Average Operating Margins of Main Carriers by Quarter, 2008-2021

Average Operating Margins of Main Carriers by Quarter, 2008-2021

Source: own compilation based on Alphaliner data. Note Average of CMA CGM (incl APL to 2Q 2016), CSCL (to 1Q2016), COSCO (from 3Q 2018), Evergreen, Hanjin (to 3Q 2016), Hapag-Lloyd (incl CSAV to 2014), HMM, Maersk, ONE (from 2Q 2018, formerly K-Line, MOL and NYK), Wan Hai, Yang Ming and Zim.

The 2008-2009 financial crisis dramatically impacted profitability in the liner shipping market. Various analyses underlined an overall operating loss in 2009 of more than USD 20 billion (American Shipper). The industry average in terms of operating margin fluctuated between -17% and -19% in the first three quarters of 2009. The poor financial situation of many carriers led to an array of bail-out and debt restructuring programs. Many liner companies resorted to raising capital to strengthen balance sheets and seize opportunities or simply to survive.

With the outlawing of liner conferences in Europe after October 2008, market-related information about capacity deployment, demand/supply dynamics, and pricing of liner services became scarcer. Therefore, there was no longer a stabilizing mechanism in terms of freight rates and joint capacity management. Existing strategic alliances among shipping lines at that time (i.e. New World Alliance, Grand Alliance, and CKYH alliance) were not able to roll out effective capacity management programs to significantly reduce fleet capacity in line with the observed drops in demand. Container shipping entered a period of depressed freight rates partly due to poor capacity management and the lack of any rationalization in the industry. Major M&As only started in 2014, and the bankruptcy of Hanjin took place in 2016.

During the COVID-19 pandemic, carriers resorted to effective capacity management. Despite the pandemic, shipping lines and their alliances (i.e. The Alliance, Ocean Alliance, and 2M) maintained network integrity and resorted to blanked sailings to deal with declining demand in the first half of 2020. In April/May 2020, carriers were withdrawing up to 20% of their network capacity on the main trade lanes and idling more than 2.7 million TEU of fleet capacity or more than 11% of the world container fleet. In the late Summer of 2020, shipping lines drastically reduced the number of blank sailings to accommodate the demand growth: the share of idle vessels in total fleet capacity decreased from 11.6% in May 2020 to only 1.8% in October 2020. All major carriers posted positive operating margins in 2020, in contrast to the 2008-09 financial crisis.

In late 2020 and early 2021, the strong demand peak on the Europe-Far East and trans-Pacific trade routes resulted in vessel capacity shortages and severe box availability issues. The demand/supply imbalance resulted in port congestion, box rollings, ship deviations, and a historically low schedule integrity. All these factors combined led to sharp increases in container freight rates and further strengthened carriers’ financial performance. The average operating margin reached a record high 44% in Q2 2021.