The shipping industry has always been known for its volatile weather, but the container-ship industry also faces similar unpredictability in the form of volatile markets. With 80% of internationally traded goods being transported by container ships, the industry is crucial for global trade. In 2022, the global pandemic caused a surge in demand for shipping as people stayed home and increased their online shopping, leading to record-high container rates. Shipping lines saw a return on capital exceeding 40%, with profits three times greater than in the previous two decades combined.
However, as demand began to decrease and new vessels ordered during the boom started to be delivered, rates and returns in the industry began to decline. The situation worsened with attacks by Houthi rebels on ships in the Red Sea, which disrupted shipping routes through the Suez Canal and caused rates to soar once again. Now that these good times have passed, it is time to consider how long they will last this time around.
Historically, the shipping industry has struggled with value destruction, with shipping firms typically having lower returns on capital compared to their cost of capital. The addition of new ships to the global fleet has further heightened concerns about overcapacity, with 2.3 million 20-foot equivalent units of capacity added in 2023 alone, surpassing previous records. With another 1 million units added in the first four months of 2024, worries about overcapacity have led some industry players to issue warnings of potential losses. For example, A.P. Moller-Maersk, the world’s second-largest shipping line, warned of potential losses of up to $5 billion for the year due to overcapacity concerns.
Overall, while volatility is a common theme in both weather and markets
