A recent analysis reveals the astonishing profits of the global container shipping industry in the second quarter, totaling over $10 billion. This growth is mainly due to the redirection of the Red Sea route, which has increased both the volume of cargo and freight rates.

Industry veteran analyst John McKeon pointed out that major global container shipping companies, such as those in Denmark, $A.P. Moller - Maersk A/S Unsponsored ADR (AMKBY.US)$,$COSCO SHIP HOLD (01919.HK)$And.$OOIL (00316.HK)$Its net income almost doubled compared to the first quarter and exceeded $8.88 billion in the same period of 2023.

McKeown predicts that with the strong performance of the international trade market, profits for this quarter are expected to achieve a greater increase. He emphasizes that despite the impact on the supply chain during the pandemic, the shipping industry has maintained strong growth momentum and accounts for 80% of global commodity trade transportation. However, in the last quarter of 2023, the industry experienced collective losses. Currently, shipping companies are benefiting from positive factors on both the supply and demand sides, and profits are rebounding, although still lower than the peak during the pandemic.

The diversion of the Red Sea route has forced ships to detour through southern Africa, exacerbating capacity constraints, driving up spot container freight rates, and causing congestion at some major ports. McKeown cited data from Container Trade Statistics Limited to point out that despite the challenges, global container transport volume reached a historical high of 46.4 million twenty-foot equivalent units (TEUs) in the last quarter, surpassing the record of 46.2 million TEUs in the second quarter of 2021.

Currently, the demand in the United States is mainly driven by retailers and other importers who are stocking up before the possible tariff imposition on Chinese goods and potential strikes by US dockworkers, further exacerbating the usual pre-holiday ordering frenzy at this time of year.

McKeown warned that if a strike were to occur covering the entire coastline or major ports, it would cause serious disruption to the container networks of all major shipping companies, and this impact would quickly spread beyond US routes.

The import volume at US ports is approaching a historical high.

In the United States, despite concerns about an economic slowdown, the import volume of the busiest port complex remains close to the high levels during the pandemic. The ports of Los Angeles and Long Beach, which together account for about one-third of the total container imports in the United States, set a historical third-highest throughput in July, slightly lower than the record high in May 2021. At that time, the influx of consumer goods caused land supply bottlenecks and the waiting time for anchored ships continued to increase.

Mario Cordero, CEO of the Port of Long Beach, stated that the port is in a favorable position during the peak shipping season as consumers purchase back-to-school supplies and shippers send out goods before possible tariff increases. He also mentioned that the terminal capacity is sufficient and cargo transportation continues to be efficient and sustainable.

However, negotiations between dockworkers and employers on the East Coast and along the Gulf of Mexico coast have reached a stalemate, with their contracts expiring on September 30. This has resulted in some maritime cargo that was originally destined for Houston via the Port of Boston being diverted to West Coast gateways until this uncertainty is resolved.

According to data from the Copenhagen Maritime Authority and Sea-Intelligence, for every day of strike action, it takes about five days for the port to clear the backlog of cargo. For example, a strike lasting one week from October 1st would not be resolved until mid-November.

Allen Murphy, CEO of Sea-Intelligence, stated in a research report released last week that if a two-week strike occurs, the port would actually take until 2025 to return to normal operation.

Data released this month by the National Retail Federation and Hackett Associates shows that container imports through major U.S. ports are expected to reach 24.9 million twenty-foot equivalent units (TEUs) this year, a 12% increase from last year, approaching the levels of over 25 million in 2021 and 2022.

Can the strong upward trend in the shipping industry continue?

For many years, the market share of the Port of Los Angeles-Long Beach and other West Coast ports has been losing to competitors in the East. Ben Hackett, the founder of Hackett Associates, said concerns about labor disruptions at the East Coast ports led to the West Coast's freight share "exceeding 50% for the first time in three years."

These factors have distorted the demand situation, making it difficult to determine whether the peak shipping season will start early, whether trade volumes will stabilize quickly, or whether importers will continue to import more than usual. However, there is also another possibility that consumers' sustained consumption capacity has reached its limit, leading to warehouse overcrowding and surplus business inventories.

The latest retail sales report shows that despite rising borrowing costs, a cooling labor market, and the shadow of war and the November U.S. presidential election on the economic outlook, consumers are still showing resilience. However, with basic savings disappearing during the epidemic and wage growth slowing, many Americans are increasingly using credit cards and other loans to support their shopping.

However, so far, this industry that accounts for 80% of global commodity trade has not yet shown signs of a slowdown in consumption. When asked whether he foresaw an economic recession, the CEO of the world's fifth largest container shipping company expressed an optimistic view, believing that based on current booking situations, an economic recession does not seem likely to occur.

Rolf Habben Jansen, CEO of the German container shipping giant Hapag-Lloyd AG, said the company has been surprised by the sustained strong demand since May 1, and this momentum is expected to continue into the third quarter.

Preliminary data for the Port of Los Angeles in August also show a continued improvement in port efficiency. Executive director Gene Seroka pointed out that almost all port efficiency indicators have reached or exceeded the levels seen during the initial surge of the epidemic, despite some recent micro-level issues.

For example, the dwell time of containers – a measure of container circulation efficiency at the port – has extended to more than six days. Seroka believes that this number is too long and the ideal situation should be between two and four days.

In addition, the supply of truck chassis has also started to become tight, partly due to the severe delays in the Los Angeles-Long Beach railroad service during the pandemic in 2021 and 2022.

Despite facing these challenges, Seloca does not believe that there are any major concerns. He emphasized that the productivity of the port has been maintained at a high level over the past three months.

Some industry analysts predict that the import volume in the United States may reach its peak in July, which is consistent with the recent trend of declining spot freight rates.

Seloca stated that they will closely monitor whether this forecast comes true, but he also pointed out that it will largely depend on the overall economic trend.

Editor/ping