On September 9, 2021, the French container shipping giant CMA CGM announced an extraordinary move for a profit-driven enterprise with publicly traded bonds: it suspended all rate hikes until February 1, 2022. The company decided to “prioritize its long-term customer relationships in the face of an unusual circumstance in the transportation business.”
Despite this, CMA CGM’s profitability and revenue per container transported have improved since then.
According to Alphaliner, CMA CGM is the world’s third-largest shipping business by capacity. CMA CGM announced Q1 2022 net profits of $7.2 billion on Friday, up 3.5 times from Q1 2021 and above its previous record quarterly earnings in Q4 2021 ($6.7 billion).
CMA CGM does not provide fleet capacity figures, but Alphaliner calculates them. CMA CGM’s fleet of owned and chartered ships had a capacity of 3,012,168 twenty-foot equivalent units a year ago, according to Alphaliner. CMA CGM’s fleet size is at 3,300,522 TEUs, a 9.6 percent increase year on year.
Despite a larger fleet, the French liners’ quarterly throughput has been declining. CMA CGM moved 5.69 million TEUs in the second quarter of 2021, a year ago. It moved 5.3 million TEUs in the most recent quarter. Volume headwinds, according to the business, are caused by “port and inland congestion, which has resulted in lengthier passage times for vessels.”
CMA CGM’s income per container continued to rise.
CMA CGM’s significant gain in revenues and profitability in the face of reduced throughput, like that of other ocean carriers, was driven by increasing freight rates.
CMA CGM does not publish its average quarterly freight rate, however, it does publish shipping revenues. Its shipping revenue in Q3 2021 — prior to the spot rate freeze — was $2,292 per TEU. Since then, revenue per TEU has climbed by 22% to $2,802 in Q1 2022.
During a spot rate freeze, how have shipping revenues per TEU increased?
Increased contract prices and contract coverage could be one factor. “The evolution indicated by CMA CGM would appear to lead in a direction where the prioritizing will lean more towards contractual clients and customers with better pre-existing ties,” Vespucci Maritime CEO Lars Jensen said at the time of the spot rate cap.
According to Xeneta, which measures contract rates, long-term rates are up 151 percent year on year as of May 31.
Another factor that could contribute to CMA CGM’s revenue-per-TEU rise during the spot-rate cap period: When the cap was declared, a significant percentage of the spot capacity for the frozen period may have already been booked, and/or more spot volumes may have been scheduled at the cap rate.
Randy Giveans, a former Jefferies shipping analyst, speculated during the CMA CGM rate freeze: “This is only from September to February, and I would think that CMA CGM capacity is already practically full from September to February.” They don’t indicate how much capacity is affected or how significant the impact will be. It’s like a gas station after Hurricane Ida promising consumers it won’t raise gas prices even if it only has 8 gallons left in its tank.”
There will be macro-risks ahead.
Looking ahead, the French airline shared many of the same macro worries as other ocean carriers.
“The group is keeping a close eye on the evolution of the current geopolitical scenario and its implications for the macroeconomic outlook.”
“Even though the group is optimistic about its financial performance prospects for 2022, the current environment and its medium and long-term implications remain unpredictable.” The significant rise in energy prices, combined with price inflation in numerous raw materials, is weighing on retail demand and may have a negative impact on the economy and global trade prospects.”
