Shipping companies on the second half of the container shipping market trend forecast

The world's fifth-largest liner company on Thursday reported strong results for the first half of 2022 and gave a forecast for container shipping: Demand is slowing, spot rates will continue to fall and congestion conditions will ease. But demand has not collapsed. Congestion is worse in some areas, such as the East Coast, than in others. Between 2023 and 2024, the supply of ship capacity will exceed the demand for cargo.

Strong first half results

In the first half of this year, Haberrot posted operating revenue of $18.562 billion, up 75.9% from the same period last year. Net profit was $9.466 billion, up 188.2% year on year; Earnings before tax, interest, depreciation and amortisation were $10.9bn, up 159 per cent year on year; Earnings before interest and tax (EBIT) were $9.9 billion, up 182% year over year. Cargo volumes in the first half of 2022 were flat at about 6 million TEU compared with the same period last year.

Container transportation demand

"The U.S. consumer seems to be doing pretty well." Habben Jansen, chief executive officer of Habben, said on a conference call on Thursday. "If you look at the first half of the year, trans-Pacific freight volumes are growing [year-on-year], which is remarkable given the substantial growth that we saw in 2021 compared to 2020."

"Right now, the market is focusing on weak demand," Chief Financial Officer Mark Frese said. Despite the bad news, demand remained strong during the reporting period [the second quarter]."

Habben Jansen, referring to import demand, which was halfway through the third quarter on Thursday, said: "We are seeing steady demand in the US, but more tightness and uncertainty in Europe and some other regions. We don't see demand falling off a cliff anywhere."

Blue line: imports in 2022, green line: imports in 2021

However, he does see "quite a relief in demand" from the peak. "We are definitely seeing signs of cooling in the economy, which will help the market normalize in the coming months and quarters."

"We used to be multiple times overbooked on each of our shipping systems, and it's still overbooked, but not as strongly. That's why spot rates are falling. That's not to say there aren't any tensions, but there are certainly signs that markets are easing. We can see that in the bookings and quotations." Habben Jansen said.

Container spot freight rate

Haberot's average container freight rate in the second quarter of 2022 was $5,870 per FEU, up 71% from the same period last year and the highest quarterly average freight rate level ever recorded.

Compared with the first quarter, its average freight rate rose 6 per cent from the previous quarter, while the Shanghai Container Freight index (SCFI), which measures spot rates, fell 26 per cent. Frese said the increase in average Haberrot freight rates was driven by higher rates for annual and multi-year contracts.

According to Habben Jansen, 45 to 50 percent of Habblot's business is conducted under contract. He expects the remaining 50-55 per cent of spot rates to continue to fall in the second half, although he notes that "spot rates are still very high by historical standards".

Haberrot's full-year guidance means that contract rates will continue to support its average rates. Haberrot expects second-half EBITDA of $8.6 billion to $10.6 billion, with the third quarter stronger than the fourth. The upper end of its second-half forecast is close to the record first-half EBITDA of $10.9 billion, suggesting continued market strength.

"The exceptional freight environment continues to be the primary driver of our performance," Frese said.

Congestion has eased in some ports, but not on the East Coast

Port congestion is helping to support freight rates by holding up ships and reducing effective capacity in the freight market.

Clarksons' container traffic congestion index is near an all-time high. According to Haberrot, the U.S. East Coast's congestion index rose 53% in the second quarter of 2022 from the first quarter, including a 28% increase in China, a 26% increase in Northern Europe and a 14% decline on the U.S. West Coast.

Container congestion (in million TEU); The 7-day transport average (Chart: Hebpert;

"I don't think it tells the whole story," Habben Jansen said.

"We do see some signs of moderation. Congestion on America's west coast has improved markedly. The Mediterranean is running fairly smoothly. Compared with just a few months ago, congestion in Asia has improved significantly. The availability of containers is significantly better than it was a few months ago. So I expect this congestion index to improve in the coming months."

"The real problem right now is the east coast of the US and [northern] Europe," says Habben Jansen. Congestion in the East isn't getting worse, but it isn't getting better either. The congestion at European ports is caused by industrial tensions at some of the largest ports. Once this is resolved, I expect further easing."

In 2023-2024, cargo shippers dominated

When congestion eventually eases, more ships will enter the market. A wave of new shipbuilding deliveries will inject more capacity in 2023-2024.

"We have seen a further increase in orders for new vessels," the chief executive said. It currently accounts for about 28 per cent of the global fleet (the ratio of order capacity to existing capacity), which is quite high. This is a very significant order, which means we will get quite a few new ships in the future."

"It remains to be seen how much of this will be absorbed by demand or new environmental regulations, or offset by increased scrapping of ships," he said. New environmental regulations could effectively require a reduction in sailing speeds, which could reduce capacity by 5%-10% in 2023-2024."

Overall, Haberrot expects the future market balance for container shipping to favour freight shippers. After several years in which import demand has outstripped capacity supply, the report estimates that global fleet capacity will grow by 7 per cent by 2023, more than double the 3 per cent increase in demand.

"We clearly see capacity supply growth outstripping demand growth over the next 24 months." Habben Jansen said.

Separately, Rolf Habben Jansen said he would make more acquisitions in the container sector if the right opportunities arose. Haberlot has also commissioned 12 new shipbuilding orders for 23,600TEU and is poised to run on liquefied natural gas (LNG), as well as five container ships with a capacity of about 13,000TEU. Apart from the two ships to be delivered this year, the rest of the new ships will be delivered over the next two years.