In recent years, the container shipping industry has witnessed a phenomenal transformation in its EBIT (Earnings Before Interest and Taxes) margins. This surge has left industry experts and observers astounded, and it's essential to explore this remarkable journey in depth.
An Explosive Rise in EBIT Margins
Between the first quarter of 2020 and the first quarter of 2022, the average EBIT margin of leading container shipping companies skyrocketed. In early 2020, it stood at a modest 2.6 percent, but by the first quarter of 2022, it had reached an astonishing 57.4 percent. This explosive growth marked an unprecedented shift in the industry's profitability.
However, as the year progressed, there was a noticeable decline in the margin, with the fourth quarter of 2022 reporting a 33.3 percent EBIT margin. The decline continued into the first half of 2023, finally stabilizing at 8.9 percent in the second quarter of 2023.
Record-Breaking Profits in 2021
The container shipping industry experienced a windfall in profits in 2021. Notably, Maersk, one of the industry's giants, saw its EBIT per TEU (Twenty-foot Equivalent Unit) transported increase dramatically. In 2020, Maersk's EBIT per TEU was around 95 U.S. dollars, but in 2021, it surged to an impressive 536 U.S. dollars per TEU transported. This fivefold growth was nothing short of extraordinary.
ZIM, another prominent container carrier, recorded an even more substantial increase in its average EBIT per TEU. In 2020, it stood at approximately 114 U.S. dollars per TEU, and by 2021, it had reached an astonishing 1,256 U.S. dollars. These remarkable figures underline the industry's impressive profitability in 2021, a year like no other.
In 2021 alone, the global container shipping industry raked in an astounding operating profit of 110 billion U.S. dollars. This figure is nothing short of staggering, especially when considering that it's nearly three times more than what the industry made over the previous decade.
Freight Rates and the Profit Surge
The primary driver behind this unprecedented surge in profits was the record-high freight rates, particularly along the Suez Route connecting Asia and Europe. The outbreak of the COVID-19 pandemic played a significant role in triggering this surge, and its repercussions had a cascading effect throughout the global supply chain.
Several factors contributed to this surge in freight rates. Ports worldwide were affected by closures and congestion, leading to long queues of ships awaiting unloading. This, in turn, resulted in low schedule reliability for container carriers, further driving up demand and prices.
Additionally, the price of bunker fuel, essential for powering these massive vessels, started to rise significantly in mid-2020. This upward trend added even more pressure on freight rates, as carriers faced escalating operational costs.
In conclusion, the container shipping industry's journey from a modest 2.6 percent EBIT margin in early 2020 to a remarkable 57.4 percent in the first quarter of 2022, and the subsequent fluctuation, is a testament to its resilience and adaptability. Record-breaking profits in 2021, driven by skyrocketing EBIT margins, were primarily attributed to soaring freight rates and the far-reaching disruptions caused by the COVID-19 pandemic. This industry's ability to thrive in the face of adversity is a remarkable narrative worth exploring and understanding.
