdam was just under $600, a year and a half later in July, it had dropped by almost two-thirds to marginally under $250 per tonne.

Drewry reports: “The dip in fuel costs means that carriers’ costs are falling faster than freight rates, enabling them to continue posting profits, albeit shrinking with each passing quarter”.  Drewry estimates that industry-wide unit costs fell by about 11% in the first-half of 2015 versus the same period last year, whereas unit revenues were down by approximately 7%.

It added that while few carriers provided much insight into their cost structures, CMA CGM gave a detailed breakdown of its costs in its most recent results:

Cost type         Year-on-year change  Share of total cost
Stevedoring        6%   28%
Bunkers  -33%       16%
Vessel charters & slot purchases  9%   13%
Inland & Feeder transport  8%        13%
Container rentals & logistics 0%  9%
Port & canal fees   4%       8%
Employee benefits  -4%     8%
General & admin expenses -6%     5%
Total     -5%100%

Source: CMA CGM via Drewry Maritime Research

The table shows that the French Line reduced the wages and office expenses but the massive influence of the 33% decline in bunker costs mitigated the fact almost every external supplier to the carrier managed to increase their revenue from CMA CGM.  Carriers can gain greater control over pricing and capacity in the long-term, even if fuel costs begin to ascend to previous levels which is unlikely this year.

“Based on prevailing fuel and rates in the third quarter 2015, the accumulation over the first nine months will be enough for carriers to walk away with profits for the full year, regardless of what happens in the fourth quarter.”

Source: The Loadstar