COSCO’s Rise and ZIM’s Fall: Container Carrier Margin Rankings in Q2 2023

Idle Container Ship Fleet Stabilizes in March Amidst Global Shipping Trends

According to sources, the second quarter of 2023 witnessed a notable shift in the dynamics of the container shipping industry as average operating margins for the leading carriers plummeted to single digits for the first time in three years. The quarterly average, calculated from the reported Earnings before Interest and Tax (EBIT), stood at 8.9%. This starkly contrasts with the previous quarter’s more promising 13.1% and the impressive 56.3% from a year ago.

Israeli shipping company ZIM emerged as the weakest performer among the prominent carriers during this period. With negative earnings before tax and interest amounting to a daunting USD -147 million, ZIM experienced a disheartening operating margin of -11.2%. In stark contrast, China’s COSCO managed to stand out with an exceptionally robust performance. Notably, COSCO, including OOCL, achieved an impressive operating margin of 27.0% during the quarter. This achievement proved to be a significant financial turnaround compared to the preceding months, attributed to a highly successful cost-cutting program.

COSCO’s financial prowess became even more evident in their first-half figures, as they maintained an average margin of 23.5%. The company, headquartered in Shanghai, managed to curtail operating costs by a staggering 37% year-on-year over the six-month period. This cost-cutting initiative translated to savings amounting to RMB 40.6 billion compared to the previous year. The most substantial savings were achieved in equipment and cargo transportation costs, witnessing a reduction of 55%. Moreover, voyage costs were prudently trimmed by 11%. It’s worth noting that COSCO’s fleet capacity remained stable throughout this period.

Excluding the impact of cost-saving measures, COSCO’s operational results aligned closely with market averages. Quarter-on-quarter, the group’s liftings saw a rise from 5.4 million twenty-foot equivalent units (Mteu) to 5.9 Mteu, while average rates on international routes experienced a decline from USD 1,272 to USD 1,150 per twenty-foot equivalent unit (teu).

The margin performance disparity between carriers remained a striking feature, with ZIM and Wan Hai Lines once again finding themselves in negative territory, a recurring theme since Q1. Wan Hai reported an operating margin of -7.9%. On the opposite end of the spectrum, Hapag-Lloyd secured the second-highest margin, following COSCO, at 18.3%.

However, both Hapag-Lloyd and Japan’s ONE encountered substantial margin declines compared to the previous quarter due to a steep drop in average earnings per teu. ONE saw its average earnings slip by 25% quarter-on-quarter to USD 1,333 per teu. Similarly, Hapag-Lloyd reported an average rate of USD 1,533, representing a 23% decrease. Other carriers experienced declines around the range of 15%.

This downturn in margins is seemingly attributed to the termination of annual contracts signed by major carriers in 2022, which were largely replaced during the spring renewal season. The newly negotiated long-term contract rates are now reported to be approximately 13-15% lower than spot rates.

HMM, ZIM, and OOCL faced the most significant year-on-year rate declines, with average rates per teu plummeting by 71%, 67%, and 63% respectively. Notably, HMM’s per-box earnings dipped below the USD 1,000 mark, settling at USD 983 per teu in Q2, marking the only carrier to achieve such a low figure.

As anticipated, the first quarter of 2023 marked the volume nadir, with all carriers displaying increased liftings in the second quarter compared to the first. Impressively, three carriers, ZIM, HMM, and CMA CGM, recorded double-digit gains.

In the scope of these financial shifts, the nine surveyed carriers generated a cumulative operating profit (EBIT) of USD 4.4 billion during the three-month period. This marked a significant 36% decrease from the USD 6.9 billion reported in the preceding quarter and paled in comparison to the robust USD 37.7 billion logged a year earlier.

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