Facing Long-term Losses! 2024 Will Be Plunged Into A Bloodbath.

The inevitable plunge in freight rates has led to a sharp decline in third-quarter earnings for shipping companies and a bleak outlook for the full year, while expectations for next year are already well below average.

 

Alphaliner reported worrying earnings volatility for carriers in the third quarter, with returns having fallen to 1.5%, well below the 2.4% average for 2019, and with carriers averaging -0.2% profit margins over the 10 years to 2020 before the epidemic, operators could be looking at long-term losses.

 

 

 

 

Alphaliner's recent report is not encouraging: "Several currently profitable shipping companies have confirmed that they could post losses in the fourth quarter, based on full-year earnings forecasts."

 

Such is the volatility of the market that fourth-quarter forecasts tend to be broad and unfocused. For example, Maersk is forecasting a loss of between $970 million and $530 million. Similarly, Hapag-Lloyd is forecasting a loss between $600 million and $400 million. ZIM, on the other hand, is in the midst of an impairment test with losses of more than $2 billion and is expected to sustain losses of up to $226 million in the last three months of the year.

 

Jon Monroe said, "Carrier executives are already sounding the alarm in their third quarter earnings reports that 2024 is going to be a bloodbath."

 

To avoid any such scenario, shipping lines need to manage capacity and cut costs significantly.

 

 

 

 

In the case of Star Line ZIM, that means ordering bigger, more efficient ships, but most observers predict that demand will remain at about half the capacity growth through 2027. However, the Israeli carrier expects the market to turn around by the end of 2024.

 

Eli Glickman, President and CEO of ZIM, said, "We are currently in a transition period, which is expected to last until 2024, during which time we should gradually see the benefits of the decisive steps we have taken to enhance ZIM's commercial and operational resilience."

 

These measures include a major rebuilding program totaling 46 vessels, almost all of which will be delivered by the end of next year, to replace less efficient vessels that will be off-lease in 2024.

 

However, larger vessels will significantly increase capacity and reduce costs. Xavier Destriau, Executive Vice President and CFO of ZIM, admits that lower costs can only be realized if the new vessels can be fully loaded.

 

"It costs the same to operate a 15,000 TEU LNG vessel as it does to operate a 10,000 TEU vessel, so at the same cost, we have a 50% increase in potential receipts for this service. So as long as these vessels reach full capacity, we get the benefit of lower costs," Destriau said.

 

According to Jon Monroe, "What happens in 2024 may depend on the success of retail sales and BCO's de-stocking efforts. Expect retailers to be cautious about ordering until they get a handle on holiday sales performance."

 

However, he also acknowledged the poor outlook, citing a recent Nielsen survey that reported 57% of consumers are hesitant to spend more this holiday season and about 84% of global consumers plan to spend less.