Shipping companies are turning rusty buckets into goldmines in modern-day alchemy that could already fuel massive inflation for years to come.
Disruptions in world trade due to pandemic lockdowns and a lack of new cargo ships have pushed freight rates for aging container ships to record highs.
To capitalize on the boom, shipping firms are closing in on longer-term leases lasting three to four years, meaning consumers can pay the price for increased costs until hundreds of new ships are in service. I do not come
Take Synergy Oakland, a medium-sized ship flagged off in Cyprus that can carry more than 4,200 20-foot steel containers.
Greek firm Eurosies bought it for $10 million in 2019, when it was already a decade old. As world trade descended into chaos last year, it raked in $21 million in just 100 days at the highest daily freight rate in history for a ship of its size.
It squeezed in another short-term charter, earning about $10 million in the span of two months before going on a four-year lease for $61 million in May, itself a six-fold return on the purchase price three years earlier.
“It was almost perfect play in an emerging market,” Simon Parieros, the shipping firm’s chief administrative officer, told Reuters. “We’ve never seen anything like this in the history of the container market.”
According to Clarksons Research, a shipping analytics firm, the world’s container ship fleet continued to grow in terms of capacity during the pandemic, following a 4% increase in 2019 to 2.9% in 2019 and 5.6% in 2018.
But increased demand for consumer goods during the lockdown, congestion at ports that bind ships longer than expected, and a slowdown in new shipbuilding, partly due to uncertainty over whether ships will comply with new environmental regulations, all contributed to the shipping crisis. and record the freight cost.
Container capacity jumped 4.5% last year, mainly because aging ships usually headed for graveyards were kept on sailing, but that’s not yet enough to cool prices.
A Reuters review of more than 30 private transactions completed over the past six months showed shipowners are leasing ships on long-term charters at record rates to capitalize on a once-in-a-generation bull market .
In May, the cost of locking container shipments increased by 30.1%, according to Zeneta’s Ocean Freight Index, a record monthly increase in long-term ocean freight rates.
Graphic: The six-month sailing track of the ‘Synergy Oakland’ container vessel (https://fingfx.thomsonreuters.com/gfx/ce/zdpxoendrvx/Synergyoakland.png)
Shipping cost and inflation
Experts say record rates for everything from used cars to dining tables to bicycles have already contributed to the high prices and the pain continues for consumers.
The International Monetary Fund (IMF) estimates that the container shipping boom in 2021 will account for 1.5 percentage points of global price growth this year, or about a quarter of the US inflation rate.
“The impact of shipping costs on inflation is large and widespread, affecting countries around the world,” said Yann Carrier-Swallow, senior economist at the IMF’s Department of Asia and the Pacific.
While high food and oil prices feed through consumer prices within two months in the wake of Russia’s annexation of Ukraine, it could take up to a year before the full effects of container shipping costs are felt, Carrier-Swallow said. Told.
What’s more, the COVID-19 outbreak is still disrupting ports in China and while large shipping firms have ordered record amounts of new, supersize container ships, most won’t come online until next year or even 2024.
“The current still high freight charges will continue to put pressure on consumer prices in 2023,” said Jan Hoffmann, head of trade logistics at the United Nations Conference on Trade and Development.
“I fear freight rates will remain higher pre-Covid for many more years.”
According to data from two shipbrokers, Navios Spring, which is currently sailing from California to China, was chartered in January for $60,000 a day for three years, up from $8,250 a day two years ago. was seven times higher.
The ship was flagged off in the Marshall Islands and cost its original owners $42 million in 2007. The brokers said it would make $65.7 million over the duration of its three-year deal.
The ship’s operator, Navios Maritime Partners, did not respond to requests for comment.
A sister ship to Navios Spring, the Navios Amarillo, is booked on charters all the way until January 2028, by which time it will turn 21. The two shipbrokers said the ship would make $75 million from that deal, which is far more than the $51 million that it had received.
“The container shipping markets in general remain in exceptional territory,” said Stephen Gordon, managing director of Clarksons Research.
Graphic: 10 Year Old Container Ships Valued in Millions of US Dollars (https://fingfx.thomsonreuters.com/gfx/ce/gdpzygdqmvw/ContainerVesselValue.png)
shipping company benefits
Shipping expert John McCown said the container shipping industry made a brainy profit of $59.3 billion in the first quarter this year, up from $19.1 billion in the same period a year ago.
“Carriers are winners and their significant increase in profits is being funded by higher prices for all products that run on container ships,” McCown told Reuters.
Denmark’s Maersk is the second largest container line in the world, with a market share of about 17% according to intelligence provider Alphaliner.
Maersk posted record earnings in the first three months of 2022. Revenue rose 55% to $19.3 billion and it raised its forecast for underlying earnings before interest, taxes, depreciation and amortization to $30 billion this year.
The Mediterranean Shipping Company (MSC), which overtook Maersk this year to become the world’s largest container line, does not publish financial results. The company, based in Geneva, Switzerland, declined to comment for this story.
US President Joe Biden said on June 9 that Congress must crack down on outrageous prices being charged by shipping companies that control the market.
Maersk told Reuters that this financial performance was due to exceptional market conditions and constraints in the United States, adding that it had invested billions in improving America’s port operations and logistics.
Analysts said some large shipping companies are using their profits to release cargo ships at skyrocketing prices, which will help offset higher freight rates and fuel inflation in the future.
Graphic: Shipping container rates have increased since the end of 2020 as COVID-19 restrictions are eased (https://fingfx.thomsonreuters.com/gfx/ce/znvnegkbkpl/ContainerRatesJune202022.png)
When will the shipping cost be lower?
A record 503 secondhand container ships were sold last year, equivalent to 7% of the global fleet, Clarkson said, with another 108 sold in the first five months of 2022.
For example, MSC has bought 200 second-hand container ships since August 2020, according to market analysts.
Clarkson said that with no container ships removed this year, the average age of these ships has increased from 11 years ago in 2017 to 13.9 years.
That means cargo ships that are 10 or 15 years old, the age at which they were being scrapped before the pandemic, cost 10 times more than they were two years ago, sales data show.
For example, MSC last month bought the Liberian-flag cargo ship Shin Fang Yang Pu, currently sailing in the South China Sea, for $70 million, broker data shows. The same ship, which has been renamed MSC Freeport, sold for $7 million in 2007.
Still, there are signs the boom may end in the next year or two when many of the ocean giants ordered by major companies enter service.
In 2021, a record-breaking 555 container ships worth $42.5 billion were ordered and 208 ships worth $18.4 billion have been booked so far in 2022, according to the World Shipping Council, an industry group based in the United States.
Some of these ships will be among the largest container ships ever built, measuring 400 meters in length and similar in size to the Ever Given, a cargo ship that got stuck and blocked in the Suez Canal last year.
Maersk told Reuters last year it ordered 12 new large container ships that are nearly four times the size of Synergy Oakland.
If ports and supply chains were operating as they did before the pandemic, an influx of new vessels could drive down shipping prices, said Peter Sand, chief analyst at freight rate platform Zeneta.
“It has the potential to drive down spot market rates. Especially now that inflation is biting globally.”
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