By the end of 2022, the container shipping industry’s top-line profits are expected to rival tech giant Amazon (AMZN.US).

The container shipping industry is set to make a staggering $500 billion in operating profits by the end of 2022 from a two-year supply chain woes, according to estimates from consultancy Drewry Maritime Research. In addition to aggressive dividends and stock buybacks, some of the container shipping companies plan to use the profits to become logistics giants like Amazon and FedEx (FDX.US).

Container shipping industry join forces

Last week, it was reported that shipping giant CMA CGM will acquire a 9% stake in the Air France-KLM group. In addition, the cooperation between the two parties also covers a joint fleet of 10 all-cargo aircraft, four of which are from CMA CGM. Air cargo, six from Air France-KLM. At the same time, they also ordered 12 freighters. Air France-KLM and CMA CGM said they expected “significant revenue synergies” from the partnership, and said they would also integrate their global sales resources.

In addition, Mediterranean Shipping Company (MSC) has been reported to be interested in acquiring a stake in Italian airline ITA Airways, and Klaus-Micheal Kuehne, the major shareholder of Hapag-Lloyd, the world’s fifth largest container liner operator, has already held the German flagship 10% stake in airline Deutsche Lufthansa AG, among others.

It makes sense for these groups to grow through diversification because container shipping is already highly integrated. It is understood that only 8 companies control 80% of the world’s container shipping capacity and have established three powerful alliances. More than four-fifths of international trade in goods is carried out by sea, so this high level of concentration gives them enormous power.

Regulatory risk

Previously, the U.S. Justice Department launched a two-year antitrust investigation of the industry, but it finally dropped in 2019. However, at a time when shipping fees have skyrocketed, supply chains have been blocked, and strong trade groups such as U.S. agriculture have come to Congress to complain and push related bills, the Biden administration has once again put the industry under the spotlight. In April this year, the U.S. Senate passed an improvement The bill to regulate shipping, said the move would help ease export backlogs.

The Ocean Shipping Reform Act, led by Senators John Thune and Amy Klobuchar, would strengthen the investigative powers of the Federal Maritime Commission (FMC) and increase transparency in the shipping industry. U.S. Senate Majority Leader Chuck Schumer said some unfair shipping practices hurt exports and consumers, and the legislation aims to reform those unfair shipping practices and reduce costs for the American people.

Freight rates may drop significantly in the second half of the year

Earlier this month, when Hapag-Lloyd reported its first-quarter earnings, it said the company delivered a substantial increase in revenue and profit in the first quarter while shipping volumes were largely flat compared to the same period a year earlier, due to high freight rates, it said. The global supply chain “continues to be under tremendous pressure … the situation is expected to improve in the second half of the year” due to the Russian-Ukrainian crisis and the impact of the outbreak.

Rolf Habben Jansen, chief executive of Hapag-Lloyd, said: “The year has started out exceptionally strong, and while there are early signs that the market has passed its peak, we expect a strong second quarter.”

At the same time, Maersk, the world’s largest container shipping company, is also not optimistic about the freight rates in the second half of the year. When Maersk announced its first-quarter earnings report, it expected that the growth of global container demand in 2022 would be between -1% and +1%, which was significantly lower than its previous forecast range of +2% to 4%.

Maersk warned that while the company posted its best-ever profit performance in the first quarter due to high freight rates, economic risks — such as the potential threat of stagflation — were still building. Meanwhile, consumer and business confidence in Europe and the United States is falling, as are orders for exports from major manufacturing economies. In the first quarter, the company’s freight volumes fell 7% due to supply bottlenecks, but freight rates rose 71% compared with the same period last year, the company said.

Looking to the future

In the first few months of the 2020 Covid-19 outbreak, major global container shipping lines were shut down on a massive scale. And when U.S. demand rebounded sharply last year, the continued tightness in capacity caused freight rates to soar until the beginning of the year. Spot rates have been well below their highs since the start of the year.

Lee Klaskow, senior logistics analyst at Bloomberg Intelligence, wrote: “The outbreak has put pressure on demand, which has alleviated some bottlenecks in the supply chain. Once the epidemic restrictions are eased, freight traffic may surge, which we think may give a boost. The demand for liner capacity has led to higher freight rates.”

This article is reprinted from: https://news.futunn.com/post/15771755?src=3&report_type=market&report_id=206384&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.