The container shipping industry is navigating through a tumultuous period marked by the prolonged closure of the Suez Canal and subsequent market reactions. The ripple effects are visible across freight rates, financial performances, and strategic maneuvers by key players in the sector.
In May 2024, the Suez Canal’s closure triggered significant disruptions, compounded by port congestion and cautious shipper behavior. As a result, freight rates surged, with the Drewry World Container Index (WCI) jumping 2.1 times between May 2 and July 25, reaching USD 5,937 per forty-foot equivalent unit (FEU). This spike contributed to an astonishing 249.6% year-to-date increase by the end of July.
Equity Market Reactions
This escalation in freight rates has led to stronger financial results for the second quarter of 2024, reflected in the equity markets. The Drewry Container Equity Index climbed 33.5% during this period. However, recent reports of Hamas accepting a UN ceasefire resolution have raised the possibility of an earlier reopening of the Suez Canal, potentially curbing the elevated freight rates. Consequently, the index has slid 13.8% in the past month but remains up by 4.9% year-to-date.
CMA CGM and Industry Giants Report Mixed Results
CMA CGM, a major player in the container shipping industry, reported a 6.8% year-on-year increase in revenue for the second quarter of 2024. Despite this, the company’s EBITDA dropped by 4.3% due to a 9.8% rise in operating costs, primarily driven by its logistics segment. The broader industry sentiment remains positive, with major carriers like A.P. Moller – Maersk (APMM) and Hapag-Lloyd (HLAG) upgrading their EBIT forecasts for 2024.
Robust Performance by Asian Carriers
Asian carriers have also shown robust performance in the second quarter. Orient Overseas Container Line (OOCL) saw a 13.4% year-on-year hike in average freight rates, translating into a 14.4% increase in revenue. Similarly, Evergreen, Yang Ming, and Wan Hai reported substantial growth in their topline numbers, driven by a strengthening of spot rates by 2.2 times year-on-year.
Surge in Newbuilding Orders
The newbuilding market experienced a significant uptick in the second quarter of 2024, particularly in June. Orders for 745.3 thousand twenty-foot equivalent units (TEU) were placed, representing a 44.2% year-on-year increase and a 2.6 times rise quarter-on-quarter. Noteworthy contracts include ONE and Eastern Pacific Shipping’s orders for methanol and LNG dual-fuel capable vessels. By July 24, 2024, the capacity ordered had already reached 78.4% of the total capacity ordered in the previous year, reflecting a strategic push to bolster supply chain resilience.
Tightening Charter Market
The charter market has also tightened, with one-year time charter rates for 4,250 TEU and 8,500 TEU vessels increasing by 40.8% and 12.2% year-on-year, respectively. This surge is boosting second-hand prices across all vessel segments, with the largest gains seen in five-year-old feeder ships. The demand for these vessels is largely driven by port congestion, which is hindering the flow of larger ships at key ports.
Cautious Market Optimism
Despite these positive trends, equity valuations have softened by 11.7% since mid-May 2024, as markets anticipate the peak of freight rates and engage in profit booking. However, container shipping equities remain up 4.9% for the year. The sector’s price-to-book (P/B) multiple stands at 0.8 times, which is 17.1% below its long-term average, indicating a cautious yet optimistic market outlook.
The container shipping industry is currently navigating a complex landscape of heightened freight rates, strategic newbuilding initiatives, and fluctuating equity markets. As companies adapt to these dynamic conditions, the ongoing developments in the Suez Canal and global trade patterns will be crucial in shaping the future of maritime logistics.
Source: Drewry
