Reduced container supply caused by Red Sea rerouting should bolster freight rates and profitability for local shipping companies this year, but the successive delivery of mega container ships would cast a shadow over their prospects next year, Taiwan Ratings Corp (中華信評) said yesterday.
The local branch of S&P Global Ratings disclosed the findings in a report which examined the impact of ongoing Red Sea disruptions on Taiwan’s three leading container shipping companies.
Taiwanese container shippers including Evergreen Marine Corp (長榮海運), Yang Ming Marine Transport Corp (陽明海運) and Wan Hai Lines Ltd (萬海航運) have rerouted their container ships away from the trouble spot, along with the majority of their global peers.
Photo: CNA
“Rerouting by major container ship operators has reduced effective container supply on main-lane service lines and pushed up their freight rates,” Taiwan Ratings credit analyst Susan Chen (陳宛暄) said.
As a result, profitability for the three container carriers spiked in the first half of this year and would hold firm for the rest of the year, Chen said.
Evergreen Marine posted a net income of NT$46.84 billion (US$1.47 billion) in the first half of this year, swelling 362.1 percent from the same period last year, with earnings per share of NT$21.86, the company said last month.
Evergreen Marine attributed its earnings improvement to higher freight rates induced by rerouting to circumvent troubled waters.
Similarly, Yang Ming Marine reported a net income of NT$23.27 billion in the first half, rising 611 percent from a year earlier, with earnings per share of NT$6.66.
Yang Ming Marine said last week that it would continue to reroute in the first quarter of next year, suggesting higher freight rates would be sustained in the coming quarters.
Wan Hai Lines’ first-half profit soared to NT$16.19 billion, with earnings per share of NT$5.77. The earnings are a stark contrast to the losses of NT$4.4 billion for the same period last year.
The three shippers could post brighter financial performances in the second half of this year amid lingering geopolitical tensions and the advent of the high season for shipping services, analysts have said.
Taiwan Ratings agreed, but voiced reservations over the delivery of mega vessels which could tip the balance against main-lane service lines and see supply far exceed demand next year.
“Supply discipline among large players will be crucial to uphold freight rates as new vessel deliveries carry on,” Chen said.
A persistent imbalance between container ship supply and demand could undermine carriers’ profitability and cash-flow generation from next year, she said.
Still, the three Taiwanese shipping companies would maintain their strong capital structure over the next two years, helped by ample cash reserves and strong profits for the whole of this year, Chen said.
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