Ocean Freight Update: More Lower Results, More Newbuilds, More Scrapping, and more…

What’s happening on and around our oceans?

This is our weekly ocean freight update, highlighting interesting news and background articles we came across this week. We focus on general ocean freight news, innovation, and sustainability.

General ocean freight news

In last week’s update, we already shared several results for large players in the shipping industry. Still, more numbers have come out since. Yang Ming and ZIM are reporting a loss and less profits, respectively.

Yang Ming posted a net loss of $4m for the second quarter, from revenue of $1.15bn, to take the Taiwanese carrier’s profit at the half-year stage down to $107m.

Like all container lines, Yang Ming enjoyed a highly profitable post-pandemic two years, its net profit last year coming in at around $6bn.

However, similar to its peers, the THE Alliance member’s profitability has waned considerably over the past two quarters as freight rates plunged, with net profit for Q4 22 down to $483m, sliding further in Q1 this year, to $112m.

Box trade doldrums hit smaller carriers hardest: Yang Ming sails into Q2 red ink

Zim’s extreme first-quarter optimism may not quite have turned to despair, but another quarterly loss and no sign of a peak have left its outlook decidedly more conservative.

Indeed, Q2’s $213m net loss is four times that recorded in the three months to March ($58m), and well off the $1.3bn profit recorded this time last year, but CFO Xavier Destriau remained circumspect.

Zim down $1.5bn on Q2 22 and facing overcapacity as new ships arrive

While rates and profits are down, capacity is still on the rise, with many newbuilds entering the markets each month. One country has been very active in the newbuild market: China. This has resulted in China becoming the world’s largest shipowning nation (in gross tonnage). China has also become the number one shipbuilding nation in the world.

For the first time in the modern era, China can now boast the world’s largest merchant fleet in gross tonnage (gt) terms, edging past Greece, according to data from Clarksons Research. Greece still retains an edge however when the rankings are measured by deadweight (dwt). Japan remains in third place on Clarksons’ shipowning podium.

It is not just shipowning where China leads the world in shipping. Its shipbuilders have outmuscled South Korea into top spot, its port operators now have a massive global footprint while the People’s Republic has become a vital source of ship financing over the past decade.

China beats Greece to become the world’s largest shipowning nation by gross tonnage

The slowing down of demand and the newbuilds hitting the oceans are forcing shipping companies to blank more sailings. Are we looking at a new normal?

Blanked sailings and vessel slidings, departures pushed to the following week to enable better utilisation, are not causing shippers too much trouble, other than extra admin.

The most important factor, they say, is that agreed rates are honoured on the alternative sailing – even if shipment falls outside the validity period.

Overall, the three alliances blanked 24 sailings in June and July out of a combined 25 China-to-Europe loops, according to Alphaliner, which added that the practice of skipping advertised sailings was “now part of normal shipping business routine”.

Shippers will live with blanked sailings – so long as rates are held

“Considering the recent rise in rates, we can expect that strict capacity management will continue, meaning blanked sailings are probably here until demand returns. There are already suggestions that another general rate increase may be incoming in the next month,” stated an update yesterday from Atlantic Pacific Global Logistics.

“At least with alliances, a reasonable option for rerouting will often exist so the impact in terms of delays will likely only be a few days. Supply chains just then need to buffer the inventory to allow for that until better forecasting and closer collaboration exists,” commented Andy Lane, a partner at Singapore’s CTI Consultancy.

Blanked sailings now ‘part of normal shipping business life’

Other ocean freight news:

Sustainability and Innovation

The shipping industry contributes 3% to the global carbon footprint. An increased focus on sustainability is needed. Xeneta has ranked shipping companies based on their Carbon Emissions Index (CEI), which is derived from a CO2e-per-tonne-km framework.

It’s the methodology critics of the IMO’s carbon intensity indicator (CII) say should be used instead.

HMM’s Q2 CEI score of 78.2 put the South Korean carrier ahead of its competitors by a margin of 17.4 points above the tradelane’s average, as well as 10 points ahead of its nearest rival, Evergreen.

Various factors were involved, including HMM vessels moving slower than the tradelane average, by some 2.6 knots, and that the average age of its ships on the route is just 2.8 years, versus the 4.1 year average. And its box ship capacity was second to that of Evergreen; the average HMM vessel being 21,600 teu, of which, with a fill factor of 78.8%, a high proportion was full.

HMM ‘greenest’ carrier again in Xeneta carbon-emission league table

Older vessels are being scrapped, which is also positive for the industry’s carbon footprint. The newer the ships, the cleaner they are usually. Especially smaller container vessels are being dumped.

Scrap sales have passed 100,000 teu so far this year, almost ten times the 10,900 teu recycled in the whole of 2022.

The disproportionately older fleet of vessels in the sub-5,000 teu sizes were highly sought-after at the height of the pandemic disruption, being less liable to be tied up in long-term contracts, they made excellent candidates for spot trades.

Now, Alphaliner data shows that smaller vessel types are now facing the chop. But, the analyst notes, this year’s scrappage will be nothing compared with the massive fleet reductions of 2016-17, “with 655,000 teu and 417,000 teu respectively sold to recyclers”.

Containership scrapping set to boom by year-end

That’s all for this week!!

About the author:

Martijn Graat

Martijn Graat is Zergratran’s Head of Content. He writes about trends and innovations in supply chain and logistics, and anything related to Zergratran