Although freight demand continues to decline, shipping companies are still making billions of dollars: COSCO 's third-quarter profit increased by 6.4% year-on-year; OOCL's revenue per TEU increased by 21.1%... At the same time, as freight costs plummet, the shipping company is accelerating the reduction of transportation capacity to alleviate the downward pressure on freight costs.
COSCO's second best quarterly performance in history
Alphaliner data shows that based on fleet size, Cosco Group is the fourth largest container liner operator in the world.
On Monday, COSCO Group announced its preliminary results for the third quarter of 2022: net profit was RMB 32.5 billion ( equivalent to US$4.53 billion at the current rate of exchange rate), a year-on-year increase of 6.4%; profit before interest and tax in the third quarter was US$7.2 billion, a year-on-year increase of 6.9%.
The third quarter was the second highest profit in the company's history, second only to the second quarter's net profit of $5.2 billion.
COSCO expects that net profit in the first three quarters of 2022 will be approximately 97.206 billion yuan, an increase of approximately 43.73% year-on-year ; it is expected to achieve profit before interest and tax (EBIT) of approximately 143.592 billion yuan, an increase of approximately 49.91% year-on-year.
In a statement released by the Hong Kong Stock Exchange, COSCO acknowledged the challenges of "repeated outbreak of the new crown pneumonia epidemic, intensified geopolitical tensions in and weak global supply chains." However, the report said that "the supply and demand relationship of international container transportation is relatively tense" and "the export freight on major routes remains at a high level."
OOCL revenue per container is still growing
Last Friday, OOCL announced The revenue in the third quarter of 2022 was US$5 billion, a year-on-year increase of 16.9% , but it fell 4.5% compared with the second quarter of this year. Alphaliner pointed out that is the first time that OOCL has seen a month-on-month decline in revenue since the first quarter of 2020.
Although sales fell by 3.4%, the average revenue per TEU increased by 21.1% year-on-year to USD 2,886 per TEU. This is the highest global average ever for OOCL.
It is worth mentioning that although the global spot exchange rate of Freightos Baltic Daily Index in the third quarter fell 32% from the second quarter, the company's average revenue per TEU in the third quarter increased by 0.4% month-on-month.
Daily spot exchange rate assessment (USD/FEU)
Shipping expert John McCown wrote in an article: "It is obvious that the actual rate trends achieved by OOCL have not shown any significant impact on the decline in the cargo index."
OOCL's biggest decline in business volume was the trans-Pacific route , which is consistent with multiple reports on weakening U.S. import demand from Asia. In the third quarter, OOCL's TEU volume on trans-Pacific routes fell by 14.4% year-on-year, twice the decline of other trade routes.
OOCL Quarterly revenue chart
However, OOCL obviously has a large amount of contract coverage to offset the weakness in spot trading in the trans-Pacific region. The company reported that Trans-Pacific routes had revenue of $4,564 per TEU in the third quarter of 2022. This is a new record, up 41.9% year-on-year and 4.6% from the second quarter.
9 September Evergreen , Yangming revenue decline
The other two early indicators of third-quarter earnings came from Evergreen and Yangming. Last Friday, both companies released their September data.
According to Alphaliner data, according to fleet size, Evergreen is the sixth largest liner operator in the world. From a quarterly perspective, Evergreen's revenue is still strong: its revenue in the third quarter of 2022 was NT$170.4 billion (US$5.35 billion), a year-on-year increase of 17.5%. is Evergreen's third highest quarterly revenue on record, just slightly lower than the first two quarters of this year.
Evergreen Quarterly Revenue Chart (2019-2022)
Revenue in the third quarter of 2022 was very close to the revenue in the first quarter, when Evergreen announced its best financial results ever: profit of $3.3 billion.
monthly data does show that revenue has reached its peak and is showing a downward trend. In the latest quarter, Evergreen's monthly revenue declined, Evergreen Group's revenue in September was NT$50.2 billion (US$1.6 billion), down 20% from July; in July, Evergreen announced the highest monthly revenue on record, Despite this, the revenue in September was still three times the pre-COVID-19 level in 2019.
Yangming's monthly data showed a more significant decline. Revenue in September was NT$28 billion (US$878 million), down 27.7% from the June peak and 15.8% year-on-year.
Despite this, Yangming's revenue in September was still more than double the pre-COVID-19 level, highlighting that shipping companies are still reaping historical highs cash flow .
capacity has dropped significantly and recovered to 2019 level
Due to the sharp drop in freight costs, cargo owners continue to reduce freight volume, and container shipping companies are accelerating the reduction of capacity to alleviate the downward pressure on freight costs.
Sea-Intelligence CEO Alan Murphy commented: "This airline level is not only higher than in 2019, but is higher than the 37th week expected three weeks ago." "In the 41-43 weeks after the Golden Week, the weekly capacity of shipping companies has been declining significantly."
However, according to the company's report, even if the transPacific routes decreased by 26%-31% capacity on average and the Asian-European routes decreased by 19%-27% capacity on average.
These cuts can be seen from the decrease in the number of ships arriving at major ports in the United States and Europe. For example, the Marine Exchange of Southern California reported that as of October 11, only eight container ships are currently heading towards Los Angeles and Long Beach ports.
South California Maritime Exchange Executive Director Kip Louttit said 12 container ships will arrive in the next three days, according to the pre-COVID-19 level, which is five less than the "normal" level of 17. However, the backlog of container ships remains on the east coast of the United States, while in Northern Europe, congestion continues due to strikes at German ports in June and July, and the recent strikes in Felixstowe and now Liverpool in the UK.
"Freight continues to drop significantly," Murphy emphasized the decline in freight rates from Asia to US West Coast and Europe routes. "Why? The simple answer is that because shipping companies increased so much capacity last year, , even at such capacity reduction levels, the basic capacity is still only on par with 2019. "
Source: Sea-Intelligence.com, Sunday Spotlighttml2
In the weeks 41-43 of 2022, capacity on the Asia-North America West Coast will grow by 1.9% on the basis of 2019, while capacity on the Asia-North America East Coast and Asia-North Europe will grow by more than 3.1% and 5.1% respectively. Only the Asia-Mediterranean region is shrinking, with a decline of -1.3%.
Murphy said: "In that case, a more relevant question is whether shipping companies can really vacate more capacity to try to control the decline in freight rates. "
He went on to add: "During the initial impact of the COVID-19 pandemic, the peak of capacity reduction was 35%-53%, but this lasted only 1-2 weeks, with the subsequent weeks of capacity reduction dropping to 10%-30% By the summer of 2020, shipping companies have basically stopped suspending their flights. currently has reduced capacity by 10% to 30%. If the deployed capacity is reduced by 50%, it will not only cause more supply chain problems, but may also anger shippers. ”
Sea-Intelligence concluded that shipping companies need to follow a very delicate balance strategy: to reduce overcapacity while avoiding trouble for shippers. As the market is expected to launch the introduction of the first batch of newly built ships in 2023, the efforts to balance capacity in will also become increasingly important for shipping companies.
