Container shipping companies’ fight to maintain freight rates high through capacity management seems to have paid off, beating forecasts on carrier profitability.
The liners’ ability to adapt to the new normal through a disciplined approach to the deployment of ships comes as a surprise as dwindling of demand was expected to push carriers into the red.
The control over vessel capacity has been mainly exercised through the blanking of sailings and idling of excess ships to match the demand situation. The push has served as a strong underpinning for the freight rates.
The massive consolidation wave in the container shipping industry that dominated the sector over the past few years has also contributed to better synergies and a more unified voice of considerably lower number of carriers on the market when compared to 2016.
Copenhagen-based consultancy Sea Intelligence assumed that the pandemic would result in a 10% loss of volume. The consultancy assumed stable freight rates which would lead the carriers to a loss of $800 million. The other scenario assumed a “normal” freight rate war in a weak environment leading to a $23 billion loss.
“But the carriers have shown that they did not maintain stable freight rates – they have actually increased them quite substantially. With this taken into account, we now have two new scenarios,” said Alan Murphy, CEO, Sea-Intelligence.
“If the carriers maintain the current rate levels, they stand to have a profit in excess of $ 9 billion in 2020. If they start a freight rate war in 2H 2020, they stand to lose $7 billion. Once again, it is likely that it is the positive scenario which will unfold.”