Opinion: Carriers are in the midst of a downturn – and their different reactions provide a strong indication of the future

There are big differences as to how container carriers have tried to get through the collapse in freight prices in late 2022, writes Lars Jensen.
Photo: Magnus Møller
Photo: Magnus Møller

Most of the major container lines have published their annual results for 2022, and much commentary have been made as to the phenomenal results presented. 

But it must be kept in mind that the recent period was driven by highly unusual market conditions which are no longer present – and nor are they likely to become present again anytime soon. 

From a demand perspective, global demand growth plummeted in September 2022 – and the same time the supply chain bottlenecks were being gradually eased in turn releasing large amounts of capacity back out into the market. 

To put some numbers on it, the global demand measured in TEU declined -8.7 percent in Q4 2022 compared to Q4 2021 whereas the global fleet grew 3.5 percent in that period. 

The easing of supply chain bottlenecks furthermore meant an additional 7.2 percent of capacity was released back into the market from end of Q4 2021 to end of Q4 2022. 

In round number this is a 20 percent disparity between supply and demand growth. Data from the beginning of 2023 appear to support continued weakness.

What the annual reports form the carriers should therefore also be used for is to gauge how the carriers appear to have handled that abrupt shift in Q4.

From a cargo volume perspective they have dealt with the transition very differently. 

At one end we find HMM growing their global volumes by 8.1 percent. This is followed by Hapag-Lloyd with a decline of -1.2 percent. CMA CGA saw volumes decline by -5.3 percent closely followed by OOCL with a decline of -5.6 percent. 

This means these carriers have gained global market share when compared to the global market volume decline of -8.7 percent. ONE saw volumes drop slightly more than market at -9.9 percent whereas Maersk saw volumes decline -14 percent.

At the same time, it is well known that freight rates on many trades dropped steeply in Q4. 

Looking at the rate development it is therefore useful to compare the rates, or revenue per TEU, seen by the carriers in Q4 versus Q3 2022 to see how they were weathering the decline. 

The global rate index from Container Trade Statistics which consists of all trades as well as both spot and contract cargo declined -29 percent from Q3 into Q4.

Once again the carriers saw very different developments. CMA CGM saw a decline of -13.3 percent followed closely by Hapag-Lloyd at a decline of -15.5 percent. Maersk and ONE were quite close at -23 percent and -27 percent respectively. OOCL decline -37 percent and HMM saw a drop of -43 percent.

This actually shows a very wide difference in how the carriers have chosen to act coming into this rapid market downturn, and could potentially also be seen as a harbinger of how they might choose to continue to behave now as the market has clearly not settled at the bottom yet.

HMM is a clear example of gaining volume at the expense of average rate levels – they top out in market share gain, but also are at the bottom in terms of rate development amongst this group of carriers. 

Hapag-Lloyd is a direct opposite of HMM. The German carrier have large managed to retain their volumes whilst seeing a rate decline that was less severe than in the overall market. 

CMA-CGM mainly shows the same development albeit with somewhat more of a volume loss. This could be seen as an indication of the strength of some the customer relationships these carriers have with their clients which can help slow the downwards movement in a crashing market.

Maersk and ONE in the main saw rate developments in line with the market, but whereas this for ONE also led to volumes develop largely in line with market, it led to Maersk losing out on market share.

It should be noted that these are the mainline global numbers. There are clearly nuances which should be kept in mind.

Changes in geographical composition of the cargo moved can in itself change the average global rate – if for example more short-haul cargo is moved compared to higher-revenue long-haul cargo. 

Differences in accounting related to when you recognize revenue and/or volume can also have an effect.

But overall, the carriers clearly show very different developments in Q4 in the face of dramatic changes. 

For some this development might be seen as positive, for others negative. Others yet again, notably Maersk, argue that the change in strategy lead to a lessened focus on volume and therefore the comparison being somewhat meaningless.

But what is perhaps the most important element to take away from these very disparate developments in Q4 is that we have a selection of global carriers who very clearly approach the market differently and perform differently. 

This in itself also shows that despite the consolidation over the past couple of decades, and the unusual market conditions in 2020-2022, there is certainly a high level of competitive pressure amongst the global carriers.

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