Lars Jensen from Vespucci Maritime ponders how carriers might spend their billions earned this year
The new data from Container Trade Statistics covering August 2021 still shows basically normal global demand growth. When compared to the pre-pandemic period in 2019 the global demand growth year-to-date in 2021 is up an average 2.7% per year since 2019. For August specifically it is 2.1%.
This number, of course, conceals a large underlying skewness in the market. Very basically put there has been a strong demand boom for North American imports for a year now whereas all other markets are either growing extremely slowly or are in a slight decline. The fact that North American import growth year-on-year suddenly dropped to slightly below 1% in August does not mean the boom has ended. It simply means that the boom, which has gained full traction in August 2020, continues at the same high level.
The one major avenue open for investment is logistics
But try to place this into the context of the new projections for carrier profitability. The latest assessment from Drewry points to a profit for the carriers of $150bn in 2021 alone with the UK consultants projecting an even higher figure for next year.
Think about it this way: You can buy a 20,000 teu vessel at a cost of $150m in very round numbers. Hence $150bn will buy you a thousand of such vessels for a combined volume almost matching the entire existing container fleet.
Of course this is not going to happen – not just because it would be sheer folly but also because in physical terms there would not be the capacity do such a thing.
But this brings us to the main point of this line of thought: If there is only slow normal demand growth and the carriers are flush with more cash than ever before, what should they spend the money on?
In the ‘old days’ demand tended to grow on average 8% to 9% per year and hence plowing all available financing into more vessels was the right thing to do to stay abreast of the market developments. Not so anymore at 2% to 3% growth and $150bn to boot.
The carriers are unlikely to not do anything with the money, and there is only so much cash you can use to drive the digital transformation. Funding the green transition will of course go faster than expected, but this is still to some degree in an experimental phase and the technology is not at maturity level yet where you can commit such sums into making the transition as yet.
This leaves one major avenue open for investment: Logistics. Either through acquiring assets or through acquiring existing companies. This means the pressure is going to intensify in terms of competition in the logistics sector, likely bringing the largest pressure on the small and mid-sized players.
Naturally Maersk and CMA CGM have already been pursuing this avenue for a while but it is increasingly likely to see other carriers follow suit on this path.