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Transport firms continue to reap high profits as ocean rates fall slowly

Sea freight rates are expected to fall in the second half of 2022, but at a glacial pace, allowing transport firms to reap high profits for another six months, according to experts.
An HAH container ship travels along a river. The company earned over VND324 billion in Q2/2022. — Photo haiants.vn

SSI Securities forecast that global supply chain disruptions would continue in early 2023 as logistics facilities are insufficient to meet demand.

New container ships are being constructed to pick up the slack but construction takes time. That means the situation would improve slowly and the global movements of goods have to depend on China.

Global freight rates are projected to go back to normal in the second half of 2023 once preventive measures in many countries, including China, are lifted and the newly-constructed ships launched.

Specifically, total tonnages are expected to climb by 9.9 per cent in 2023 and 11.1 per cent in 2024 compared to late 2011, driving down freight rates.

It is also worth noting that the rates would fall but not lower than the pre-pandemic levels since transport firms have to cover higher operating costs and invest in new facilities.

In Vietnam, freight rates are forecast to remain high in 2023 due to ship shortages. The main reason for the shortages is that domestic firms have leased their ships to foreign partners under a long-term arrangement.

Meanwhile, charter rates are projected to hover at peaks in the rest of 2022 and then fall gradually in 2023 thanks to the construction of new ships. Shipowners are likely to hire out their ships for shorter terms for fear of further falling rates.

Regarding liquid cargo transportation, spot rates and charter rates are expected to stay stubbornly high in 2023 as the West's sanctions on Russian have forced the country to redirect its oil exports to more distant countries, fueling the demand for tankers.

Domestic transport firms have been riding high financially and are expected to run profitably in the next six months thanks to high ocean rates.

The Hai An Transport and Stevedoring JSC (HOSE: HAH) topped VND324 billion (US$14 million) in profit in Q2/2022, the highest figure since 2014 and more than triple the figure last year.

SSI estimates that the company would continue to fare well in the second half of 2022 owing to favourable freight and charter rates, and maintain the momentum in 2023 owing to operating expansion and new leasing contracts.

The PetroVietnam Transports Corporation (HOSE: PVT) turned a profit of over VND440 billion in the same period, the highest figure since 2007.

SSI forecast that the company's profits would grow slower in the second half of 2022 because its leasing contracts involve fixed terms which are less sensitive to mounting charter rates.

The Vietnam National Shipping Lines (HOSE: MVN) followed suit with the highest profit since 2018. It raked in over VND1.4 trillion in Q2/2022, up 95 per cent year-on-year.

With such remarkable six-month earnings, the company has met 84 per cent of its annual profit target and reduced its accumulated losses by 36 per cent.

Given the Russian-Ukraine conflict is unlikely to end in the short-term, SSI held that the demand for container transport would slow down whereas the demand for oil transport soars in 2023.

As a result, freight rates charged by container ships are forecast to gradually return to normal. Their adjustment period depends highly on the situation of global supply chains, which are expected to not improve until late 2023.

SSI believes that oil transport firms would make big money this year and the next. Meanwhile, container transport firms would fare worse profit-wise. 

Source: Vietnam News

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