Zim Integrated Shipping Services has become the latest container shipping company to report a net loss, as record volume growth and double-digit revenue gains during the first half erased sharply rising bunker fuel prices and weak freight rates.
The song remains the same, but...
It is a depressingly familiar picture for the container shipping industry, but there are signs that market conditions might be improving. In a note to customers this week, Jefferies said spot rates have risen to their highest level in four years. The investment bank said it expected shipping capacity to remain relatively stable in the second half after a 9.5 percent surge in the first six months with a slowdown in new vessel deliveries and increased idling.
The global container fleet is forecast to increase 5.4 percent this year, as container volume rises 5.3 percent, according to IHS Markit’s Container Ships Forecast.
Zim reported a net first half-loss of $67.3 million and negative earnings before interest and taxes (EBIT) of $20.9 million. The loss came despite first half revenue increasing 11 percent to $1.55 billion and volume soaring 17 percent year over year to 1.47 million TEU. Record volume was carried during the second quarter.
But even as volume growth boosted revenue, Zim found the average freight rate per TEU in the first half fell 6 percent compared with the first six months of 2017 to $922 per TEU. In the second quarter the average rate decline was even steeper, dropping 10 percent to $907, having a brutal impact on the carrier’s earnings.
Eli Glickman, Zim president and CEO, placed a positive spin on the results, saying that the carrier continues to be one of the industry’s top performers since returning to profitability in 2017.
“The second quarter of 2018 was characterized by the continued rise in fuel prices and chartering rates, as well as low freight rates, all with a negative impact on the results of carriers, including Zim. In spite of these adverse circumstances, we were able to increase liftings, maintain exceptional service to our customers, and record an adjusted EBIT margin above industry average,” Glickman said.
Container shipping — struggling to manage capacity, pass on higher expenses
However, the grim first half figures illustrate an industry struggling to manage capacity and price in a sustained increase in bunker fuel that is up more than 20 percent since April and 44 percent higher than a year ago.
The impact could be seen in the first-half financial results. Maersk Line’s results were colored by the absorption of Hamburg Sud into the mix, but the carrier still barely managed to eke out a profit of $26 million, thanks mainly to discontinued operations. If the $111 million profit from discontinued operations was removed, the Danish company slumped to a loss of $85 million against a $10 million profit in the second quarter of 2017.
Revenue increased by 25 percent to $7 billion, driven by a 26 percent total volume increase to 3,399 FEU and a 16 percent increase in east-west liftings to just over 1 million TEU. But at the same time, the total average freight rate fell 1.2 percent while the carrier’s average bunker costs in the second quarter rose 28 percent. This pushed unit costs up almost 7 percent to $1,961 per FEU.
Maersk will have to absorb increased fuel costs of $1 billion this year, but it has successfully implemented its bunker surcharge, CEO Søren Skou said. Maersk told JOC.com that money recouped from emergency bunker fuel surcharges won't show until the third-quarter earnings.
Maersk, along with CMA CGM, Hyundai Merchant Marine, Mediterranean Shipping Co., Zim, and Ocean Network Express are seeking emergency bunker surcharges in response to a higher-than-expected jump in bunker fuel costs. The new surcharges range generally from $55 to $60 per TEU.
Other than Wan Hai, which reported a profit of 262 million New Taiwan dollars ($8.5 million), Maersk is the only other carrier so far to report a second-quarter profit, albeit one achieved through discontinued operations. Evergreen Line had a net loss of 1.2 billion New Taiwan dollars, Yang Ming reported a second-quarter net loss of 3.81 billion New Taiwan dollars, and HMM saw a $147 million in the second quarter. Hapag-Lloyd’s first-half net loss more than doubled to 100.9 million euro ($116.4 million).