From FreightWaves:
All the experts said spot ocean rates would pull back in the second half. The second half has now begun. Not only are spot rates not falling, they’re still rising.
Much higher H2 spot rates than expected, combined with double-digit gains for contract rates, will equate to liner profits on an unprecedented scale.
On Monday, U.K. consultancy Drewry predicted that container shipping lines will post aggregate earnings before interest and taxes (EBIT) of $80 billion this year, and “if freight rates surpass expectations in the remainder of the year, we would not be surprised to see an annual profit line in the region of $100 billion.”
That’s the mirror opposite of the industry’s prior long-term performance.
McKinsey & Co. estimated in a report published in February 2018 that carriers “destroyed over $100 billion in shareholder value over the last 20 years.”
Container lines percentage annual return on invested capital (ROIC) 1995-2016. WACC = weighted average cost of capital (Chart: McKinsey & Company, February 2018. Sources: Capital IQ, CPAT, McKinsey analysis)Lars Jensen, CEO of consultancy Vespucci Maritime, commented, “In essence, it can be argued that in a single year, the industry will have made up for 20 years of losses.”
Spot rates keep risingCarriers implemented another round of general rate increases (GRIs) on Thursday. GRIs are now coming every two weeks, with more on tap for July 15. S&P Global Platts’ daily Freight All Kinds (FAK) spot-rate assessments for Asia-East Coast jumped $1,000 per forty-foot equivalent unit (FEU) on Thursday, the day the GRIs hit, to $8,100 per FEU, a new record. Platts’ Asia-West Coast FAK assessment rose $800 per FEU on that day, to $6,600 per FEU. S&P Global also noted that premium charges on top of base FAK rates have brought some Asia-U.S. all-in rates above $20,000 per FEU....
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