The Danish integrated shipping company, Maersk has just posted ‘blockbuster Q2 results’ beating its Q1 ‘best quarter ever’ to reach $5.1 billion on revenues of $14.2 billion.
The company’s full-year guidance is now double what it was at the start of the year, having raised its EBITDA estimates to somewhere between $18 billion and $19.5 billion, with the suggestion that Q3 results could look better than the year’s previous two.
It all spells little else but a continuation of the headaches suffered by industries across the globe who find themselves staring down an unabating “exceptional market situation” that has seen the average freight rate surge 59 per cent in Q2 2021.
High levels of demand for consumer goods has seen ocean volumes increase 15 per cent year on year this last quarter, triple that of Q1 2021 when the increase was at 5.7 per cent. Back then, of course, the average freight rate was weighing in at only 35 per cent more than the year prior.
Following the Q2 results, Maersk has since revised its outlook for full-year demand growth to between six and eight per cent, up from between five and seven per cent, previously. This, it states, will be primarily driven by the export volumes out of China to the US.
Reported by Freight Waves, it has also stated that “earnings in the third quarter are expected to exceed the level of Q2 2021” adding that the “exceptional market situation” is expected to continue at least until the end of full-year 2021.
Surging freight costs
Shippers around the world have been hit hard by surging freight costs in recent months, driven by a perfect storm of heightened import demand of consumer goods fuelled by the pandemic, lockdown measures in Asia Pacific slowing down port operations, and events such as Suez Canal blockage earlier this year.
Q2 has been unrelenting in that regard, seeing freight rates surge 59 per cent year on year, causing furore among industries worldwide as soaring transportation inflation amounts to more than some can absorb.
It is the US-based furniture company, MCS Industries that has been the first to bite back, moving to sue two global container lines over alleged exploitation in the surges in spot freight rates.
The company filed a lawsuit with the Federal Maritime Commission on July 28th, claiming violations of the 1984 US Shipping Act. The news was first reported by the container industry news outlet, The Loadstar over the weekend.
MCS Industries is suing Cosco and MSC for $600,000 with the argument that they have ‘unjustly and unreasonably exploited customers’ and manipulated the spot container freight market. Both large and small shippers have equally voiced concern for their own businesses amid the surges, as well as anger at ‘the failure of shipping lines to meet their contractual obligations.’
MCS Industries’ CEO, Richard Master has described the current rates as “a dagger to the heart” of small and medium-sized shippers, weilded by shipping companies who ‘fully understand the disruption that the pandemic has caused.’
In conversation with The Loadstar, Master highlighted that ‘contract negotiations took place earlier this year, normally in the first quarter, up to a year after the pandemic started, so the lines knew that the issues and disruption it caused had been “in play for some time.”’
“When we started negotiating the contracts, we accepted that prices would be 70 to 80 per cent higher than last year, but we thought that was appropriate. It was excessive, but it reflected the disruption and market conditions,” Master said.
“But, once the contracts were signed, we didn’t get the containers [agreed to] and the prices spiralled up over a period.”
Master has said that rapid action is needed to mitigate the worst effects being felt on a daily basis by businesses and consumers, accusing carriers of operating a cartel that allows them to manipulate the market illegally.
“The formation of these cartels has allowed foreign shipping interests to co-ordinate pricing and business practices, and take advantage of economic conditions to charge extortionate prices to consumers,” he said.
A road to recovery?
Despite this, container freight rates continue to set new record high each week. However, it is according to the Jeffries analyst David Kerstens that these rates will “eventually come down, when container demand normalises and supply chain bottlenecks and capacity constraints ease.”
He said: “Demand for goods is expected to start leveling off as spending on services recovers, ut inventory restocking will likely sustain production and container imports.
“Our estimates assume some normalisation in the second half of 2021, followed by a decrease to a level in between this year’s record-high freight rates and previous levels, resulting in a normalisation at higher-than-expected earnings levels.”
The reality, however, could look starkly different to analyst projections, as MCS’ CEO Master voices the question raised by shippers across the US and UK, that “with rates at such inflated levels, what is the motivation for the lines to return to normal levels of operation?”