Fire to 2024? Container ship market 'madness' will continue

New ship orders hit 10-year high


Statistics from the Baltic Sea International Shipping Association (BIMCO) show that in March 2021, the total number of new ship orders for container ships was 72 ships of about 866000 TEU, a record high in nearly a decade and almost close to the total number of orders for the whole year of 2020. This figure is also far greater than the previous record of 50 ships of about 570000 TEU in June 2011.


It is worth mentioning that as many as 45 container ships in March were super-large container ships of 15000TEU and above, while the number of orders for small and medium-sized ships was only 27.


In the first quarter of this year, container ship orders have reached 1.398 million TEU, not only exceeding the number of 995000 TEU orders in 2020, but even higher than the annual order level in the past six years. At present, the proportion of container ship hand-held orders in the existing fleet has jumped to more than 15%, and this proportion has remained in single digits for most of last year.


According to BIMCO data, from October to December last year, almost all new container ship orders were 23000-24000TEU ships with the largest specifications, and only 4 of the 23 ultra-large container ship orders were not of this specification. From 2021 to date, of the 81 new container ships of 11800TEU and above, only 4 have specifications exceeding 15500TEU.



The company's profit hit an all-time high.


Behind the record-breaking "crazy" booking of ships, they are supported by the same record-breaking performance. In the fourth quarter of last year, the shipping industry handed over the most eye-catching "report card" in history, and the performance of the shipping company in the first quarter of this year will be even higher.


Blue Alpha, a US consulting firm, said in a recent report on the Capital that in the fourth quarter of last year, the net profits of 11 major shipping companies that reported profits totaled $5.8 billion. Assuming that other non-profitable shipping companies such as Mediterranean Shipping (MSC) have achieved similar results, it is estimated that the cumulative net profit of major shipping companies in the fourth quarter will reach a staggering $9 billion.


Blue Alpha Capital noted, "In almost all measures, the fourth quarter of 2020 was the best actual quarterly performance in the history of the shipping industry."


According to Blue Alpha Capital estimates, the 11 container companies that have reported earnings for the full year 2020 totaled $10.2 billion in net profit, and all major container companies are estimated to have a combined full-year net profit of $15.8 billion, which is at least the industry's best annual performance since the financial crisis. This figure is almost twice the total profit of about $7 billion made by major shipping companies in the previous five years, during which time many shipping companies have suffered year-on-year losses.


With the surge in spot freight rates, coupled with higher contract freight rates, container shipping companies are likely to make higher profits in at least the first two quarters of this year. Prior to this, COSCO Shipping Control, as the listing platform of COSCO Shipping Group's container shipping service supply chain, issued a performance forecast for the first quarter of this year. It is expected that the net profit will reach 15.45 billion yuan, which is not only a 50-fold increase from the net profit of 0.292 billion yuan in the same period last year, but also More than the total profit of 9.927 billion yuan in 2020.



The market is expected to continue until 2024.


In fact, the company's 2020 results completely reversed expectations before the outbreak. Alphaliner said: "The final performance in 2020 is in line with the pessimistic forecast made in the middle of the year, when there were analysts worried that the shipping industry would have a net loss of up to $10 billion in 2020."


JohnMcCown, the founder of Blue Alpha Capital, believes that the recovery of the container industry is due to the unexpected and excessive reduction of capacity supply by many container companies at the beginning of the outbreak. "The container company immediately took aggressive action to reduce capacity by cutting flights.", Industry consolidation in the form of alliances "makes this logistically easier" and "it turns out that many routes over-modify capacity, causing demand to severely exceed supply".


The latest shipping report Jefferies by the investment bank pointed out that the current container freight rate is close to the highest level in history. The Shanghai Export Container Freight Index (SCFI) is about 2600 US dollars/TEU. Although it is 10% lower than the high in mid-January, it is still 190% higher than the same period last year and 25.3% higher than the average level in the first week of April in the past five years.


"The average SCFI price reached a record $1234 last year, and we expect the situation to be much better in 2021 because of the persistence of high demand for goods in the market," the Jefferies said."


Torsten Holst Pedersen, Seaspan chief operating officer of the world's largest independent container ship owner, said recently that he is very confident in the current container shipping market, which is the main reason why the company has ordered 37 large container ships since the second half of last year. From the end of last year to the present, the company has placed orders in the new shipbuilding market. So far, it has ordered a total of 37 super large container ships and acquired several container ships.


Seaspan believe that the fundamentals of the container market will remain strong in the coming years. Torsten Holst Pedersen said that the boom in the shipping market may continue until 2023-2024. This is not only because of the good market under abnormal conditions brought about by the new crown epidemic, but also a major reason is based on the long-term development of the market-there are few orders for new ships.