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Drewry: More muted growth, but higher carrier profits forecast in 2022

Container demand growth is losing some momentum amid mounting headwinds, but carriers will continue to rake huge profits, according to Drewry’s latest Container Forecaster report.

Fast rising inflation, ongoing supply chain bottlenecks and the Omicron Covid-19 variant are conspiring to slow the pace of growth in container handling, forcing Drewry to lower its outlook for world port throughput in 2022 to 4.6% in the latest Container Forecaster, from 5.2% in the previous edition.

The full-year 2021 estimate was also downgraded to 6.5%, from 8.2%.

However, Drewry forecasts that ocean carriers will ride a third year of 15%+ annual growth in total revenue in 2022, with global carrier industry sales expected to exceed $500 billion next year for the first time.

The gravy train kept on rolling for ocean carriers in 3Q21 as the industry once again exceeded our expectations, posting an estimated EBIT performance of $70.9 billion, a staggering nine-fold improvement from $7.6bn in the same quarter a year ago.

Given that the industry was ahead of where we expected after nine months (estimated EBIT of $136.5 billion), Drewry once again upgraded its annual forecast for 2021 from the previous guidance of $150bn to $190bn, at a margin of approximately 43%.

We think that 3Q21 probably represents the peak quarterly earnings for carriers, but that quarterly results in 2022 will stay on a more even keel that will average out slightly higher. Our revised estimate for this year now stands at $200 billion (margin 37%).

The smoother earnings forecast rationale stems from a pivot away from the volatile (and likely retreating) spot market towards longer-term contracts that are expected to be signed at much higher levels in upcoming negotiations.

Carriers are building significant free cash flow that will give them ample room to allocate future income to dividends, pay down debt, and pursue growth opportunities.

The pandemic and ensuing supply chain crisis is the primary driver of the supercharged carrier profits and share price bonanza. In simple terms, the longer the congestion lasts, the longer that freight rates and carrier profits will stay extremely high.

Drewry’s previous position that it would take all of 2022 to fix the supply chain already included some space for further Covid-related disturbance, but even though the emergence of Omicron hasn’t caused us to extend the projected recovery timeline, it has added greater uncertainty to proceedings.

Our view
On balance, Drewry thinks the bulk of risk from the highly unpredictable container market will reside with shippers in 2022, which is shaping up to be another year of severe disruption, under-supply and extreme cost.

Source: Drewry

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