Container shipping earnings hit all time high
Written by Nick Blenkey
Image: Shutterstock
Move over Facebook, Amazon, Netflix and Google, you’re currently being outperformed financially by the ocean carrier giants.
Actual net income for the container shipping industry in third quarter 2021 was $48.1 billion, a staggering $43.0 billion and nine-fold improvement from the $5.1 billion profit in the same quarter of last year. That year-ago profit was already approaching record levels. The remarkable third quarter profit was more than five times the record industry profit level first achieved in fourth quarter.
These are some of the numbers to emerge from the latest McCown Container Results Observer prepared by John D. McCown, founder at Blue Alpha Capital, who writes that “these actual results are diametrically opposed to what anybody could have contemplated at the beginning of the pandemic a year and three quarters ago. Net income as a percent of revenue came in at 42.7% in 3Q21. By any and all financial measures, the 3Q21 results were the best actual quarterly performance by the container shipping industry in its history. The marked improvement in actual performance since the beginning of the pandemic is evident in the graph below showing net income over the last 23 quarters along with actual last 12 months trailing numbers.”
“While the pandemic was initially expected to have a depressing effect on already poor industry results by reducing volume, through a series of events it has been the opposite in a pronounced way,” writes McCown. “Initially there was a volume impact but the aggressive laying up of 14% of vessel capacity by carriers more than compensated on what turned out to be a smaller actual decline. The short-lived volume impact then reversed as consumer purchases from the stay at home lifestyles driven by the pandemic resulted in actual volume gains. While most pronounced in the large Asia to U.S. lane, this was a phenomenon that would occur worldwide. These volume gains were more than could be handled even as laid up and additional vessel capacity was brought online. As other nodes within integrated container systems such as terminals reached capacity, this created bottlenecks that further exacerbated overall imbalances.
“It is those latter situations that have had the most pronounced effect in reducing system capacity. For instance, containerships waiting at anchor for a week off Los Angeles have the effect of turning a five week roundtrip voyage into a six week roundtrip voyage, reducing capacity 20% in that trade lane. A July 2021 study by McKinsey estimated that the congestion issue alone had the effect of reducing worldwide container shipping capacity by 11% compared to September 2020. Various news reports suggest that the capacity reducing impact of congestion has only worsened since mid-summer. Throughout this period, carriers have found themselves benefiting from a supply/demand dynamic in their favor that has exerted continuous upward pressure on rates for over a year.”
FANG
With the latest quarterly profits, the container shipping industry compares favorably to the actual financial performance of companies it has rarely if ever been linked with performance wise. For instance, a group of technology companies that have consistently reported growing actual earnings in recent years are referred to as FANG, an acronym for Facebook, Amazon, Netflix and Google.
The $48.1 billion in 3Q21 container shipping profits was almost 50% higher than total FANG profits and the 42.7% net income to revenue margin was almost three times higher. Compared to earnings behemoths Apple and Microsoft combined, container shipping industry profits were still almost 15% higher with a profit margin that was almost 30% higher. Needless to say, the absolute and relative actual net income reported by various individual container shipping companies in 3Q21 blow past what has ever been reported by any company in the transportation sector.
