Having run a warehouse for a major $12 billion automotive component corporation, I can relate to container shipping globally. We shipped full containers to a number of countries on a weekly and monthly basis. This was dependent upon production demand.
Reporting good news, a trend, and extreme profits?
Hapag-Lloyd: The fifth-largest container line sees signs the market peaked back in the 1st quarter. This may be the good news to date. As you can see container shipping prices (costs to us) coming out of Shanghai to NYC and LA peaked and are heading downward. To what extent given other factors, we shall see. Hapag-Lloyd Container is forecasting this based on future bookings.
The container boom peaked in the first quarter; it’s downhill from here. Spot rates are falling. Goods demand is falling. “There have been signs that the market has passed its peak [in Q2 2022],” acknowledged CEO Rolf Habben Jansen in the earnings release.
The second quarter is shaping up better than expected but “should be somewhere slightly south of Q1,” said CFO Mark Frese during the call. In Q3 and Q4, Hapag-Lloyd sees things going a lot more than “slightly south.” Its guidance implies a 50% drop in second-half earnings versus the first half.
Consumer sentiment and behavior is changing over time. Change in both due to less disposable income, impacting the economy well before FED rates. Although, the threat of increasing rates has also hit the market earlier.
Today’s higher prices impacts consumer sentiment immediately resulting in decreasing spends. Some of us were already expecting lower volume growth to happen due to pricing. Government subsidies have been spent by consumers. Other programs have been blocked by a minority and Republicans in Congress.
COVID-driven export decreases in a shutdown China are coinciding with declines in import demand in Europe, etc. With China reopening, exports will again make their way into the supply chain.
Market watchers are also expecting another surge in queues of ships waiting off U.S. ports. In this scenario, congestion conditions will return in the second half as the wave of delayed China cargo coincides with traditional peak-season flows.
Hapag-Lloyd container is thinking differently.
“Yes, on increases when China reopens again. There will be some rebound. Overall, we have to accept demand is going down over time. Falling demand could offset some of the gains from China’s reopening and peak season.”
I suspect the US will be preparing for increasing demand of containers. Ports going to OT to handle unloading. Having more container chassis available and scheduling railroads to handle the loads.
Hapag-Lloyd Container reported increased net income of $4.7 billion for Q1 2022 versus $1.5 billion in Q1 2021 on flat container volume alone and increased rates per container. Other container companies are also reporting out of the world profits.