If you happen to have capital available for which you currently see no long-term profitable perspective, then you should consider acquiring shares in successfully managed companies in the maritime sector or put your money in well-run cargo airlines. This indirect investment recommendation comes from the Santiago, Chile-based information service, Mundo Maritimo – for comprehensible reasons.
Mundo Maritimo is a leading Latin American publication of news covering the maritime sector. In a report published a week ago the trade journal predicts that “maritime container rates could remain high for the next 10 years,” (below, quoted by EMO-Trans in Linkedin), citing the outcome of market research aired by consulting giant, McKinsey.
However, when examining Mundo Maritimo’s prediction under a magnifying glass, it becomes clear that it interprets McKinsey's market experts’ findings very generously. This, because the forecast
only covers a limited timeframe of two (not ten) years. Nevertheless, the Chilean publication is not entirely wrong with its interpretation, evidenced by key factors identified by McKinsey that
speak in favor of a lasting bullish market in both ocean and air freight, and leading, at least mid-term but probably even longer, to stable or even increasing rates.
Many factors point to sustained high price levels
In shipping, McKinsey’s study mentions in a multitude of determining factors keeping prices at high levels: Firstly, order books for new, large container vessels tend to be filled up only very slowly, leading to ongoing scarcity of capacity for the next 4 to 5 years. In times of industrial recovery following the pandemic, the existing gap between growing transport demand and available supply will tend to widen. If this happens, freight rates on most major global trade lanes will remain at the current level but may more likely tend to gradually increase.
Secondly, McKinsey points out that the shipping industry is widely consolidated. As a consequence, "the rate war has completely disappeared, so there is more discipline to balance supply to match demand." Also, a lot of long-term contracts have already been agreed with shippers for one or two years, and that will set a higher price, the consulting firm argues.
When asked to comment on the rate forecast, shipping companies have reacted cautiously to Mundo Maritimo's statement that prices tend to remain high for the next 10 years. “Some analysts
believe that our industry may become a ‘normal’ industry with ‘normal’ profits in the future. That would be good news,” reacted a manager of a leading shipping line, referring to annoying
price fluctuations in the past.
Rates in air freight remain at a high level
As for air cargo: in its market forecasts, McKinsey predicts that the industry will become more professional and raise its efficiency post Covid-19. In future, the analysts say, “the larger airlines and integrators will set the tone.”
Simultaneously to their growing importance, the role of smaller freight carriers operating long-haul aircraft that have led to overcapacity in the past, pushing rates south, will gradually be reduced. This means, the McKinsey analysts conclude, that air transportation costs in world trade are likely to remain at high levels for at least the next year and most likely after, until belly hold capacity returns.
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