HMM cautious in short term despite Q2 profit long jump

South Korean ocean carrier HMM expects “downward pressure” on demand growth in the second half of 2022.

HMM reported Wednesday its operating profit shot up by 153% year over year, but the South Korean ocean carrier isn’t counting on revenue figures to be quite as impressive in the second half of 2022.

Seoul-headquartered HMM said the operating profit for the first half of 2022 was KRW 6.08 trillion ($4.68 billion), up from KRW 2.4 trillion ($1.8 billion) in the first six months of 2021. 

First-half revenue leapt by 87% year over year from KRW 5.33 trillion ($4.1 billion) to KRW 9.95 trillion ($7.66 billion). 

HMM provided year-over-year comparisons between the first six months of 2022 and 2021.

Net profit was the most impressive figure of all — up 1,560% from KRW 365 billion ($281 million) in 2021 to KRW 6.06 trillion ($4.65 billion) this year.

HMM significantly improved earnings in H1 2022, mainly led by high freight rates and efficient fleet operations,” the company said in an earnings statement. “The Shanghai Containerized Freight Index (SCFI) in H1 2022 was 4,504 points, up 49% from 3,029 points in H1 2021.” 

Second-quarter earnings also significantly improved year over year. Revenue was up 73% from KRW 2.9 trillion ($2.23 billion) to KRW 5.03 trillion ($3.85 billion). Operating profit increased 111% from KRW 1.38 trillion ($1.06 billion) in Q2 2021 to KRW 2.937 trillion ($2.264 billion) this year. Net profit leapt 1,290% from KRW 211 billion ($162 million) to KRW 2.933 trillion ($2.261 billion).

HMM said it was able to attain record results despite fuel costs rising 35% from the first to the second quarter of this year. 

HMM said its second-quarter net profit skyrocketed by 1,290% year over year. (Chart: HMM)

“The financial structure has remained strong,” it added. “HMM’s debt-to-equity ratio has improved to 46% in June 2022 from 73% in December 2021.” 

HMM provided only three points in the “outlook and plans” section of its earnings release, which hint that results for the second half of 2022 might not be as astounding as those for the first six months of the year.

“Demand growth is expected to be under downward pressure due to considerable uncertainties mainly related to widespread inflation, rising oil prices and [a] recurrent coronavirus situation, in addition to geopolitical tensions,” HMM said. 

It added that the “global supply chain is forecast to remain strained in the coming months” and port congestion at locations around the world is “still pervasive.”

HMM said it unveiled a mid- to long-term strategy in July and “will spearhead an effort to address the full range of future challenges and lay a solid foundation for sustainable growth.” 

HMM will spend more than $11.3 billion as part of the growth strategy that includes expanding its container ship fleet from 820,000 twenty-foot equivalent units to 1.2 million TEUs by 2026. 

HMM growing container ship fleet as part of $11B investment

HMM making change at helm

12 HMM container ships’ sticker price $1.57 billion

Click here for more American Shipper/FreightWaves stories by Senior Editor Kim Link-Wills.

Tanker shipping stocks pull away from the pack, hitting fresh highs

Tankers stocks are doing great. Dry bulk and container stocks temporarily stopped the bleeding. “Maxim stocks” still underperform.

a photo of Wall Street; shipping stocks are seeing mixed fortunes

Shipping stocks are not considered “buy and hold” investments these days — for good reason. It’s all about timing. Case in point: Tanker stocks are now soaring after years mired in negative territory.

Fresh 52-week highs were hit Tuesday by Scorpio Tankers (NYSE: STNG), Ardmore Shipping (NYSE: ASC), Euronav (NYSE: EURN), DHT (NYSE: DHT), International Seaways (NYSE: INSW) and Teekay Tankers (NYSE: TNK).

Tankers stocks are up double digits year to date (YTD), in some cases triple digits. However, the rebirth of tanker stocks comes after two painful “bagholder” years. Anyone who bought and held a basket of tanker stocks since January 2020, pre-COVID, would have only recently broken even.

To gauge how shipping stocks have fared, American Shipper crunched the numbers by segment — tankers, dry bulk and containers — both YTD and across the COVID era.

The analysis also examined Greek-sponsored micro-cap shipping stocks in various segments involved in fully disclosed, dilutive sales of common equity and warrants facilitated by New York investment bank Maxim Group. “Maxim stocks” appear to attract retail investors looking to gamble on short-term price swings even though data confirms that these shipping stocks fare much worse than others over time.

Winners and losers YTD

The pattern of winners and losers YTD is very different from the medium-term pattern over the course of the pandemic. From Jan. 1 to Monday’s close, tanker stocks were up 88%. Dry bulk stocks were up 21% and container shipping stocks just 1% (for methodology, see below).

In contrast, shares of shipping companies that have sold equity via Maxim-related deals were down 42% YTD.

(All charts by American Shipper based on adjusted closing price data from Yahoo Finance)

This year has been a continual upward climb punctuated by a few brief pullbacks for tanker stocks. Dry bulk shares kept pace with tanker shares until June, after which lower spot rates and economic headwinds took their toll. Dry bulk shares have seen a small recovery since mid-July.

Container shipping shares maintained their winning streak until the end of March. Then they fell back, although, like dry bulk shares, they’ve regained some ground since mid-July.

The Maxim-linked shipping share average jumped briefly in March due to a fleeting spike in one equity, Imperial Petroleum (NASDAQ: IMPP), after which that stock and the overall average slid lower.

Product tankers trump crude tankers in 2022

Tanker stock performance has diverged based on tanker type this year. Shares of pure product-tanker owners are far outperforming the rest, up by an average of 173% year to date. Mixed fleet owners — with both crude and product tankers — are up 73%. Pure crude-tanker owners are up 47% (an impressive gain considering that crude tanker owners are still reporting losses).

chart of shipping stock prices

COVID-era shipping stock performance

Over the course of the pandemic, container shipping stocks have been by far the biggest winner. As a group, they’re still up 409% on average since Jan. 1, 2020, despite flat performance in 2022 YTD.

Dry bulk shares have been the second-biggest winner. Even with this year’s retrenchment, they’re up 129% since January 2020. In contrast, tanker stocks — which are more in the spotlight this year — are essentially flat versus January 2020 (up 3% as of Monday’s close).

chart of shipping stock prices

Highlighting the importance of stock-trade timing, the performance of different tanker segments over the medium term was the reverse of 2022 YTD performance. Since Jan. 1, 2020, product tanker stocks fared the worst, mixed-fleet stocks were in the middle, and crude tankers fared best.

‘Maxim stocks’ down over 90% vs. pre-pandemic

The performance of the Maxim-linked shipping equities over the medium term highlights just how important it is to get in and out of such equity bets very quickly.

Keeping in mind that the maximum loss is 100%, the share values of Top Ships (NASDAQ: TOPS) and Globus Maritime (NASDAQ: GLBS) were both down 98% at Monday’s close versus Jan. 1, 2020. Over the same time frame, shares of Seanergy (NASDAQ: SHIP) and Castor Maritime (NASDAQ: CTRM) were both down 91%.

Shares of Imperial Petroleum — a spinoff of StealthGas (NASDAQ: GASS) that Maxim has supported — have lost 95% of their value since the stock began trading in early December. Shares of OceanPal (NASDAQ: OP) — a spinoff of Diana Shipping (NYSE: DSX) that conducted an offering with Maxim as sole bookrunner — have lost 91% of their value since they began trading in late November.

A new shipping equity doing Maxim-placed offerings emerged last month. Seanergy spun off United Maritime Corp. (NASDAQ: USEA) into a separate listing that began trading on July 7. 

In just one month, United Maritime’s shares shed 71% of their value.

Methodology for shipping stock averages:

Averages use adjusted closing price data of U.S.-listed shipping stocks from Yahoo Finance. Segment averages were not weighted by market cap.

Only large “pure” owners in each segment were included in averages. For the pure product-tanker average: Scorpio Tankers and Ardmore Shipping. Crude tankers: Euronav, DHT and Nordic American Tankers (NYSE: NAT). Mixed-fleet operators: Teekay Tankers, Frontline (NYSE: FRO) and International Seaways. Tanker owners with significant holdings in non-crude/product segments, such as Navios Partners (NYSE: NMM) and Tsakos Energy Navigation (NYSE: TNP), were excluded.

The dry bulk average was made up of the four largest U.S.-listed pure bulker owners by market cap: Star Bulk (NASDAQ: SBLK), Golden Ocean (NASDAQ: GOGL), Genco Shipping & Trading (NYSE: GNK) and Eagle Bulk (NASDAQ: EGLE).

The container shipping average comprises liner operators Zim (NYSE: ZIM) and Matson (NYSE: MATX), as well as pure container-ship lessors Danaos (NYSE: DAC), Global Ship Lease (NYSE: GSL) and Euroseas (NASDAQ: ESEA). Costamare (NYSE: CMRE), Atlas (NYSE: ATCO) and Navios Partners were excluded due to significant noncontainer holdings.

The Maxim stocks average comprises Top Ships, Seanergy, Castor Maritime, Globus Maritime, Imperial Petroleum and OceanPal. Due to the recency of its listing, share pricing of United Maritime was excluded.

Click for more articles by Greg Miller 

July volumes at Georgia Ports Authority climb 18%

Georgia Ports Authority kicks off the start of its new fiscal year with volumes at over a half million TEUs.

An aerial photograph of a berth at the Port of Savannah.

July volumes at the Georgia Ports Authority were 18% higher year over year, kicking off what the operator says is “the fastest start ever” for a new fiscal year.

GPA handled 530,800 twenty-foot equivalent units in July. The 2023 fiscal year runs from July 1 to June 30, 2023.

Since January, GPA has handled 3.4 million TEUs, which is 7% higher than the same period in 2021. 

July’s volume growth comes as East Coast and Gulf Coast ports have been seeing an increase in vessels as operators seek to divert traffic from congested West Coast ports. Uncertainties with labor at the West Coast ports may have also been a factor. The International Longshore and Warehouse Union’s contract with the ports expired June 30.

GPA experienced a dip in loaded imports at the Port of Savannah in June — May’s loaded imports totaled 253,508 TEUs — as vessels backed up off the East Coast. 

But loaded imports rebounded in July, boosting GPA’s overall volumes. July’s loaded imports of 251,761 TEUs represent the second highest month for that category since January. The figure is 6% higher than June’s 236,481 TEUs and 10% higher than July 2021’s 227,876 TEUs, according to GPA data.

“The Port of Savannah has clearly become a preferred East Coast gateway for shippers globally, including cargo diverted from the U.S. West Coast,” GPA Executive Director Griff Lynch said in a news release.

While the amount of vessels waiting to dock may have eased from last month, that number remains in double digits. As of Tuesday morning, 40 vessels were at anchor waiting to dock at the Port of Savannah, according to its website.

Meanwhile, ship-position data from MarineTraffic from Tuesday morning reflects the backup. However, data can change by the hour as well as daily.

Vessels off the Georgia coastline as of Tuesday morning. (Map: MarineTraffic)

According to a Saturday operational update from vessel operator Hapag-Lloyd, waiting time for ships at anchor was 14 to 18 days.

GPA’s Lynch says the port has undertaken a number of initiatives to handle the increased traffic, including shifting operations to start two hours earlier to 4 a.m. EDT to better suit drivers’ needs. That time change became effective Aug. 1. 

In July, the Port of Savannah’s gate operations averaged 15,000 truck moves per weekday, GPA said. That figure includes both import and export transactions. 

Meanwhile, infrastructure projects to increase berth capacity are underway at the Port of Savannah. GPA ordered eight new ship-to-shore cranes, with four arriving in February. The remaining four will arrive by the end of 2023. A project to expand berth capacity by 1.4 million TEUs at the Garden City Terminal is 60% complete, while the Garden City Terminal West project will add 1 million TEUs of container yard capacity in 2023 and 2024.

GPA aims to grow annual berth capacity from 6 million to 7.5 million TEUs by 2023 and to 9 million TEUs by 2025.

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Click here for more FreightWaves articles by Joanna Marsh.

No precipitous plunge in container shipping rates, just ‘orderly’ decline

Port congestion and voyage cancellations by shipping lines are preventing a steeper slide in spot container freight rates.

A photo of a container ship; rates remain high

There’s an old Greek shipping saying that goes: “Ninety-eight tankers and 101 cargoes, boom. Ninety-eight cargoes and 101 tankers, bust.” This doesn’t translate so well into modern-day container shipping because the consolidated liner sector manages the number of ships in service a lot better than the fragmented tanker business.

Tanker spot rates can plunge violently lower when supply exceeds demand. One of the big questions for container shipping has been: Will spot rates plunge precipitously after demand pulls back, as it has in the past in bulk commodity shipping? Or will there be a gradual decline toward a soft landing?

So far, it looks gradual. Trans-Pacific rates have steadied in July and early August. In fact, some indexes show spot rates ticking higher again.

Spot rates are at least temporarily plateauing because U.S. import demand remains above pre-COVID levels, some U.S. ports remain extremely congested, and ocean carriers are “blanking” or “voiding” (i.e., canceling) sailings, both because their ships are stuck in port queues and because they’re matching vessel supply with cargo demand to avert the fate of Greek tanker owners.

“Void sailings are still the go-to options for carriers at this point to try and stymie the fall in rates,” said George Griffiths, managing editor of global container freight at S&P Global Commodities.

“Congestion is still the buzzword for East Coast ports, with Savannah currently feeling the full force of loaded imports and associated delays,” he told American Shipper.

FBX trans-Pac rates up 3% from recent lows

Different spot indexes give different rate assessments but generally show the same trends.  The Freightos Baltic Daily Index (FBX) Asia-West Coast assessment was at $6,692 per forty-foot equivalent unit on Friday.

The good news for shippers booking spot cargo: That’s just one-third of the all-time peak this index reached in September. The bad news: Friday’s assessment is up 2.7% from the low of $6,519 per FEU hit on Aug. 2, and it’s still 4.5 times higher than the rate at this time of year in 2019, pre-COVID.

chart showing container shipping rates
Rate assessment in $ per FEU. Blue line: 2021, orange line: 2019, pre-COVID. (Chart: FreightWaves SONAR)

The FBX Asia-East Coast spot rate assessment was at $9,978 per FEU on Friday, less than half the record high in September. However, it was up 3.5% from the recent low of $9,640 on Aug. 2 and still 3.6 times higher than 2019 levels.

chart showing container shipping rates
(Chart: FreightWaves SONAR)

Drewry indexes show gradual slide

The weekly index from Drewry portrays a gentler descent than the FBX, because Drewry did not include premium charges in its spot assessments at the peak.

Unlike the FBX, Drewry’s Shanghai-Los Angeles assessment does not show a recent uptick. It was at $6,985 per FEU for the week announced last Thursday, its lowest point since June 2021. It was down 44% from its all-time high in late November 2021, albeit still 4.2 times higher than rates at this time of year in 2019.

(Chart: FreightWaves SONAR)

Drewry’s weekly Shanghai-New York assessment was at $9,774 per FEU on Friday. Rates were relatively stable over the past two week, yet the latest reading is the lowest since June 2021 and down 40% from the peak in mid-September.

Drewry’s Shanghai-New York assessment on this route is still 3.5 times pre-COVID levels.

(Chart: FreightWaves SONAR)

S&P Global: East Coast rates 50% higher than West Coast

Daily assessments from S&P Global Commodities (formerly Platts) show a widening divergence between North Asia-West Coast and North Asia-East Coast Freight All Kinds (FAK) rates.

S&P Global assessed Friday’s North Asia-East Coast FAK rate at $9,750 per FEU, up 2.6% from the recent low hit on July 29. Spot rates on this route have roughly plateaued since late April, according to this index.

S&P Global put Friday’s North Asia-West Coast rate at $6,500 per FEU, still gradually falling and at the lowest point since late June 2021. The gap with East Coast assessments has been widening since May, with the East Coast rates now 50% higher than West Coast rates.

(Chart: American Shipper based on data from S&P Global Commodities)

“East Coast rates are significantly higher than West Coast rates due to the congestion we are seeing,” said Griffiths.

Port congestion still very high

Matthew Cox, CEO of ocean carrier Matson (NYSE: MATX) explained on his company’s quarterly call earlier this month: “In fall of last year, we saw over 100 vessels waiting at anchor or offshore waiting to get into the ports of Los Angeles and Long Beach. We still have 100 ships waiting. But a lot of that congestion has moved into different ports. We [have] the same number of ships but just more distributed to different places.”

The number of ships waiting off all North American ports topped 150 in late July, according to an American Shipper survey of ship-position data from MarineTraffic and queue lists for Los Angeles/Long Beach and Oakland, California.

The count fluctuates by the day (and by the hour as ships enter and leave queues) and is now down 15% from its peak — but still historically high. As of Monday morning, there were 130 ships waiting offshore. East and Gulf Coast ports accounted for 71% of the total, with the West Coast share falling to just 29%.

The queue off Savannah, Georgia, was the largest at 39 ships on Monday morning. It was considerably higher just a few days earlier. According to Hapag-Lloyd, there were 48 container vessels off Savannah on Friday, with wait times of 14-18 days.

The queue off Los Angeles/Long Beach has now virtually vanished. On Monday morning, it was down to just 11 container vessels, according to the queue list from the Marine Exchange of Southern California. It hasn’t been that low since November 2020. It hit a high of 109 ships on Jan. 9.

Spot rate easing expected to continue

On last Wednesday’s quarterly call by ocean carrier Maersk, CFO Patrick Jany said port congestion preempted a steeper drop in spot rates. Even with support from congestion, he predicted short-term rates will decline further in the months ahead.

“We have seen an erosion of short-term rates in the past few months that has been stopped here and there by renewed or new disruptions,” Jany said. “The erosion of the short-term rates will continue. It won’t be a one-day drop but a progressive erosion toward a lower level of short-term rates in the fourth quarter.”

Jany predicted that when rates stop falling, they “will stabilize at a higher level than they were in the past [pre-COVID] and higher than our cost level.”

During the latest quarterly call by logistics provider Kuehne + Nagel, CEO Detlef Trefzger predicted rates would ultimately settle at levels two to three times pre-COVID rates. A Seko Logistics executive made the same prediction during a recent briefing.

According to Cox at Matson, spot rates “are adjusting slowly. There’s no falling off a cliff. The word we use is ‘orderly.’ We’re seeing rates decline from their peak, but … we expect an orderly marketplace for the remainder of the year, with our vessels continuing to operate at or near capacity.” 

Click for more articles by Greg Miller 

Performance Team breaks ground on South Carolina cold chain facility

The South Carolina cold chain facility opening next year will handle Port of Charleston imports and exports of proteins, fruits and vegetables.

Performance Team – A Maersk Company will open a cold storage facility in Charleston, South Carolina, early next year designed to get imports of proteins, fruits and vegetables to 80 million U.S. consumers within one day and 225 million consumers within two days. 

“We have been evaluating South Atlantic cold chain market opportunities for the past three years, and this opportunity stood out in a strong way for a number of good reasons. The South Atlantic is one of the fastest-growing areas in the nation, and we see lots of business opportunities thanks to a competitive port that we can connect our logistics and services to with all our brands here — Maersk, Hamburg Süd and Sealand,” said Mike Meierkort, head of logistics and services for Maersk North America, during a groundbreaking ceremony in Charleston last week. 

The ceremonial first dig is recorded on land along Interstate 26 in Charleston, South Carolina. (Photo: Maersk North America)

A Maersk spokesman told FreightWaves the facility would be in “a very strategic location” along Interstate 26 less than 30 miles from the Port of Charleston. He declined to share the size of the cold storage building or the cost of construction. 

A.P. Moller – Maersk (OCTUS: AMKBY) acquired Performance Team in April 2020 in a $545 million deal.  

Proteins and frozen fruits and vegetables reportedly accounted for 77% of all 2021 reefer food volume at the Port of Charleston. 

“South Carolina Ports has the capacity to support more refrigerated and frozen goods and we look forward to growing the cold chain business segment together,” South Carolina Ports Authority CEO Barbara Melvin said in a news release Monday. 

According to the release, the facility, which will be developed by RL Cold and constructed by Charleston-based Primus and will open in the first quarter of 2023, “will offer a truly unique value proposition to customers through supply chain simplification benefits by integrating cold storage solutions with ocean transit and drayage, refrigerated inland trucking, blast/quick freezing, USDA meat inspections, boxing/repacking and other value-added services based on customer needs.” 

Diogo Lobo, head of cold chain logistics for Maersk North America, said: “Customers are looking for more cold storage space in Charleston to grow their exports to the destinations the Port of Charleston serves. There’s a strong refrigerated market in poultry, pork, beef, seafood and potential for fruits and vegetables too. 

“We are creating the capacity needed in the market to handle fresh produce, with multiple chambers designated for the different seasons and commodities. We will have a 20,000-square-foot repack room designated for value-added service to the retail sector. We will be a one-stop shop for the temperature-controlled products going to the grocery sector.”

South Carolina Ports announced last month that it had a record 2022 fiscal year, handling 2.85 million twenty-foot equivalent units, a 12% increase year over year, at the Port of Charleston’s terminals.

Performance Team operates more than 150 distribution and fulfillment facilities in North America. Maersk announced in June that Performance Team will open a nearly 168,000-square-foot cold storage facility in Dayton, New Jersey, in October. 

In March, Maersk announced Performance Team would build a 283,000-square-foot cold storage facility in Baytown, Texas, about 15 minutes from Port Houston. The facility, which will have access to both BNSF and Union Pacific rail lines, is expected to open this month. 

Maersk added to its North American first-, middle- and last-mile capabilities with its February acquisition of Pilot Freight Services for $1.8 billion. 

Performance Team opening cold storage facility in New Jersey

1st woman tapped to lead South Carolina Ports

Walmart picks site near Port of Charleston for distribution center

Click here for more American Shipper/FreightWaves stories by Senior Editor Kim Link-Wills.

War effect on crude trade: Long-lasting and just beginning

It appears increasingly likely that war-driven changes to global crude flows will persist — and grow — through 2023.

photo of a crude oil tanker

Is the shift in global crude flows due to the Ukraine-Russia war a fleeting event or a more lasting, structural change?

At first, many market watchers and investors viewed it as short-lived. It now seems like something to count on for at least the medium term. More Russian crude will likely head to India and China for a longer period of time, and more Atlantic Basin and Middle East crude will head to Europe to replace Russian barrels.

“Oil supply chain disruptions related to Russia’s invasion of Ukraine are proving to be durable and marked by significantly longer average voyages,” said Steward Andrade, CFO of Teekay Tankers (NYSE: TNK), during Thursday’s quarterly conference call. “These trade pattern changes are likely to be long-lasting.”

Executives of Euronav (NYSE: EURN) highlighted the same point on their quarterly call on Thursday. According to Brian Gallagher, Euronav’s head of investor relations, “This isn’t some event that happens over a few weeks. There’s a longevity to the structural change.”

Only the beginning

The EU ban on crude oil and petroleum product imports doesn’t take effect until Dec. 5 for seaborne shipments and Feb. 5, 2023, for pipeline imports.

As of now, Europe is still importing large quantities of Russian crude. Pre-invasion, volumes were around 4 million barrels per day (b/d). Various estimates put the reduction to date at around 700,000 to 1 million b/d. Tanker effects are already significant despite the transition being just one-quarter complete.

“We are only seeing the beginning of a story that will have a long tail,” said Euronav CEO Hugo De Stoop.

Upside for smaller and midsize tankers

War-driven trade changes have mainly impacted smaller tankers known as Aframaxes (with capacity of 750,000 barrels) and midsize Suezmaxes (1 million barrels). Larger tankers known as very large crude carriers (VLCCs, with capacity of 2 million barrels) are too big to call at Russian terminals.

Andrade explained, “Short-haul exports of Russian crude oil to Europe have fallen by around 700,000 b/d compared to pre-invasion levels, with Russian crude oil increasingly being diverted to destinations east of Suez, particularly to India and China.

“Europe is having to replace short-haul Russian barrels with imports from other regions, most notably from the U.S. Gulf, Latin America, West Africa and the Middle East. These changes are primarily benefiting Aframax and Suezmax tankers due to the load and discharge regions involved.”

Compares average seaborne crude oil flows in three months prior to invasion versus three months after (Chart: Teekay Tankers earnings presentation based on data from Kpler)

“When oil imported into Europe previously came five days from the Baltic and now comes approximately 20 days from the Middle East on a Suezmax or approximately 20 days from the U.S. Gulf on an Aframax, that is obviously helpful for ton-mile demand.”

Tanker demand is measured in ton-miles: volume multiplied by distance. The longer the average distance, the more tankers you need to carry the same volume.

“When China imports oil from the Baltic on Aframaxes — which we’ve seen recently — it’s another example of increased ton-mile demand due to changing trade patterns,” added Andrade.

More ship-to-ship transfers to VLCCs?

Euronav expects the war effect to benefit VLCCs as well, for two reasons: because of ship-to-ship transfers in the Russia-to-Asia trade and because of the strong interconnection between Suezmax and VLCC markets.

“The most efficient way to transport crude oil over long distances is obviously on a VLCC. So ideally, they would do transshipment,” said De Stoop, referring to Aframaxes or Suezmaxes loading in Russia and transferring cargo to VLCCs. 

“We’ve already seen a few of those, largely off Africa. We’ve also seen cargo being discharged in Libya and Egypt for relatively short periods then lifted again on bigger ships. The part of the industry that can do that [carry Russian oil] is trying to find the most efficient way to carry that oil to the Far East.”

Suezmax-VLCC connection

Meanwhile, if Suezmax rates rise too high versus VLCC rates, oil shippers traditionally combine two Suezmax cargoes into one lot and use a VLCC instead.

“There are a lot of markets where two Suezmax cargoes can go into one VLCC, so you have this push-pull effect,” said De Stoop. “When the Suezmax market is doing very well, and is seeing many more cargoes, that would naturally have a knock-on effect on the VLCC market. Those two markets are really, really interconnected.

“When we speak to the chartering desks of our clients, it’s usually the same people [booking Suezmaxes and VLCCs] and they monitor the price of one versus the other. In the last two or three weeks, we have seen a lot of cargoes that were shown to our Suezmax desk and then they disappeared and popped up in the [VLCC] pool. Two cargoes were being combined in order to be carried by a VLCC.

“Normally, it’s the VLCC segment that is doing the heavy lifting for all the other segments. This time around — because the disruption is coming from Russia and Russia is not a VLCC market — the pushing is coming from the smaller sizes.

“The Aframaxes are pushing the Suezmaxes and the Suezmaxes are now pushing the VLCCs. Simply because when you compare rates of Suezmaxes to VLCCs, it’s a lot cheaper to use VLCCs. [According to Clarksons, Suezmax rates are currently 30% higher.] 

“And that’s what we have seen in recent weeks. That’s the main reason why we believe the VLCC market improved after the Suezmax had already improved.”

Tanker earnings roundup

The VLCC market may be improving, but it was extremely weak in the second quarter and the early part of the third quarter.

Euronav, which owns VLCCs and Suezmaxes, reported a net loss of $4.9 million for Q2 2022 compared to a net loss of $89.7 million in Q2 2021. Its adjusted loss of 12 cents per share was just shy of the consensus outlook for a loss of 11 cents.

Euronav’s VLCCs earned an average of $17,000 per day in Q2 2022. So far in the third quarter, the company has 47% of available VLCC days booked at a significantly lower rate: only $12,700 per day. De Stoop attributed this to longer-haul voyages booked during a period of weak rates and VLCCs employed on lower-earning repositioning voyages.

Teekay Tankers — which owns a fleet of Suezmaxes, Aframaxes and product tankers — reported net income of $28.5 million for Q2 2022 versus a net loss of $129.1 million in Q2 2021. Adjusted earnings per share of 76 cents topped the consensus forecast for 61 cents.

Teekay’s spot-trading Suezmaxes earned $25,310 per day in Q2 2022. So far in the third quarter, the company has 43% of its available Suezmax days booked at an even higher average rate: $29,600 per day.

Click for more articles by Greg Miller 

Saber-rattling in Taiwan Strait stokes new supply chain threat

Chinese military exercises in the Taiwan Strait will delay shipments. Further escalation could have dramatic supply chain effects.

a map of ships near Taiwan

China will conduct live-fire military exercises in the Taiwan Strait and around Taiwan from Thursday to Sunday in retaliation for House Speaker Nancy Pelosi’s visit — exercises that are expected to breach Taiwan’s territorial waters and block some busy international shipping lanes.

Any escalation of tensions would create yet another major threat to global supply chains.

If the strait were ever closed to commercial traffic, it would be a negative for cargo shippers and a positive for ship owners and operators. Delays would push up transit time and reduce effective vessel capacity, boosting freight rates.

House Speaker Nancy Pelosi and Taiwan President Tsai Ing-wen (Photo: AP Photo/Taiwan Presidential Office)

“The Taiwan Strait is one of the busiest straits in the world,” said Maersk CEO Soren Skou during his company’s quarterly conference call on Wednesday.

“Obviously, if it were to close, it would have a dramatic impact on shipping capacity, in the sense that everybody would have to divert around Taiwan and add to the length of the voyages,” Skou said. “That would absorb significant capacity. But I have to say that there seems to be no suggestion that this is where we’re going.”

Bloomberg calculated that almost half of the world’s container ships and 88% of larger container ships transited the Taiwan Strait this year. It also reported that some liquefied natural gas (LNG) carriers have already rerouted or slowed speed in response to the coming military exercises.

Brief ‘partial blockade’ or something bigger?

According to Peter Williams, trade flow analyst at VesselsValue, “With China conducting significant military drills and military tests around Taiwan … there is potential for substantial disruption to trade in the region.”

VesselsValue analyzed location data on commercial ships currently in Taiwanese waters, as well as those en route to Taiwan. As of Wednesday, it found 256 container ships, tankers and bulkers in Taiwanese waters, with another 308 destined to arrive. Of inbound container ships, tankers and bulkers, 60 are scheduled to arrive before the Chinese military drills conclude on Sunday.

Shipping agency GAC warned in customer notice that “some of the exercise areas are within the VTS [Vessel Traffic Service] range of various ports of Taiwan. The port control bureau has set up a warning range. If a vessel enters the area, it will prompt a warning by the port VTS and be requested to leave as soon as possible to avoid any accidents.”

According to Evercore ISI analyst Krishan Guha, “With China warning foreign planes and ships to stay away while its military exercises proceed, the result is what Taiwan’s ministry of foreign affairs terms a blockade, though possibly only a partial one, with some air and sea lanes still potentially open.”

Guha continued: “The current exercises and effective partial blockade are scheduled to last only a few days but could be extended or restarted, leading to a more prolonged crisis, as well as more serious disruptions to global chip and other tech-component supply chains.”

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Rail and port labor issues adding to supply chain misery, expert says

FreightWaves chats with international trade attorney Ashley Craig about what the troubles in labor talks for both rail and maritime mean for the broader supply chain.

The struggle by the freight railroads and their unions to reach consensus on a labor agreement comes at a time when it is already anyone’s guess how existing challenges in the supply chain will play out over the next several months, according to Ashley Craig, an attorney with Washington law firm Venable.

For starters, there are rail service issues, as well as lingering supply chain impacts from the COVID-19 pandemic, according to Craig, who co-chairs Venable’s international trade group. Furthermore, the International Longshore & Warehouse Union (ILWU) and the Pacific Maritime Association are negotiating a new labor contract for West Coast port dockworkers. The last contract expired July 1.

To that already potent mix, add contract talks in rail. The Presidential Executive Board (PEB), a three-member committee appointed by President Joe Biden, has been taking testimony from the railroads and the unions about key issues in their negotiations. PEB Chair Ira Jaffe and members Barbara C. Deinhardt and David Twomey will issue a report by Aug. 16 offering recommendations for the railroads and the unions. Then there will be a 30-day cooling-off period for both sides to consider those ideas. The unions will not be permitted to strike or engage in a work stoppage before the cooling-off period ends. 

Wages and benefits are among the sticking points between the unions and the railroads. Contract negotiations began in January 2020. The National Mediation Board took over negotiations earlier this year but released the parties after they failed to reach an agreement. Per the Railway Labor Act, the formation of the PEB was the next stage in the process.

FreightWaves spoke with Craig on how the broader supply chain is coping with all these labor unknowns, plus the consumer and economic landscape post-pandemic.

This interview was edited for length and clarity.

FREIGHTWAVES: What are the implications of the latest actions surrounding the Presidential Emergency Board and rail and union relations for the broader supply chain?

CRAIG: “I know we’re talking about the rail situation, but there’s a greater supply chain concern given that we have the ILWU in negotiations with the Pacific Maritime Association. Those talks seem to be, let’s just say, ‘progressing,’ but we’re still not quite there just yet. And we all know what happened 10 years ago [when negotiations between] the stevedores and the shipping lines got pretty bad.

“So, talk about a confluence of events where we have still-lingering COVID, supply chain disruptions, port congestion, long-standing concerns with the rail from the shipper perspective, etc. Now we have a situation where the president had to go and evoke executive authority, issue the order, create the board, essentially timeout for 60 days [starting July 18] … We’re looking for this report [that will list PEB’s recommendations].

“Who knows what’s going to happen, but we could find ourselves in the worst-case scenario where we have no agreement between the unions and the rail side. … And then we have a lockout on the Pacific waterfront, and we’re going to have massive disruptions to the supply chain above and beyond what we have been seeing over the last 18, 24 months related to COVID impact supply chain concerns, etc.

“So, long way of saying, what are people doing? I mean, you’re seeing the statements issued by [the National Retail Federation], for example, applauding the president’s decision to step in and issue the order bringing the board, appoint the three, and hopefully, not only take a timeout but also drive towards some sort of consensus.

“But the rhetoric is still pretty high. The rail carriers have not backed down, and they’re still very much focused on the price point that every individual employee union, in terms of salary, derives … . The comments are fixated on the fact that [railroad salaries are] much higher than the average American worker. The counter [from the unions] is they haven’t gotten the raise in three years, they’re front-line workers, etc.

“I think most of the stakeholders that rely on rail are sitting here wondering what, if anything, can they do other than what has been able to have been done already, which is to get the president to step in, in a direct way. So, lots of unanswered questions at this point.”

FREIGHTWAVES: Do shippers and customers create contingency plans in this situation?

CRAIG: “You try. In a ‘normal’ situation where we didn’t have multiple events running in parallel — let’s just say that the ILWU-PMA situation [didn’t have] a contract negotiation here — then you would be looking at other modes, primarily long-haul carrier. But, as we know, because of COVID and pandemic impacts, we’re at an all-time shortage when it comes to drivers of long-haul motor carrier operations. So, that’s really the only contingency that you can factor in, and for many of the customers that use rail given the commodities that are being transported, setting aside merchandise/retail, etc., they really cannot look to motor carrier as a Plan B.

“The other contingency plan, which also gets complicated given supply chain disruptions, is you had retailers trying to factor in a potential stoppage on the rail. They were trying to move as much as they could earlier than they normally do during peak season on the retail side, but then you got hit with the ocean sector situation. So, it was a really lose-lose situation for most shippers. So, contingency plans that we have heard: trying to move up inventory, trying to look at other modes if possible and just trying to brace for the potential stoppage of rail support for an undetermined period of time it decides can’t reach an agreement. But to say it’s an unfortunate situation is an understatement.”

FREIGHTWAVES: How strongly do you feel people are bracing for a worst-case scenario, based on what you’ve heard?

CRAIG: “It’s one of those kinds of talking head moments [where people can] pontificate a little bit and speculate a lot. But I would say, being a novice student of history, if you look at what’s happened in the past, there have been lockouts or walkouts. …

“If you look at 10 years ago, on the Pacific side — I should say waterfront  — Obama was criticized for not jumping into that discussion earlier than he did. And eventually, he had to parachute then-Secretary of Labor [Tom] Perez in to personally broker a deal, but it was beyond the eleventh hour. 

“On the rail side, I think that’s why you saw the president issue the order. He did not want things to get out of control.

“Same thing on the ILWU-PMA front: He’s been engaged. He’s stood up a team. He went in early, when contract negotiations started a couple months ago, and even before that, he was telegraphing to both parties, as well as on the rail side, we’re not going to just sit by and let you guys tinker with the situation. There’s too much at risk because of the supply chain situation, because of COVID, etc. We’re here to do what we can as soon as we possibly can. 

“I’m cautiously optimistic that they’ll get to a point. It’s not all about compensation. But from the union side, it really is, frankly. They have not received any sort of general salary increase in several years pre-pandemic. And there’s the counterargument that all transportation providers, but in particular, the Class I rail lines … [are] capital-intensive. You cannot just create a rail line tomorrow. Competition is theoretical, for the most part. Shippers don’t have many options. That’s why this phrase ‘captive shippers’ has come to be. 

“So, we have a situation where everything is linked together. And any disruption beyond what we’ve already seen is only going to further damage not only the supply chain structures but arguably the U.S. economy. And that’s the other thing that is driving, in my opinion, the White House to be more actively involved. The economic implications here are significant, and they get that now more than ever, given the softening of the economy.”

FREIGHTWAVES: Is there any likelihood that Congress will intervene?

CRAIG: “There’s only so much that the legislative branch can do … . There’s another ancillary concern here that has been bubbling up, and that is, frankly, rail carrier behavior from a commercial perspective … . The detention and demurrage charges that the railroads have been imposing on U.S. importers primarily but also exporters, the congestion at the various railroads, the lack of equipment availability — all that just again compounds one thing after another where we get to where we are today with the overall flow of goods. So, we have heard that some members of Congress have been contemplating legislative action to provide more authority to the Surface Transportation Board with regards to detention and demurrage activities on the carriers. (Editor’s note: Democratic leadership with the U.S. House Committee on Transportation and Infrastructure announced Tuesday the introduction of such a bill.)

“But in terms of driving something forward to resolution on the contract negotiations, outside of members speaking out and encouraging/demanding that the two sides come together, you’re going to see what we always see, which is a breakdown of the pro-union pockets of Congress, which have historically been Democratic, supporting the workers and calling for the rail carriers to step up and to provide increases. I don’t think you’re going to see a lot of forces in Congress speak out in support of the rail carriers — there’s so much that’s running in parallel between rail and ocean these days. … You don’t have a lot of competition in either mode. … With the passage of the Ocean Shipping Reform Act, that’s a bit more of a dramatically clear case, but you didn’t see but a couple of dozen members of Congress speak out against it. Nobody really stood up and said, ‘I’m here to support Maersk or CMA.’ The same thing happens on the rail side.

“But I don’t see an avenue really of significance for Congress to do anything here. It’s more going to be the president and his executive authority, using what he already has, calling on this board, and, if need be, looking to the Department of Labor to try to do something as well.”

FREIGHTWAVES: How similar or different are the issues facing port workers and rail workers? The whole technology piece, for instance. While compensation may be the main focus for the rail unions, the issue of technology’s role in safety and operations is lurking in the background. Meanwhile, automation is a big issue for the port workers. Is there a common theme, or is it comparing apples to oranges in terms of what the unions in both modes are asking for?

CRAIG: “I think there are some similarities. But yet, you did a very good job of articulating where it does kind of break down a little bit between the two different sectors and modes. 

“On the ocean side, you’re spot on. It’s not only ILWU wanting to negotiate higher salary compensation packages for the stevedores, but it’s also their historical resistance to automate. On the other side, you’ve got the [ocean] carriers who are experiencing unprecedented profit. It’s just no exaggeration, but as you know, and we’re talking about a multiple times x in terms of what they have been charging and other rates have started to ‘normalize’ and decrease a bit, but, for the longest time over the last 18-plus months we were looking at container freight rates of $25, $30,000 to move something across the Pacific.

“Back to the negotiations: You’ve got the carriers who are once again insisting to embrace automation, embrace technology. Look at our overseas trading partners that have automated for years, for decades and the efficiencies that they’ve been able to realize when it comes to Singapore, for example.

“On the rail side, it’s a combination of technology but more so compensation. I really believe that that is what’s driving the situation here. You’ve seen the numbers: The TTD [Transportation Trades Department of the AFL-CIO] said that the Class I railroads have realized over $146 billion, or something like that, in profits since I think 2015 or so. And during that same period of time, there’s been a reduction in the force of the union by 45,000 or 50,000. That’s to some extent automation. But it’s also, from what I’ve been able to see, frankly just the rail carriers introducing more efficiency.

“Clearly, there’s been an uptick in the amount of cargo that the Class Is have been handling … . So, it’s not a result of demand falling. They’ve been able to leverage some efficiencies brought about by just modern conveniences associated with rail transport. But at the end, it’s going to be essentially, how much can we move the needle in terms of increases in compensation and benefits and coverage for the union, and how far the rail carriers are going to want to cooperate. Period.”

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Maersk: Shipping profits stay ‘super strong’ as supply chain pain persists

Container shipping giant Maersk sees continued strength in U.S. imports and ongoing supply chain disruptions globally.

photo of a Maersk container ship

The container shipping boom refuses to end on its predicted schedule. Maersk previously guided for a sharp slowdown starting in July. That didn’t happen. Now it sees a gradual pullback toward the end of the year.

On Tuesday, the world’s second-largest container liner operator pre-reported an all-time high $10.3 billion in earnings before interest, taxes, depreciation and amortization for Q2 2022. During a conference call on Wednesday, Maersk CEO Soren Skou said that Q3 2022 will be “equally good,” i.e., around $10 billion.

Maersk has pushed back expectations for a “normalization” of its ocean business until Q4 2022. Even then, it doesn’t see a collapse. Its new guidance calls for full-year EBITDA of $37 billion, implying Q4 2022 EBITDA of around $7 billion. If so, Q4 2022 would be the fourth- or fifth-best quarter in the company’s history.

What has kept the container boom going longer than expected? Maersk executives cited three causes: ongoing supply chain congestion, continued U.S. import demand strength and higher long-term contract pricing.

‘No quick resolution’ to congestion

According to Maersk CFO Patrick Jany, “Q2 saw a continuation of global congestion, with several disruptions offsetting the weakening demand and lower economic outlook and [supporting a] still very high level of freight rates. Although spot rates softened, they remain high in absolute terms.

“While the demand outlook is certainly down, various disruptions preempted a wider erosion of freight rates, which led to an overall market development that was very similar to that of the first quarter, with both higher rates and lower [year-on-year] volumes.”

Skou said he has been frequently confronted with questions from investors on the development of global congestion. He explained, “Congestion really ramped up last year on the U.S. West Coast as import volumes jumped at the same time labor supply dropped due to COVID. We had expected congestion to ease by the middle of this year.

“The situation on the ground is that while congestion has eased a bit on the West Coast, congestion has spread to the East Coast and to Europe.

“Containers are just not moving off the terminals fast enough. On the West Coast, we have a massive problem getting rail cars. Yesterday, we had 8,500 containers in our L.A. terminal waiting for rail cars. That is three or four times the average from a few years ago.

“Across the West Coast, East Coast and Europe, we see issues with customers not picking up containers because of full inventories. This picture means that a quick resolution of the global supply chain issue is increasingly unlikely.”

US imports remain at ‘very high levels’

“Import volumes into the U.S. remain at very high levels,” said Skou. In contrast, he noted, imports to Europe are back to pre-pandemic levels.

Imports in millions of forty-foot equivalent units. Charts: Maersk. Data source: Maersk estimates including CTS data

An analyst asked Skou why U.S. imports have remained strong despite U.S. retailers reporting excess inventories and slowing demand for some products.

He responded: “Some of the [excess] inventory, particularly in the U.S., is the ‘wrong’ inventory. So, our customers are complaining that they have the wrong inventory and they still have to import the ‘right’ inventory.

“There are certain product categories, especially in durable goods, where pretty much everybody has bought [what they needed]. Everybody has bought a new couch, a new set of lounge furniture, a new TV screen — all the things we spent our money on during the pandemic.

“You cannot go on buying things like another TV screen. But there is still actually very strong demand for faster-moving stuff, especially in lifestyle and retail goods.

“With inflation being rampant in the U.S., people are able to afford less than they were a few months ago. At some point, that should have an effect on U.S. imports. The only caveat there is that savings are also very, very high. Many wise people have said that we should always be careful not to count out the U.S. consumer.”

Blue line: 2022 TEU import volumes. Green line: 2021. Chart: FreightWaves SONAR

Maersk contract rates exceed expectations

Yet another reason why the container shipping boom is lasting longer than some expected: long-term freight contract coverage. Spot rates get more attention and spot rates are falling. But contract rates are up sharply year on year.

Contract rates have been even higher than Maersk previously thought, one of the key reasons why it just hiked full-year guidance.

“The conclusion of our 2022 contracting season was very strong,” said Skou. Maersk now expects 2022 contract rates to be $1,900 per forty-foot equivalent unit higher than 2021 contract rates. That’s $500 more per FEU than it predicted just three months ago. “That reflects much better performance, compared to our expectations, in the latter part of Q2 and over the summer,” said Skou.

Maersk now has 71% of its long-haul business on contracts, mostly with beneficial cargo owners as opposed to freight forwarders.

The company’s average freight rate, including both contract and spot, came in at $4,983 per FEU in Q2 2022, up 64% year on year and up 9% from the first quarter. It was the highest quarterly average rate ever reported by Maersk — and the current quarter looks like more of the same.

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Record container ship traffic jam as backlog continues to build

The drop in ships waiting off Southern California is deceiving. The number of ships off all three coasts is back to all-time highs.

photo of container ship queues

If you only look at Los Angeles and Long Beach — the largest container import gateway in America — you’d think shipping congestion has drastically reduced. The number of ships waiting there has fallen to 26 from a high of 109 in January. But in fact, North American port congestion has just re-entered record territory. The offshore traffic jam is once again as bad as it’s ever been.

In January and February, when North American congestion previously peaked, there were just under 150 container vessels waiting off the coastlines. Two-thirds were in the Los Angeles/Long Beach queue.

As of Thursday morning, there were 153, the majority off East and Gulf Coast ports. Whereas the earlier West Coast pileup was centralized, highly publicized and relatively easy to track, today’s ship queue is more widely disbursed and attracting less attention.

Ship queues bounce back

Port congestion had finally looked like it was easing in May and early June. Ship queues had fallen back to double digits. There were 92 vessels waiting offshore as of June 10, led by 25 off Savannah, Georgia, 20 off Los Angeles/Long Beach, 18 off New York/New Jersey and 14 off Houston.

Then things turned for the worse. The tally rose to 125 on July 8, 136 on July 13 and 140 on July 19.

With the count now rising to 153, the North American container ship queue has increased in size by 66% over the past seven weeks.

As of Thursday morning, ship-position data from MarineTraffic and the latest queue lists for California ports showed 43 container ships waiting off Savannah; 26 off Los Angeles/Long Beach; 24 off Houston; 18 off New York/New Jersey; 17 off Vancouver, British Columbia; 15 off Oakland, California; and 10 ships off other ports.

Of those, 59 ships – 38% of the total – were waiting off the West Coast, where queues have climbed off Vancouver and Oakland. There were 94 ships (62% of the total) off the East and Gulf Coast ports, with counts up in both Savannah and Houston.

Index of import bookings shows volumes bound for Savannah rose in 2022. Index: 100 = January 2019. (Chart: FreightWaves SONAR)

Different terminals, different waiting time

U.K.-based data provider VesselsValue found large differences in the waiting times at the top 10 East Coast terminals, including major differences between terminals in the same port complex.

It cited four East Coast terminals with long wait times: the New York and Elizabeth APM terminals in the Port of New York/New Jersey and the Garden City and Savannah terminals in the Port of Savannah.

In contrast, VesselsValue data found relatively short wait times at the Maher and Port Newark terminals in New York/New Jersey; the Norfolk International and Virginia International Gateway terminals in Norfolk, Virginia; the Packer Avenue terminal in Philadelphia; and the Wando Welch terminal in Charleston, South Carolina.

Shift caused by port labor fears?

It may be no coincidence that East and Gulf Coast congestion ramped up starting in June. That was the month new annual contracts kicked in. It was also the last month before the West Coast labor contract with the ILWU longshoreman union expired.

Akhil Nair, vice president of carrier management at Seko Logistics, said during a briefing on July 20, “With all the early threats of the potential ILWU strike and labor constraints on the West Coast, there was an automatic shift during contract season for customers to actually require traditional West Coast shippers to request allocation on the East Coast as well. This was their contractual hedge that they put in place.

“This has resulted now in people probably having overcompensated. The congestion on the East Coast is a result of some of this shifting in the supply chain design and hedging for potential incidents or reliable or unpredictable activity on the West Coast.”

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