Shipping analysis: Container transportation may face losses of over $10 billion in 2020!

Shipping companies can typically pull thtough during the first quarter of  supply disruptions while demand disruptions could push the industry into deep financial losses in the next quarter, according to a senior analyst in New York.

Blue Alpha Capital, a consulting firm based in New York, estimates that based on the financial performance of 11 shipping companies in the first quarter and the average level of unreported shipping companies, the overall profit for the first quarter was $4 million, with a moderate loss, and an improvement from the same period last year of $434 million.

However, John McCown, founder and analyst of Blue Alpha Capital, stated that the performance in the first quarter was "less consistent among shipping companies", with 6 out of 11 shipping companies reporting better performance compared to the previous year, while 5 reported worse performance.

He noted that K Line and HMM were the two worst performers in the quarter. K Line, which owns a 30% stake in ONE, lost $1.49 million; HMM lost $55 million.

By comparison, Maersk made $202m (based on its container business as an estimated percentage of group profits); CMA CGM had net profit of $48m; COSCO had a surplus of $41m; Hapag-Lloyd earned $27 million.

"The container industry posted a loss in the first quarter, even before the full impact of the global demand shock apeared. This will continue to affect the financial situation throughout the year" Mr McCowan warned.

"This negative impact is caused by Chinese tariffs, which are still at 91 percent of the peak level, which are set to cause a double-digit percentages drop in the trade from the Far East to North America." 'he said.

 "There is no doubt that global trade will see an unprecedented decline in freight volume of containers in 2020." He added.

Indeed, shipping companies now seem to have accepted this situation: CMA CGM, for example, said in its first-quarter performances that it expected a 5 percent decline in cargo volumes in the first quarter to be followed by a 15 percent decline in the second quarter.

In addition, the 2M and THE alliance has announced the cancellation of about 75 trips between Asia and Europe until October (traditionally the end of peak season), which indicates that there is no hope to recover from the COVID-19 epidemic.

Sino-Ocean carriers successfully mitigated the impact of supply disruptions from the outbreak of the Pendamic in the second half of the first quarter through pro-actice "blanking" strategies, including the withdrawal of approximately 36 percent of Asia-to-Europe trips and 28 percent of trans-Pacific round-trips in February.

However, McCown douted that shipping companies can continue to maintain transportation charges without being affected by the shrink in cargo volumes.

"The second quarter is likely to get worse, with volumes on some routes down as much as 30 percent year on year, and the second half of 2020 will also be bad," he said.

"My current midpoint estimate for container shipping profits in 2020 is a loss of $10.6 billion. The best situation is a $5.4 billion loss, and the worst is $15.9 billion." he added.

Worryingly for liner companies, he predicted that 2020 would be "the worst year on financial performance the industry has ever seen" and that pressure on carrier balance sheets would "lead to significant restructuring."