The maritime shipping industry braces for a potential dip in freight rates amid increased vessel deliveries.
Capacity Expansion vs. Market Demand
The global shipping industry is on the cusp of a significant shift.
The CMA CGM SA, a leading player in the sector, anticipates a downturn in ocean freight rates. This projection stems from an uptick in new vessel deliveries, which is expected to loosen the current capacity constraints. These constraints have been exacerbated by strategic ship rerouting to circumvent conflict zones in the Red Sea.
CMA CGM, steered by the Saadé family, has reported a return to profitability in Q1, a rebound from a loss in the previous quarter. This resurgence is attributed to the ongoing conflict in the Red Sea and a surge in cargo shipping demand. However, the company cautions that this trend may reverse in the latter half of the year.
Ramon Fernandez, the CFO, highlighted that the new capacity introduced in Q1 was almost entirely absorbed due to the Red Sea situation. He warned that the pressure on freight rates, propelled by the conflict and strong consumer demand, is likely to wane as the year progresses.
The maritime transport prices saw a spike earlier in the year when vessels began detouring via southern Africa to avoid the conflict, effectively reducing available capacity. However, as carriers bolster their fleets with newly commissioned vessels—a result of the pandemic-induced boom—the industry is bracing for an overcapacity scenario.
Fernandez pointed out that the global fleet could grow by up to 10% within the year, with a significant portion of that expansion yet to materialize. This growth is poised to lead to an overcapacity in the maritime cargo sector, potentially driving rates down.
Financial Performance and Industry Outlook
CMA CGM’s financial performance in the first quarter stands at a profit of $785 million, a decrease from the previous year but a significant improvement from the loss at the end of 2023. The industry as a whole experienced a boom in 2021 and 2022, with pandemic-driven demand pushing cargo rates and profits to unprecedented levels. This windfall led to a wave of vessel orders, the effects of which are now being felt as these ships enter service.
Despite the challenges, CMA CGM continues to navigate the Red Sea conflict zone, with support from the French navy and the EU’s Aspides mission. The Houthi militants’ actions have prompted one of the most significant reroutings of maritime trade in recent history.
Strategic Acquisitions and Wealth Accumulation
CMA CGM has not only focused on expanding its fleet but also diversified its business portfolio. The company recently acquired Bollore SE’s logistics arm and is in the process of acquiring French news channel BFM TV. These strategic moves come on the heels of a profitable period for shipping magnates, with the Saadé family’s wealth estimated at $37.3 billion.
The industry’s outlook remains cautious as it prepares for a potential influx of new ships, which could lead to overcapacity and a consequent decline in freight rates. CMA CGM, along with its competitors, is gearing up for this anticipated market adjustment in the latter half of 2024.
