The fourth quarter of 2024 promises to be a difficult one for the shipping companies in terms of profitability. FAK spot rates for cargo loaded on Asia-North Europe routes going round the Cape of Good Hope, which is currently the most used itinerary, are below the USD3,000/40' mark.
Upply's freight rate index for Asia-Europe routes, which merges spot and contract rates, also shows a marked fall from August on.
Source : Upply Freight Index
The Asia-Europe market, which is of great importance to the shipping companies, is starting to crack at the worst time, just as the annual contract negotiations are starting to get into full swing and 2025 service schedules are being drawn up without any convincing improvement in quality having been offered to date.
It had been expected that shipping companies' profitability would come under pressure, but this had been expected to happen at a later date, sometime next year.
At this point, we consider that the shipping companies will remain in profit in 2024 for two major reasons:
When conditions get rough, MSC generally does better than average. The company has been designed from the start to face adversity, thanks to its size and tight control of its operating costs, which are still among the lowest on the market, thanks partly to the extensive installation of scrubbers on its ships. Moreover, the company currently controls a large part of the value chain, since it relies on its own port terminals, whereas its competitors remain too dependent on outside service providers.
With the impending reconfiguration of the shipping alliances, MSC is the only shipping company which, with assistance from ZIM in the transpacific market, is able to offer under its own name, a planet-wide liner network. Unless its growth is obstructed by state or other comparable bodies, nothing looks likely to halt the company's steamroller-like progress. Moreover, it is entering the battle with comfortable financial reserves, which it was able to amass during the Covid period and which it has not finally drawn on much since then. This is less the case with its direct competitors, like CMA CGM.
In France, where the political debate is currently focused on the question of whether or not to tax CMA CGM's exceptional profits, there is an urgent need to explain to parliament and public opinion that our national shipping champion, after having helped the country to deal with sensitive economic problems involving such companies as Brittany Ferries, Gefco, Bolloré and Neoline, could soon find itself facing heavy headwinds in its turn.
In the shipping business, the wheel turns quickly. Yesterday's victories offer no protection against tomorrow's setbacks. It is for this reason that, to survive, one always needs to be big, and, if possible, the biggest. This philosophy and strategic vision, which was adhered to by Jacques Saadé while he was at the helm of CMA CGM, is once again proving its pertinence as 2025 approaches, with the great difficulties it is expected to bring, given the sharp deterioration in market fundamentals.