Ocean Freight Update: Pileup at the Panama Canal, Shipping Lines with Lower Results, Capacity Increasing, Alternative Fuels, 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.

The Panama Canal

The first thing that jumped out at us this past week was the many articles that were published on the current situation at the Panama Canal. The Canal is being impacted by global warming and climate change. The water levels in the lakes supplying the Canal’s giant locks with water are lower than normal due to drought. This impacts global shipping because it limits the maximum draft in the Canal. It hurts the Canal’s total capacity, with an increasing number of ships waiting to enter the Canal on both sides. CNBC reports:

The number of vessels waiting to cross the Panama Canal has reached 154, and slots for carriers to book passage are being reduced in an effort to manage congestion caused by ongoing drought conditions that have roiled the major shipping gateway since the spring. The current wait time to cross the canal is now around 21 days.

The massive pileup is a result of water conservation measures the Panama Canal Authority deployed in late July due to drought. The PCA has temporarily lowered the availability of booking slots from August 8-August 21 for Panamax vessels, which are the largest vessels that can cross the canal. These vessels can carry 4,500 twenty-foot equivalent units (TEUs), which are the dimensions of a container. The number of pre-booking slots was reduced to 14 daily from 23.

‘This is going to get worse before it gets better’: Panama Canal pileup due to drought reaches 154 vessels

As we work on a sustainable alternative shipping route to the Panama Canal for containers, this news fuels our fire.

General ocean freight news

In recent weeks most shipping companies have released their Q2 earnings and most are facing a low financial tide. Below are some of the numbers for the main shipping lines.

Yang Ming is posting a loss:

Yang Ming Marine Transport Corp. on Friday reported a second-quarter after-tax net loss of $4.27 million.

The Taiwanese ocean carrier’s first quarter was better than the second, propelling it to an after-tax net profit for the first six months of 2023 of $107 million. Still, that’s a $3.9 billion nosedive from the first half of 2022.  

Consolidated revenues were $1.15 billion for Q2 and $2.36 billion for the first half of the year. 

Yang Ming blames economic uncertainty for $4M Q2 loss

Maersk is posting more positive results and hiked their guidance for 2023, more so because of better-than-expected results in the previous quarters, than an expected positive outcome for the last two quarters of this year.

The Maersk group (Copenhagen: MAERSK-B) reported net income of $1.49 billion for Q2 2023, down 83% year on year.

Adjusted earnings before interest, taxes, depreciation and amortization came in at $2.92 billion, 27% above the Bloomberg consensus of $2.3 billion. Earnings before interest and taxes (EBIT) was $1.61 billion, double the consensus forecast for $800 million.

Maersk has 68% of its ocean business under long-term contract and 32% in the spot market. Rates (including both contract and spot) averaged $2,444 per forty-foot equivalent unit in Q2 2023. That’s down 51% from boom-inflated rates the year before and down 15% sequentially versus Q1 2023. However, rates were still up 31% from pre-COVID levels in Q2 2019.

Maersk hikes 2023 guidance but warns of ‘years’ of challenges

Hapag-Lloyd’s profit went down more than 60%, directly resulting from lower rates and weaker demand.

In the first six months of the year, Hapag-Lloyd reported a revenue of US$10.8 billion, earnings before interest, taxes, depreciation and amortisation (EBITDA) of US$3.8 billion, earnings before interest (EBIT) of US$2.8 billion and profit of US$3.1 billion.

In the same period, the Hamburg-based carrier moved 5.8 million TEUs, which translates to a 3.4% decline over the first half of 2022. The drop in box volumes is mainly caused by lower demand for container transports on the Far East and European trade routes to North America, according to Hapag-Lloyd’s first-half report.

Hapag-Lloyd’s profit plunges two-thirds due to weaker demand and lower rates

Ocean Network Express (ONE) also posted lower revenues:

Ocean Network Express (ONE) saw its average rate fall to $1,333 per teu from $3,068 in Q2 22.

This more than halved the Japanese carrier’s revenue, to $3.8bn from $9bn the previous year, even though volumes lifted were comparatively stable. As a result, ONE’s headline figure was a precipitous drop in net income of 91%, from $5.4bn in Q2 22 to just $513m in Q2 23.

Sinking rates and new capacity create crashing waves in box line financials

While shipping companies are posting lower results and both demand and rates have been going down, there has never been more capacity, and we haven’t seen the end of that rise yet. Among the new ships are five 24,000 container giants.

Ocean carriers received another 200,000 teu of newbuild tonnage last month, following a record 300,000 teu delivered in June, exerting pressure on fleet managers to find continuing employment for their existing vessels in the midst of a down cycle.

Moreover, the July arrivals included three 24,000 teu ULCVs, followed by two more 24,000 teu behemoths that have hit the water already this month.

The 24,000 teu vessels will all be deployed on the Asia-North Europe tradelane, displacing smaller vessels that will be cascaded into transpacific and secondary routes.

Flood of mega-newbuilds a real challenge for carrier fleet managers

MSC continues to strengthen its position as the world’s largest liner operator, ordering ten 10,300 teu box ships at Zhoushan Changhong International Shipyard this month.

Like the ten 11,500 teu ships MSC ordered at the same shipyard in December for 2025-2026 delivery, the latest newbuildings will be LNG-fuelled, confirming that the Swiss-Italian market leader favours natural gas, even as competitors like Maersk and CMA CGM are opting for methanol propulsion.

MSC builds lead with order for ten more LNG neo-panamaxes

“Deliveries of new container ships during the first seven months of the year reached a new record high of 1.2 million TEUs in 2023, beating the previous record by 200,000 TEUs. As recycling of ships has remained low, the fleet capacity has grown 4.3% since January,” says Niels Rasmussen, chief shipping analyst at BIMCO.

The contracting of new ships has slowed since its record in 2021 but has year-to-date remained twice as high as during the 2010s. The 1.3 million TEU contracted so far this year has therefore kept the order book high, only 3,000 TEUs short of the record 7.6 million TEUs reached in March 2023.

Record high ship deliveries boost container fleet capacity

Other interesting ocean freight news:

Sustainability & Innovation

A while back, we created an overview of the various alternative fuels for the shipping industry. The bunker fuel that is used in most ships is the dirtiest fuel available and one of the main reasons that the shipping industry is responsible for about 3% of our total global footprint.

The Guardian recently wrote a good article about the current state of sustainable shipping. It shows an increase in the use of alternative fuels, but it also shows that we have a long way to go.

Low-carbon shipping is making waves across the maritime sector. In May, for example, Future Proof Shipping launched a hydrogen-powered inland container ship that moves cargo between the Netherlands and Belgium several times a week.

Shipping is already trying to cut fuel consumption, though in very modest ways. More than 20 commercial cargo ships use wind power to reduce fuel use. But this is a minuscule proportion of the more than 50,000 merchant ships sailing the world’s seas, and weather conditions are too unpredictable and inconsistent to make transport fully wind propelled.

Hydrogen is one of the most promising alternative fuels for decarbonising shipping because it is lightweight and vehicles can travel a long way without refuelling, according to Jacob Armstrong, sustainable shipping manager at the Brussels-based thinktank Transport and Environment.

Nearly half (43%) of all voyages made along the longest shipping corridor between China and the US could be powered by hydrogen without adding any fuel capacity or extra port calls, according to the International Council on Clean Transportation. What’s more, 99% of voyages on the route could be hydrogen-fuelled with some adaptations – either by replacing 5% of cargo space where possible with more hydrogen fuel, or by adding one port call to refuel en route.

For shorter distances, electrification could become more mainstream than hydrogen, especially as batteries become smaller and prices go down. 

Full clean ahead: can shipping finally steer away from fossil fuels?

That’s all for this week!

About the author:

Martijn Graat

Martijn is Zergratran’s Head of Content. He writes about the latest trends and innovations in logistics and anything related to Zergratran