Container lines are benefiting from the investments and cost reductions made during the past 10 years but 2022 will be the real test for profitability, particularly if rates ease back from their current highs. “Liner profitability in the past 10 years had been driven by a stringent cost control,” said BIMCO chief shipping analyst Peter Sand. “We have really seen carriers drive down costs through every bit of their business. All the upscaling to ultra-large containerships offer the opportunity to reap economies of scale if it is possible to fill the ships.” That was driving the sharp increases in profitability seen in results from the first half of the year, at a time of high demand for goods and record rates.

“What you see in the current market is really all that effort coming into effect with a record low-cost level for container transport heading into a market that has risen this sharply,” he said. “It made the carriers capable of benefitting fast from that uptick, not only in the spot market.” But the spot market had driven a spill-over into the long-term contract market too. “There is a relevant correlation between spot rates now and contract rates coming up,” Mr Sand said. “If we look to 2022, that is the key to profitability for carriers. The lion’s share of every carrier’s business is long-term contracts.”

Xeneta director Thorsten Diephaus said that while $20,000 per teu rates made the headlines, they were not the norm. “Revenue per teu as reported for the first half of the year was $1,500-$1,700 per teu,” he said. While that was up from $900-$1,100 per teu, most rates were lower long-term contract rates. “The majority of the contracts on the long-term market were agreed in the first half of the year,” Mr Diephaus said. “While the spot market has shot up over the summer, there are not that many new long-term contracts signed.”

But the upcoming contract season for 2022 would be a time of critical decisions for shippers faced with locking in high rates or trying to play the spot market. Mr Sand said the likelihood would be for longer contracts being signed. “The key customers are looking for better control of their future logistics costs,” he said. “If they want to pay less than what is being offered by carriers now, they need to sign up for longer periods of time.”

There was anecdotal evidence of indefinite contracts, with an element of adjustment built in, he added, and multi-year contracts were becoming more common. One advantage for shippers in securing contracted volumes was the security it offered, he said. “Surcharges are infecting the market to an uncontrollable extent and that is surely a worry for any shipper,” Mr Sand said. “If they can lock in for the next two years at what would otherwise be a very high level, they can avoid the hassle of being faced with surcharges that can add to costs.”

In the short term, however, there was unlikely to be any relief from high spot rates. “Many shippers are doing what they can to frontload cargoes to ensure inventories do not run short and that they have goods in store,” he said. “But when the market is already red hot and carriers are doing whatever they can to fill ships, any frontloading is mainly pushing up rates, not volumes. This leads to more rollover and extends the high volumes and rates.”