Drewry: Carriers Sailing to a Golden Era of Profitability?

Illustration; Image Courtesy: UASC

Driven by better market fundamentals and greater pricing discipline, carriers are now finally getting their strength back and looking forward to a potentially golden era of profitability.

Most container shipping lines returned to profitability in the second quarter as expected, but significantly the recovery is more broad-based, according to shipping consultancy Drewry.

This time last year the majority of carriers were mired in debt with revenues collapsing faster than they could cut costs, and of course they were also dealing with the immediate fallout from Hanjin Shipping’s bankruptcy.

Fast-forward through an action-packed 12 months when the merger and acquisitions bandwagon, that had already started before the market hit the bottom of the current cycle, gained even greater momentum and carriers are getting back on track.

“Even greater pricing discipline should prevail as more lines emerge from their own troughs, which combined with a brighter market outlook and a smaller field should ensure the recovery is more sustainable than before,” Drewry said.

First-half 2017 income statements from 16 of the largest companies shows that industry-wide revenue has gained around 18% on the same period last year, with all but four lines now reporting a profit.

The swift turnaround has enabled operating margins to recover from -4.8% in 1H16 to 2.4% in 1H17. Drewry’s preliminary operating margin estimate is that during 2Q17 the industry enjoyed its most profitable quarter in two years with margins hitting around 4% on average.

“The trend line is undeniable and keeps the industry on track to meet our forecast that it will make a collective operating profit in the region of USD 5 billion this year, after losing a similar amount in 2016.”

The reasons for carriers’ reversal of fortune are three-fold; a shrinking pool of competitors, improving supply and demand fundamentals that went through the gears, and the fact that carriers used this newly-found pricing power to good effect.

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