During the peak of the supply chain crisis, accusations flew, alleging that shipping lines were somehow colluding to prop up rates and gouge customers. Recent results posted by ocean carriers undermine those claims. They show the container shipping market behaving the same way commodity shipping markets always have: Rates spike when cargo demand exceeds transport supply, and once the imbalance passes, competition brings rates and utilization back to normal.
Ocean Network Express (ONE), the world’s sixth-largest shipping line, reported its latest quarterly results on Monday (the first quarter of its fiscal 2023 year, running from April to June). As with other carriers, ONE’s numbers show a reversion toward pre-pandemic levels, albeit not all the way back yet.
ONE reported net income of $513 million, down 91% from the boom-inflated results a year ago and down 58% compared to January-March.
However, its bottom line was still much better than pre-COVID. In April-June 2019, ONE reported net income of $5 million. In April-June 2018, it lost $120 million.
Rates still above pre-pandemic levels
ONE does not report average freight rates. Rather, it publishes an index of average quarterly rates (the combination of spot and contract rates) in comparison to the average for April-June 2018.
(Chart: FreightWaves based on data from ONE filings)
This index shows that ONE’s Asia-U.S. rates in the most recent quarter were down 68% from the peak in July-September 2022 but were still 22% above rates at this time of year in 2019 and 26% above 2018 levels.
ONE’s average Asia-Europe rates in April-June were down 75% from the high in January-March 2022 but still 39% above both 2018 and 2019 levels.
“Long-term contract freight rates fell sharply in both North America and Europe compared to [January-March] and the same period last year, pulled down by short-term freight rates,” explained ONE.
The dissipation of port congestion added vessel supply at the same time transport demand suffered due to “lack of progress in clearing inventories.”
ONE’s utilization level in the Asia-U.S. trade fell to 82% in April-June. During the COVID-era boom, it hovered around 100%. Its utilization rate in April-June 2019 was 86%.
Uncertainties cloud outlook
“Further shifts in the market are expected as transport demand and trade patterns continue to alter, creating an uncertain outlook, which is difficult to predict,” said ONE. “Under these circumstances, it is extremely difficult to announce a reasonable business forecast at this time and the full-year forecast for FY 2023 is yet to be determined.”
ONE said that it will continue to “blank” (cancel) sailings in response to changing demand.
Other sources of market information point to green shoots in the trans-Pacific trade that could support sequentially higher utilization and spot rates in the current quarter. There have been multiple reports of increased blank sailings and better capacity management in the trans-Pacific, supporting rates in July.
Analytics group Platts said Monday that demand is slowly picking up as inventory overhangs are clearing and some importers are now moving to replenish stocks. Several market participants told Platts that they expect the carriers’ next general rate increase, scheduled for Tuesday, to push pricing higher.
The Drewry World Container Index (WCI) shows four straight weeks of spot rate gains in the trans-Pacific. The WCI Shanghai-Los Angeles assessment for the week ending Thursday was $2,087 per forty-foot equivalent unit, up 32% from late June and up 42% from levels at this time in 2019.
Spot rate in USD per FEU. Blue line: Shanghai-Los Angeles. Green line: Shanghai-New York. (Chart: FreightWaves SONAR)
The WCI Shanghai-Los Angeles assessment came in at $3,049 per FEU, up 22% since late June and up 12% versus 2019.
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