The nation’s leading container shippers last week reported weaker-than-expected earnings for the third quarter amid a sharp drop in freight rates and a continual decline in Asia-Europe trade volume.
For this quarter, major Taiwanese shippers could see their losses continue to widen, even though they are cutting capacity to cope with an industry slowdown, analysts said.
“Losses are expected to widen this quarter, as freight rates have remained under pressure, with major containerized freight indices in China continuing to see sequential declines to date,” Parash Jain, director of regional transport research at HSBC, said in a note on Monday.
Jain’s remarks came after Evergreen Marine Corp (長榮海運) and Yang Ming Marine Transport Corp (陽明海運), the nation’s largest and second-largest container shippers in terms of fleet size respectively, last week posted their biggest losses per share in 14 quarters, NT$0.69 and NT$1.22 respectively.
In comparison, Wan Hai Lines Ltd (萬海航運), the nation’s third-largest container shipper, posted earnings per share of NT$0.48 for last quarter, as the company focuses on regional routes in Asia, which saw a lesser impact from slower volume growth and lower rates than Asia-Europe shipping lines.
“We attribute the outcome to the sharp drop in freight rates during the third quarter and the race to increase market share at the expense of profitability, particular in the case of Yang Ming, which took delivery of 10 new 14,000 TEU [twenty-foot equivalent unit] ships this year,” Jain said in the note.
This year, both Evergreen and Yang Ming are facing margin erosion amid mounting operating costs and their profit forecasts have been slashed, Jain said.
Evergreen’s annualized return on equity last quarter was minus-14 percent, 15.3 percent lower than last year, while the figure stood at minus-11.2 percent for Yang Ming, 16 percent lower than the previous year.
In the July-to-September quarter, Evergreen’s net loss widened to NT$2.41 billion (US$73.341 million), compared with the net loss of NT$153 million it reported in the April-to-June period, while Yang Ming’s net loss also expanded to NT$4.23 billion last quarter from a loss of NT$12 million in the prior quarter.
Wan Hai reported a net profit of NT$1.05 billion for last quarter, but the figure was 42.4 percent lower than the previous year.
In the first three quarters of the year, Evergreen recorded an aggregate net loss of NT$759 million, or a loss per share of NT$0.3, while Yang Ming reported a net loss of NT$3.94 billion, or a loss per share of NT$1.15.
Wan Hai made a net profit of NT$4.21 billion, or earnings per share of NT$1.9.
Analysts said the outlook for the global container trade has deteriorated rapidly in the past few months, with China’s export growth turning weak, Asia-Europe trade volume down sharply and further deterioration of emerging-market currencies.
On Wednesday, the pan-Asian CKYHE Alliance, which consists of five major global container shippers, announced that it is to suspend its North Asia-US East Coast service in response to fluctuations in seasonal demand.
The winter service adjustment is to take effective from Dec. 3, according to the alliance, which is comprised of Evergreen Marine, Yang Ming, China’s COSCO Group (中國海運集團), Japan’s Kawasaki Kisen Kaisha Ltd — better known as the “K” Line — and Hanjin Shipping Co of South Korea.
While freight rates might recover next year as vessel scrapping and deferrals among cargo shippers quicken to reduce supply in the sector, the persistent slowdown in container shipping trade and shippers’ propensity to continue their price war next year poses a challenge for major shippers, Jain said.
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