What Helped Ocean Carriers Average Operating Margin Improve To 3.6% in Q3?

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Cheaper fuel prices helped ocean carriers improve their average operating margin to 3.6% in the third quarter, reports The LoadStar.

Q3 lead and loss

This compares with just 0.6% in Q3 last year and is despite a 1.8% decline in freight rates.

According to Alphaliner, the Q3 market leader was Hapag-Lloyd, with an operating margin of 7.8%, followed by Maersk, at 7.3%. 

Dragging down the average for the carriers that publish their results was HMM, with a negative operating margin of -5.7%, extending the South Korean line’s loss–making performance to 18 consecutive quarters. 

  • HMM was the only carrier to post a negative operating result in the quarter
  • The next-worst performance was by Taiwanese container line Yang Ming with a 2% operating margin. 

Bunker costs mitigated freight rates

Bunker costs in Q3 averaged $348 per ton, 19% below the $430 per ton recorded the previous year. This operating cost windfall more than mitigated the impact of the freight rate erosion during the period, as the peak season proved to be a damp squib, obliging carriers to offer discounts to fill their ships. 

Fall of HSFO price

The consultant noted that the price of HFO (heavy fuel oil) had subsequently fallen to about $250 per ton, which it said would provide carriers “with some buffer” in Q4, ahead of the IMO 2020 regulations coming into force on 1 January.

The sulphur regulation will force ships not fitted with scrubbers or running on LNG to consume LSFO (low-sulphur fuel oil), at approximately double the price. 

LSFO to add operating cost

It has been calculated, based on the current spread, that burning LSFO will add some $2m to the round-trip voyage expenses of an Asia-North Europe loop vessel not fitted with a scrubber system. 

Surcharge from Dec 

In order to adequately compensate carriers for spot business, which on some routes now accounts for 60% of the cargo loaded, the lines will levy surcharges from 1 December, which typically will add $135 per teu to an Asia to North Europe shipment and $95 per teu to a load from Asia to the US west coast. 

Average rates for the quarter

In terms of average rates for the quarter, Hapag-Lloyd was again at the top of the tree with an average rate per teu of $1,084, up 2.7% on Q3 18, taking over CMA CGM’s top–ranked status, as the latter saw its average rate drop 7.6%, to $1,065 per teu, as it opted for a growth strategy. Maersk recorded a 3.6% fall in its average rate, to $930 per teu. 

The Danish carrier’s chief executive, Soren Skou, explained the below-par average rate drop to analysts and investors during the company’s Q3 earnings call on 15 November, saying the carrier had grown its business in the quarter on backhaul routes and intra-Asia services where freight rates were traditionally lower. 

This is in contrast to Hapag-Lloyd, which took the decision to reduce its exposure on the intra-Asia market by cutting uneconomic services. 

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Source: The LoadStar