While you may understand how much it costs to ship goods across the globe—and why the costs are what they are—do you know how much the companies that manage those shipments make? For instance, 2022 ocean carrier profits were among the highest in the history of the industry. Yet, according to some, the service was unreliable. Why the disconnect?
A Review of 2022 Ocean Carrier Profits
In 2020 and 2021, when the pandemic affected global shipping, spot rates went up—in some cases, drastically. But by mid 2022, they had begun to normalize, dropping consistently across 39 weeks. During the same period, major carrier lines made history with earnings of $41.6 billion (Q2 2022). That number exceeded Q2 profits for the prior eleven years. However, it was on par with returns for the end of 2021 and the beginning of 2022.
By the end of Q3 2022, revenue numbers had skyrocketed to $122 billion. And Drewry Supply Chain Advisors forecasted that total 2022 ocean carrier profits would be close to $270 billion, $70 billion higher than 2021 and five times higher than 2020. (Note: actual numbers for 2022 were unavailable at the time of this writing.)
Overall, 2022 ocean carrier profits jumped 73% from the prior year. The drastic uptick was attributed to an increase in contract rates for large shipments.
Because of the high revenue numbers, the shipping industry became one of the pandemic’s “most surprising financial successes,” according to Bloomberg. This, despite the 30% lower spot rates and the fact that the industry is often a money loser.
Why the Huge Shift?
After a tumultuous couple of years in the ocean shipping industry, companies looking to transport goods were wary. They opted away from spot buys for coverage and toward contracts, in some cases negotiating them for several years to offset future concerns. With fears of ongoing supply-chain issues, contracts buy some peace of mind moving forward.
Part of the supply-chain challenge has been high demand and low capacity, especially during the pandemic. Add to that increased port congestion, and companies were scampering to find ways to get their shipments across the globe via ocean.
Another contributor to the changing prices concerns shipment containers. Just last year, there was a shortage. That led some carriers to purchase mass quantities of containers, which resulted in a glut of them. Now, the shipping industry has a surplus of 6 million TEUs (twenty-foot-equivalent containers).
It’s interesting to note that the financial windfall that affected major carriers did not translate to the smaller lines. In fact, in some cases, they experienced revenue declines, quite contrary to the overall trend.
Schedule Reliability Disconnected from 2022 Ocean Carrier Profits
It should come as no surprise that, during the pandemic, schedule reliability for ocean carriers decreased. At the beginning of 2022, schedule reliability was as low as 30.9%, according to Sea-Intelligence. By November of that year, however, it had bumped up to 56.6%. It grew steadily throughout the year, while the average delay fell to less than six days.
All this while the shipping companies made more money.
Profits rose due to long-term contract negotiations, and reliability rose as more ports opened. While correlated, the two numbers aren’t in alignment as much as they should be, especially in the eyes of some in the industry. The underlying question is how carriers can record 2022 ocean carrier profits when they often don’t show up on time.
Trust Your Freight Forwarder, Cyclone Shipping
As the shipping industry continues to move back to normalcy, there’s no doubt that reliability and costs will keep shifting. That’s why it’s imperative to have a trusted freight forwarder on your team to advise you of what’s coming and help your company get the best results with your global shipping needs. Cyclone Shipping is committed to staying in tune with the industry so we can properly advise you of your options. Contact us so you can focus on your business while we handle logistics.