According to HSBC Global Research, container shipping will experience an unavoidable downcycle in 2023-24, with profits plummeting by 80%.
As Parash Jain, Head of Shipping & Ports & Asia Transport Research for HSBC, two years of unprecedented rises container freight rates were seen as having peaked with a downcycle in 2023 – 2024 driven by overcapacity. However, Mr. Jain does not believe the sector will return to losses.
There are signs that spot rates could fall to pre-pandemic levels swiftly on the widening demand-supply gap (as seen in the BDI), but we maintain that contract rates should settle above their pre-pandemic levels and that capacity discipline will keep spot rates from lingering at trough levels
In fact, profits are set to fall from their peak estimated for 2022, but would still be better in the past. Namely, the largest public-listed container line Maersk has forecast EBITDA of $37bn for 2022.
What is more, the deep slide in rates from current levels will be driven by a mismatch between container growth and the supply of new vessels. Specifically, HSBC projects global container trade to decline 2% in 2022 and 3% in 2023 before recovering by 2.5% in 2024.
On the other hand, vessel capacity will increase by 6.2% in 2022, and 6.5% and 8% in 2023 and 2024, respectively.
HSBC now expects the sector to bottom out in 2024, noting that its forecasts are well below consensus for 2023 – 24. Nonetheless, despite the lower profit forecasts HSBC maintaining a buy on two container shipping stocks – Maersk and SITC.
Come 2024 we believe Maersk will have returned just over 50% of its market cap to shareholders and will be valued as a less cyclical business, with non-ocean contributing 44% of its operating profit
HSBC stated.
