Seatrade Maritime: Container lines braced for tough winter

Volatility is being built into the speculation around the container shipping market as some attempts to ‘talk up’ the market are met with the weight of economic reality.

Alphaliner’s weekly report leads with the increase in profits for the top nine carriers in Q3 compared to Q2, with both volumes and rates increasing in quarter-on-quarter, said the analyst.

“As a result, the nine largest carriers publishing EBIT (earnings before interest and tax) reported an average 13.7% operating margin for the period, up from 9.9% in the previous quarter. While profits and margins have fallen from the very high results a year ago, they are still strong historically and much better than expected at the start of the year,” said Alphaliner.

Carriers remain profitable but the trend is decidedly pointing southwards with the average year-on-year profits for the nine carriers, which excludes the privately owned MSC, close to 53% lower, with Wan Hai the best performer with a 28% decline and ONE the worst with an 80% fall in income.

Alphaliner does say that the expectation is that the results will fall further, particularly as there is no prospect of a “geopolitical disruptor to improve rates”.

The tone of Alphaliner’s report is more optimistic than MSI’s monthly Horizon report, which concludes: “Our assessment of mainline demand in the next three quarters is downbeat, with a major contraction forecast on the Transpacific EB trade as Chinese imports remain subdued, while we expect that Asia-Europe WB and Transatlantic WB volumes will soften.”

It appears that China has found alternative markets for its exports, with an increase to Europe included, but with North European ports suffering congestion and delays, this has had the effect of holding up freight rates for cargo out of Asia.

Notwithstanding the European exception, MSI argues that softening demand on all three major east-west trades will be met by yet more capacity delivered for the remainder of this year and at a reduced rate throughout 2026, but with negligible scrapping expected.

Given that the vast majority of newbuilding orders are for larger sizes, and that the chartered vessels tend to be in the lower size ranges, the new orders will have little effect on a charter market that is “effectively detached from near-term freight market dynamics as the lack of available ships squeezes supply and liner demand endures,”.

Hong Kong-based consultancy Linerlytica said just 14 ships aggregating 9,457 teu had been scrapped this year, with no ships being sent for recycling in December, “as the high charter rates are keeping older ships from the scrapyard.” 

A more likely source of relief for the carriers could come from an unlikely source as the US Supreme Court ponders the case brought by a number of American importers, who challenged the president’s use of the International Emergency Economic Powers Act to implement sweeping and stringent import duties.

US Trade Representative Jamieson Greer told Fox News that he expected the Supreme Court to rule on the challenge to Trump’s tariffs this year.

“We know that on a normal schedule, the court may not release its rulings until spring or even as late as June. My guess is they’ll do it sooner than that, and whatever happens, we’ll be ready for next steps,” said Greer.

MSI believes that if the court rules against the administration there would be a “temporary relief from tariffs and additional uncertainty may provoke yet another wave of precautionary frontloading of US imports, before tariffs are restored by more formal routes.”

While there may well be elements of hope that the container shipping market can again turn more positive, and the Trump administration does have a knack for changing course rapidly, the overall tone from analysts is summed up by Linerlytica whose weekly newsletter noted that the teu miles demand growth has fallen below vessel supply, with the outlook for the rest of this year bleak.

“Carriers’ reluctance to withdraw capacity during the slack winter season has hurt freight rates across key routes with the transpacific rates facing the greatest stress,” commented Linerlytica, adding that the supply and demand outlook is looking increasingly unbalanced and it “could soon be exacerbated by the potential return of ships to the Suez route”.