Date: Thursday, May 5, 2022
It was predicted that China lockdowns would cause container shipping havoc. Six weeks into Shanghai lockdowns, it still hasn’t happened. Two liner CEOs — Maersk’s Soren Skou and Matson’s Matt Cox — explained why.
“The port [of Shanghai] is open and operating,” said Skou on Wednesday’s quarterly earnings call. Trucking and warehouse disruptions “are slowing things down somewhat and we are seeing an impact on our volumes out of China, but probably less than we would have expected.
“The purchase orders that our customers have issued in China don’t disappear because we have [a lockdown] so obviously they will come later. But right now, we don’t see a huge buildup of volumes because of the closedown in Shanghai.”
Cox reported during his company’s earnings call Tuesday that “the impact to Matson’s China operations has been minimal. Our terminals are receiving freight and managing empties and our ships are departing Ningbo and Shanghai on time.”
Capacity reallocated after China lockdowns
Some Matson customers have switched departures from Shanghai to neighboring Ningbo and a few have canceled bookings, “but those spots were filled rather quickly,” said Cox. “The bottom line is that Matson’s vessels are sailing full from China.” Not just throughout Q1 2022, but through April as well.
Cox said that some other shipping lines are omitting Shanghai calls and diverting to other ports. “Some carriers and customers shifted to Ningbo. But a number of carriers canceled their sailing from Shanghai [or Ningbo] and went to Busan [Korea] or other Asian origin ports and reallocated that capacity to other markets.”
The overall shipping impact of the Shanghai lockdown, according to Cox, is “a reduction of capacity [out of Shanghai] … largely filled by other load ports for the other carriers.”
Data from project44 confirms a lack of disruption to export operations within the Port of Shanghai. It shows that average wait time for export containers at the Port of Shanghai bound for destinations like the U.S. has actually decreased during the lockdown. In the last week of April, it was down 43% year on year to 2.02 days. Wait time for import containers has risen during the lockdown (due to a shortfall of truck transport inland) but this indicator retreated 15% in the last week of April versus the week before, to 10.75 days
Port congestion outlook
When China’s lockdowns ease, Cox expects the delayed cargoes to enter the trans-Pacific network and cause the queue of ships waiting for berths in Los Angeles/Long Beach to rise higher again.
“Some of our customers have indicated recently that they have a significant production backlog from the recent supply chain challenges, on the order of months of freight. This will take time to sort itself out, particularly since this will coincide with the traditional summer peak season.”
There were 34 container ships waiting for Los Angeles/Long Beach berths on Tuesday, according to the Marine Exchange of Southern California. That’s just one shy of the lowest number of ships waiting this year, but it’s still more than double the queue size at this time last year.
Cox believes Chinese lockdowns have “caused a temporary reduction in the number of ships waiting. When all that comes back online, I think we’ll see the backlog increase, together with the traditional peak season as we start to move into that.”
Skou pointed out that on a global basis, congestion is already very high — even before the U.S. peak season begins and lockdown-delayed China freight hits the water.
“The question highest on the minds of those involved in global logistics is, of course, when we will see a normalization of the extraordinary market situation we have experienced since the beginning of the pandemic,” said Skou.
“Unfortunately, this quarter [Q1 2022] didn’t bring us much closer to normalization. In fact, the spread of omicron in China [makes the] timing very difficult to predict.
“Somewhere between 10% and 12% of global ocean shipping capacity is tied up in port congestion. We believe that’s actually an increase from earlier this year. What we’ve seen happen is that the port congestion has spread from the U.S. West Coast to the East Coast and now also to parts of China.”
Both Matson and Maersk pre-reported earnings prior to their full quarterly earnings releases.
Matson (NYSE: MATX) is a niche carrier that offers domestic services to Alaska, Hawaii and Guam in addition to China-U.S. services. Its ocean transport revenues rose 68% year on year, to $943.9 million in Q1 2022. Net income was $339.2 million, up 289% from $87.2 million in Q1 2021.
The Maersk group, which owns the world’s second largest ocean carrier, reported net income of $6.8 billion for Q1 2022 compared to $2.7 billion in Q1 2021. Group earnings before interest, taxes, depreciation and amortization (EBITDA) came in at an all-time high $9.2 billion.
And the current quarter looks even better. Maersk CFO Patrick Jany said on the conference call that Q2 2022 operational performance is “as strong” as Q1 2022. But in the first quarter, Maersk took a $718 million hit due to the wind down of its Russia business after the invasion of Ukraine. “That won’t recur, therefore Q2 should be mathematically better than Q1,” said Jany.
On April 26, Maersk raised its full-year EBITDA guidance to $30 billion, from $24 billion previously. Deutsche Bank analyst Andy Chu puts the number much higher. On Wednesday, he raised his EBITDA outlook for Maersk to $37 billion, from $32 billion previously.