Liner income simply carry on climbing

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A hockey stick pattern starts with a low phase – the blade – meets a turning point, curves upward, and then strikes up sharply – the shaft. Newly released financial and operational reports for the third quarter of 2021 from Matson (NYSE: MATX), Cosco and OOIL show container shipping in full-on-hockey-stick mode.

Winner and Loser

Pandemic restrictions and fiscal incentives created winners and losers. On the losing side: companies that depend on people who gather in a confined space for business or pleasure. Think midtown Manhattan office landlords and cruise lines. The winners: companies that facilitate the transport and sale of goods.

Ecommerce was a big winner in the COVID era, but some retail income charts look less like hockey sticks. Increasing challenges in terms of labor, storage and distribution as well as much higher transport costs are starting to take hold.

After rising steeply from the Q2 2020 lockdown, both Amazon (NYSE: AMZN) net income and operating profit declined from Q1 for the second quarter of this year as spending growth outpaced revenue growth.

Not so in container shipping, at least so far. What is bad for importers – skyrocketing transport costs – is good for freight forwarders. Maritime transport ships are also far less labor intensive than the land-based winners: a ship with 10,000 20-foot equivalent units that can fetch $ 15 million or more per headhaul trip has a crew of fewer than 30 people on board. And while the total cost of the liners increases, the revenue increases faster.

Drewry Maritime Research predicted last week that total liner shipping will make $ 150 billion this year, significantly more than their forecast of $ 100 billion in early July. Drewry now also expects airlines to earn the same or a little more next year, bringing the two-year balance sheet to around $ 300 billion.

To put this into context, McKinsey & Co. estimated in 2018 that shipping lines had wiped out roughly $ 110 million in shareholder value over the past two decades. In other words, airlines could make almost three times as much in two years as they have lost in the last 20 years.

Matson blows away estimates

After the market closed on Monday, Matson announced that it will post net income of $ 277.3 million to $ 285.5 million for the third quarter of 2021 upon its final results announcement on Nov. 1. It earned significantly less in the second quarter: $ 162.5 million.

Third quarter earnings were driven by marine transportation operating income of $ 358 million to $ 363 million, compared to $ 201 million in the second quarter. Matt Cox, CEO of Matson, said he expected the favorable terms “to remain largely in place until at least mid-2022”.

The consensus estimate for Matson 3Q earnings was $ 4.87 per share. Matson now says earnings per share will be 33% higher: $ 6.39 to $ 6.58 per share. Matson “once again exceeded our estimates considerably,” said Stifel analyst Ben Nolan.

Matson is one of two container shipping companies with common stock listed in the United States, along with Zim (NYSE: ZIM). Both have a strong focus on trade between Asia and the US, and in both cases, unlike Amazon, their hockey stick patterns are still intact.

Chart: American shipper based on corporate filing data. Matson Q4 2021 net income and operating income based on mid-range announced. Matson’s operating income relates only to its marine business.

On Tuesday, the day Wall Street indexes fell, Zim and Matson stocks rose 5% and 7%, respectively.

The results of COSCO and OOIL continue to rise

China’s Cosco, the world’s fourth largest airline, announced on Friday that it had net income of 30.49 billion yuan ($ 4.73 billion) in the third quarter of 2021. That is an increase of 21.64 billion yuan in the second quarter and 14.45 billion yuan in the first quarter.

The Cosco subsidiary OOIL announced its sales and lifting data on Friday. Revenue for the third quarter of 2021 was $ 4.31 billion. Revenues were $ 3.47 billion for the second quarter and $ 3.02 billion for the first quarter.

As previously reported by American Shipper, OOIL highlighted “severe congestion across the network” that depressed volume. The total cargo volume rose by only 0.4% compared to the previous year, but the average turnover per TEU rose by 142.7%.

Too much congestion reduces the freight volume and has a negative impact on revenue, as ship capacities are tied up. But shipping lines are still in a sweet spot where traffic jams are driving rates up to an extent that far outweighs the revenue impact of travel delays.

Click here for more articles by Greg Miller

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