Freight rate volatility, overcapacity, global demand concerns...

Container shipping fortunes changed rapidly in 2023 after a robust 2022 and 2021, mainly driven by rapidly falling freight rates. Record capacity additions, changing consumer behaviour and tightening monetary policy were some of the key factors driving the rates down. Moving into 2024, we expect overcapacity to remain a dominant factor despite the recent rise in freight rates caused by the disruption to trade through the Red Sea and Suez. 

In this latest ’Financial Health Check’, we assess the current state of each of the key players in the sector and assess their balance sheet strength against the backdrop of falling freight rates. Our Maritime Financial Research team have also extended the scope of their analysis to include both liquidity and leverage estimates for the next three years, based on a sample of carriers.

Key findings within this year’s report include:

• Despite the Red Sea crisis buoying up freight rates, we anticipate overcapacity will pull freight rates below breakeven.
• Throughout the year, new vessels joining the global fleet will exacerbate the existing supply-demand imbalance and lead to a further slump in freight rates, thereby reducing revenues. Accordingly, we expect the industry to report an EBIT loss in 2024 compared to an EBIT profit in 2023. 
• Container shipping companies’ operating cash flow is expected to decline significantly in 2024 and 2025 amidst weaker freight rates. However, companies still have substantial cash reserves from the windfall gains during the pandemic. 
• The vertical integration momentum of container shipping companies’ is slowing as companies focus on conserving cash for the downturn ahead. Net capex for our portfolio of companies in 9M23 is down 7.6% YoY.

We use a simple traffic light system to rank each company’s risk profile using the following weighted parameters: balance sheet strength (45%), income growth (15%), diversification (10%), transparency (15%) and management/ control (15%).

Companies featured within this report include:

• AP Moller Maersk

• Hapag-Lloyd

• Samudera Shipping Line Ltd

• SITC International Holdings

• Wan Hai Lines Ltd

• Orient Overseas (International) Ltd

• Yang Ming Marine Transport Corp

• ZIM Integrated Shipping Services Ltd

• Evergreen Marine Corp Taiwan Ltd

• COSCO Shipping Holdings Co Ltd

• HMM Co Ltd

• Ocean Network Express Pvt Ltd