Ocean freight outlook Q3 update

 

Red Ink

There's been some troubling news that I've been following regarding ocean carrier losses. A recent article noted that the carriers have already reported $1.4bn of losses for Q2, adding to the reported $1.2bn deficit for Q1. Just recently Zim, an Israeli ocean carrier, posted a $33m loss for Q2. Cosco shipping reported its first half profits fell 97.8 percent. Its looking like Ocean carriers are facing some rough seas this year (pun intended).

Driving Factors

What's causing all these losses you ask, well so did I! There's been an oversupply of vessels. Some of it can be attributed to poor planning that are being addressed, like in the Zim case. They are now consolidating routes and have signed an agreement with Maersk and MSC to consolidate container shipping services for the Asia-US East Coast tradelane. This will allow Zim to cut down six panamax ships when their charters expire.

Q3 Outlook

There are reports that prices are about to spike. Ships are increasingly being loaded full, some shipments are even being rolled over to a second or third sailing. The rates have been edging up, from Asia to North Europe rose 3.3% to $959 per teu and from Asia to US West Coast, a 1.9% rise to $1063 per teu, the east coast ports rose only slightly by 0.4% to $1664 per teu. Another recent report showed that peak rates are up for the West Coast 25%-40% more than typical and 20-30% for the East Coast. With rising rates, the ocean carrier future is reportedly looking better for Q3. The rates are not reported to have peaked yet, so prices are expected to continue to rise. With this in mind, now's a good time to lock in your current rates!

Beyond 2018

What's lurking in the horizon is a low-sulphur compliance rule that is about to become effective in 2020. Maersk for example has already complained that it will cost them more than $2bn a year. That will for sure be transferred to cargo rates. Other carriers have already invested heavily into scrubber technology. These costs will need to be recovered, especially with the carriers having a tough 1H for 2018.


References:
China's COSCO Shipping says first-half profit falls 98 pct, Brenda Goh, Reuters, 30-Aug-2018

Zim follows Q2 loss-making trend, joining box rivals in sea of red ink, Mike Wackett, theloadstar.co.uk, 23-Aug-2018

Full ships could lead to a more stable container shipping market, Mike Wackett, theloadstar.co.uk , 24-Aug-2018

Strongest Pacific season on record, Lars Jensen, LinkedIn Article, 27-Aug-2018

Impact of IMO 2020 low-sulphur fuel rule will be "close to a perfect storm", says Maersk, Mike Wackett, theloadstar.co.uk, 30-Aug-2018