When the global supply chain is in trouble, ocean carriers will make up to 500 billion USD by the end of 2022
When French container shipping giant CMA CGM Group announced a cargo partnership with Air France-KLM last week, the main surprise was that it planned to buy back just a 9% stake in the airline. this.
After raking in 18 billion euros ($19 billion) in net profit last year, the world’s third-largest container carrier by capacity can afford to buy all of Air France. And because the world’s ports are still congested and freight rates are still sky-high, they’re likely to make even more this year.
Indeed, by the end of 2022, the container shipping industry will have raked in a staggering half a trillion dollars in operating profit from two years of supply chain struggles, research and consulting firm Drewry estimates.
“Swing” the money so that it is reasonable
Besides splurging on dividends and share buybacks, the rarely profitable container carriers are planning to spend heavily on buybacks and investments. Some aim to transform themselves into end-to-end logistics giants, like Amazon.com Inc. or FedEx Corp.
In theory, this should certainly happen in the not-too-distant future, and should give them more flexibility when freight rates are normalized. Shipping costs have dropped a bit, but that’s partly due to the spread of omicrons in China. Some industry observers do not currently expect port congestion to ease until next year.
The ambitions of the shipping industry have changed since it doesn’t seem so strange for a container carrier to partner with an airline: Mediterranean Shipping is looking to buy back a stake in the company. Italian flag carrier ITA Airways, while billionaire and major shareholder of Germany’s Hapag Lloyd, Klaus-Micheal Kuehne, holds a 10% stake in Lufthansa AG. In addition to expanding its own air freighter fleet, Maersk agreed to acquire air freight forwarding specialist Senator International in November.
Shipment spending goes far beyond airplanes to include warehouses, docks and delivery trucks.
A selection of the deals container lines have struck in 2021 and 2022
Acquirer | Target | Sector | Value ($ Billion) |
MSC | Bollore Africa Logistics | Logistics | 6 |
Maersk | LF Logistics | Asia warehousing and distribution | 3.6 |
CMA CGM | Shipwire / Ingram Micro CLS | Contract logistics and e-commerce | 3 |
CMA CGM | Fenix Marine Services | Shipping terminal | 2.3 |
Maersk | Pilot Freight Services | Landside logistics | 1.7 |
Maersk | Visible Supply Chain Management | E-commerce fulfillment | 0.8 |
Maersk | Senator International | Air freight | 0.6 |
MSC | Log-in Logistica | Brazilian intermodal logistics | 0.5 |
CMA CGM | GEFCO | Automotive logistics | Undisclosed |
CMA CGM | Colis Prive | Last-mile logistics | Undisclosed |
Transactional container shipping routes implemented in 2021 and 2022
However, Hapag Lloyd still focuses on shipping by ship. Probably because Kuehne already owned a logistics company. Kuehne & Nagel International AG is a company providing sea freight and air freight forwarding.
Being seen as a logistics integrator, rather than just a shipping company, could also help boost Maersk’s stock market value. Recently, the Danish giant was valued at less than three times its earnings as investors deemed its bumper earnings from shipping unsustainable.
Big profits, low taxes
From an investor perspective, it’s a refreshing change because in the past the industry has had a tendency to splash all its spare money on new ships leading to a glut. Of course the customer won’t mind, as that means overall shipping costs will be very low.
Even so, changing things to buy does not necessarily mean that the money spent was better spent. Logistics teams know that shipping companies have a lot of cash so they can force them to pay the highest dollars. And transportation’s previous forays into logistics, such as Maersk’s Damco brand, have not always been smooth sailing.
It makes a lot of sense to grow these groups through diversification as container shipping has been greatly consolidated. Only 8 companies control 80% of the world’s container shipping capacity and they are organized into 3 major alliances. More than four-fifths of international merchandise trade is transported by sea. Thus, this high degree of centralization – made possible by the far-reaching antitrust immunity they enjoy – provides immense power.
It’s no surprise that smaller forwarders and transporters feel jittery. What they worry about is that transport companies will prioritize larger customers with full service contracts, leaving smaller players to be “outlined”.
Cleclat, a trade body for Europe’s logistics and freight forwarding industry, says vertical integration is “unfair and discriminatory” because carriers do not follow competition rules through are often using their profits to compete with sectors that do not have such an advantage.
Some European shipping groups also barely pay any tax on their profits because their taxes are assessed on the size of the vessel and not on how much they earn.
Thanks to the tonnage tax, these shipping giants reap more profits.
Pre-Tax Profit ($ Billion) | Taxes ($ Billion) | Effective Tax Rate | |
Maersk | 18.7 | 0.70 | 3.7% |
CMA CGM | 18.3 | 0.37 | 2.0 |
Hapag-Lloyd | 10.8 | 0.07 | 0.7 |
Source: 2021 financial reports, Opinion calculations
The call to do something about this imbalance of power is growing louder, especially in the US, where foreign-owned container lines have become a favorite relationship of trust for with the Biden administration.
at Blogtuan.info – Source: cafebiz.vn – Read the original article here
