B.C.'s recovery economy: Global marine container cargo considerations for 2021

Special report: COVID-19 pandemic supply chain hiccups magnify the technology upgrade priorities for shipping lines servicing the world’s major marine trade corridors

GCT Deltaport container terminal at Roberts Bank. As with other major maritime shipping hubs around the world, containerized cargo traffic through the Port of Vancouver was down in 2020 | Chung Chow

Marine cargo carriers and terminals navigated 2020’s pandemic storm better than predicted.

But the COVID-19 disruption that blindsided the world’s economy exposed the sector’s supply chain deficiencies and accelerated technology overhaul priorities.
 

The tighter capacity and lower fuel costs that buoyed carrier revenue did nothing for container terminal bottom lines, which are tied to longer-term contracts and different supply chain factors.

Drewry’s third-quarter 2020 results released in December illustrated that contrast in container carrier and terminal fortunes.

The operators of 30 major port container terminals included in the U.K.-based shipping consultancy’s third-quarter survey reported an overall 4% drop in volumes during 2020’s first six months compared with the same time in 2019.

Total container traffic through the Port of Vancouver dropped 7.7% in 2020’s first half compared with 2019’s first half. Prince Rupert’s container traffic during 2020’s first 11 months was 12.5% lower than it was in 2019.

Eleanor Hadland, senior analyst in Drewry’s Ports and Terminals practice, noted that while container carriers posted significant profits in 2020, 80% of the terminal operators in Drewry’s survey reported lower revenue in 2020’s first half compared with 2019’s.

But Hadland added that overall revenue for terminal operators was not down as much as the container volume they handled, in part because of higher annual tariffs instituted in January, but also because terminals generated more revenue from storage and other ancillary services.

“What’s really notable here though,” Hadland said, “is that almost a third of operators reported increased EBITDA [earnings before interest, taxes, depreciation, and amortization], which in the face of such severe market challenges is testament to the resilience of the sector.”

Increased container shipping demand has been driven by several factors. According to Alphaliner, a global shipping data company, they range from dislocation of air freight markets to a spike in demand for hygiene products and consumers spending money on products rather than on travel.

At the end of 2019, Drewry had forecast first-half 2020 container volumes to increase 5% compared with the same time in 2019. Combined with annual tariff increases, that would have translated to an overall 7% rise in revenue.

But the pandemic cut first-half 2020 container cargo volumes 6%. With revised revenue estimates for 2020’s first half 5% lower than 2019’s, Hadland said revenue for major container terminals would be down 11% compared with pre-pandemic forecasts.

Terminals also had to absorb higher costs from COVID-related health and security requirements.

Hadland said pandemic disruption and lower revenue and container volume will likely cancel or postpone infrastructure projects at terminals.

But she added that COVID-19 will also “act as a catalyst for change with accelerated uptake of digital processes” at major container terminals and force them to review storage procedures and pricing and improve terminal operating efficiencies.

Adopting digital technology is now fundamental to survival in the container shipping industry. The pandemic economy has exposed significant weaknesses in a supply chain that remains largely reliant on inefficient paper-based processes, especially when it comes to food, medicine and other products carried in refrigerated containers.

The Digital Container Shipping Association (DCSA) estimates that digital supply chain technologies would yield annual savings of US$4 billion in the container shipping sector.

Couple that efficiency and focus on digital technologies with what Drewry sees as volume recovery, especially in 2021’s latter half, and the outlook for container terminals and their investors for the year ahead is brighter.

Danish Ship Finance (DSF) agrees.

The company notes in its most recent shipping market review that, while 2020 seaborne transport volumes are projected to fall about 5% from 2019, most forecasts see lost volumes recovering some time in the next 12 to 18 months.

Demand on the transpacific and Asia-Europe container trade lanes, it said, will depend on “whether e-commerce and stockpiling of medical equipment can continue to compensate for a decline in the trade of industrial components.”

The push to decarbonize the global shipping fleet as noted in BIV recently is adding potential costs and uncertainties to the operations of major shipping lines.

But DSF points out that lower oil prices are “raising the bar to entry for zero-carbon fuels.”

Cost, viability and availability of those fuels for deep-sea shipping are also weighing against radical overhaul of the world’s 60,000-vessel cargo shipping fleet.

That overhaul will require government intervention and international agreement on the application of carbon-tax levies and other international measures to turn the tide in low-carbon shipping’s favour.

Still, DSF noted that “if a zero-carbon fleet that offers more value for the same freight rate can be brought to the market, there could be little to stop it from cannibalising the current fleet, [which] could become obsolete – even after a period of increased secondhand prices.”

Vancouver-based Seaspan Corp., which is now a subsidiary of Atlas Corp. (NYSE:ATCO), continued to deliver impressive numbers during the 2020 pandemic economy.

The entire 127-vessel fleet of what is the world’s largest lessor of container ships has secured long-term charter contracts, even in a climate in which, at one point during the year, 12% of the global container ship fleet was idled.

Atlas revenue, the bulk of which Seaspan generates, was up 36.6% to US$386.2 million and its EBITDA increased 38.8% to US$249.8 million in 2020’s third quarter.

Seaspan’s third-quarter EBITDA increased 9% to US$196 million compared with Q3 2019.

Maersk (CPH:MAERSK-B), the world’s largest container shipping company, also posted impressive third-quarter 2020 numbers. Its revenue dropped to US$9.9 billion from US$10.1 billion in 2019’s third quarter, but its EBITDA jumped 39% to US$2.3 billion from US$1.7 billion. The company noted that third-quarter container volumes rebounded much faster than had been expected earlier in the year.

Drewry estimates global container throughput in 2020’s second half was up 10%.

Massive government stimulus packages and reduced COVID-19 travel and other restrictions were key contributors to the rebound.

But Maersk pointed out that country lockdowns also weighed more heavily on the consumption of services than goods, which supported container traffic buoyancy.

“North American imports from the Far East increased by 17%, led by an excessive spike in U.S. goods consumption such as electronics, white goods and furniture, and fuelled by a housing boom and generous fiscal stimulus.”

The 2021 outlook, however, remains uncertain and heavily reliant on government fiscal support for households and businesses and on wins in the coronavirus pandemic fight.

The container shipping sector also faces a shortage of empty containers that is limiting capacity and driving freight rates up to record highs.

The shortage results from what Drewry points out is a supply chain disruption caused by an “unprecedented number of blanked sailings, which reached as high as 30%” on some trade routes in 2020’s second quarter and prevented empty containers from being returned to major export hubs, especially in China. •

trenshaw@biv.com

@timothyrenshaw

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