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Skyrocketing shipping charges lead to industry record earnings

Covid-19 restrictions remains a serious challenge for the global supply chain, which is still suffering port closures and congestions, while, at the same time, consumer demands are quickly outpacing any previously seen numbers. The result is skyrocketed shipping charges.

And this is not just limited to container shipping for the matter. Ro-ros, Bulk carriers and other shipping segments are seeing their prices surge too, except the tanker shipping market.

This boom might bring back memories of old shippers, who saw a similar one unfold at the beginning of 2008. A historic number of vessel orders were placed at the start of the year, until the 2008 financial crisis hit the globe, thereby triggering one of the worst global recessions in decades.

Clarkson Research Services, an arm of the shipbroking giant, recently released a study, which stated that the shipping industry is posting its strongest daily earnings since 2008, with container shipping stealing most of the limelight. And the container market frenzy is spilling into other sectors as well.

Speaking to Bloomberg, Peter Sand, Chief Shipping Analyst at Baltic & International Maritime Council (BIMCO), said, “I’m not really sure the perfect storm covers it- this is just spectacular. It’s a perfect spillover of a red-hot container shipping market to some of the other sectors.”

Recently, the Greek container ship owner Euroseas made headlines around the world when they landed an undisclosed client paying upwards of US$200,000 per day for chartering the Synergy Oakland, a 4,250 TEU boxship.

Aristides Pittas, chairman and CEO of Euroseas said, “This is the highest time charter rate ever achieved by any vessel in our fleet and one of the highest rates ever achieved in our industry.”

The container frenzy took another sharp turn in the last days with the French carrier CMA CGM announcing that it is going to halt all spot rate increases for the next 5 months. Meanwhile, the Hamburg-based container line, Hapag-Lloyd also said they do not pursue further increases, as they believe that spot rates have peaked, according to the company's Director Corporate Communications, Tim Seifert.

Amidst all the chaos, one section of the container industry stands to gain from all the chaos: the shareholders. After a summer marked by container shipping stocks falling across the New York Stock Exchange, these same stocks are now hitting peaks every day.

Most container shipping line stocks are up in the range of 100%-400% with respect to last year, in what seems to be a stock market bubble. The only exception to this range is the Greek Danaos, whose stocks have shot up by a whooping 1,508%. However, it's unclear how long the gold rush is going to persist.

Furthermore, the outstanding financial results of the container shipping companies are another clear sign of the industry's prosperity.

In the meantime, after taking office, the Biden administration has aggressively gone against the exorbitant freight rates levied by carriers, and came as a piece of welcome news for many American importers. The administration has mainly targeted the three major container alliances, 2M Alliance, THE Alliance and OCEAN Alliance, which together account for over 85% of the total freight handled in the container market.

Federal Maritime Commission (FMC) Chairman, Daniel Maffei said in July, “We have increased our scrutiny of the ocean carrier alliances to identify evidence of anti-competitive behavior regarding rates and capacity, and we will continue to do so as the Covid-19 and import surge crisis continues.”

Additionally, the Indian government has been actively pursuing shipping lines to be more transparent in their pricing, but has ruled out any governmental intervention in case of capping of freight prices. The government has validly stated that under a free market regime, the government cannot go about capping prices.

Ankur Kundu
Correspondent

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