How Carriers Make Money -Drewry

By The Maritime Executive 10-13-2014 09:38:00

Carriers can still make money despite falling freight rates, according to Drewry’s latest Container Annual Review & Forecast 2014/15. Surprisingly, some medium-sized lines retain unit cost advantages.

Figure 1
First Half 2014 Scorecard: Comparison of EBIT Margins, Revenue of Selected Carriers

Source: Drewry Maritime Research (www.drewry.co.uk), derived from ocean carrier financial reports

Source: Drewry Maritime Research (www.drewry.co.uk), derived from ocean carrier financial reports

Second-quarter income statements show that more ocean carriers are emerging from the red. From the 15 of the “top 25” carriers (as measured by operated vessel capacity) that publish quarterly financial results, the number of profitable lines doubled from five in the first quarter to 10 in the second quarter. However, the distribution of profits was still extremely uneven and insufficient for most to eradicate their first quarter losses.

The long road back towards profitability is now a very familiar one for most carriers – sizeable reductions to unit costs to compensate for lower unit revenues. To clarify – even though unit revenues are down by an estimated 4% year-on-year for the first six months of this year, the positive is that unit costs have been reduced by 6%.

What separates the carriers is the speed of those reductions to rates and costs and when the journey started. For example, Maersk and CMA CGM were the first to lower slot costs through their larger fleets of Ultra Large Container Vessels (ULCVs) so that by moving a lot more boxes at a profit they are gapping their rivals in the profit stakes.

Figure 2 shows that every single one of our sample carriers had lower estimated unit revenues (ie revenue per teu) in the first half 2014 than they did in the same period last year. Drewry’s analysis reveals that the deepest rate cuts were felt by CSAV, Zim, HMM and Hapag-Lloyd, all of which lost money in the first half.

Figure 2
Selected Carriers’ Volume, Unit Revenue Development, 1H 2014 (% change from previous year)

Source: Drewry Maritime Research (www.drewry.co.uk)

Source: Drewry Maritime Research (www.drewry.co.uk)

As previously mentioned, lower unit revenue is not automatically a barrier to profitability so long as that decrease is matched or bettered by a corresponding reduction for unit costs.

The three carriers that found winning formulas for profitability in the first half 2014 were OOCL (EBIT margin of 4.2%); CMA CGM (4.8%) and way out in front Maersk Line (8.0%).

Again, the shifting balance between unit revenues, costs and volumes was markedly different for all three carriers. OOCL as the smallest of three lines did a pretty remarkable job of attracting new customers – volumes rose by a market leading 10.1% in the first half – without having to “buy” them with significantly lower rates. OOCL’s unit revenues were down by 2.8% but even with all that additional cargo total costs only rose by 2.6%, meaning that unit costs fell by an estimated 6.8%.

French carrier CMA CGM saw its unit revenue decrease at the same rate as its unit costs in the first half, which is why its EBIT margin remains stuck at around 4.8%, easily good enough for a place on the podium but a long way behind Maersk.

The Danish mega-carrier’s first-half profit margin was 3.2 points higher than its closest rival due to the extraordinary feat of lowering total cost (by 0.2%) at the same time as moving an extra 600,000 teu. Neither did this 7% volume growth come at a heavy price as Maersk’s unit revenue decreased by just 2.2% year-on-year, the third lowest in our sample behind APL and Hanjin.

OOCL’s ability to streamline its operations means that it has the lowest unit costs of all the sample carriers, see Figure 3. Considering it does not have a particularly large fleet of ULCVs in comparison to some of its peers shows that OOCL has found other ways of doing business efficiently.

Figure 3
Medium Carriers Still Able to Compete on Unit Costs

Source: Drewry Maritime Research (www.drewry.co.uk)

Source: Drewry Maritime Research (www.drewry.co.uk)

Maersk is currently in a sweet spot where it is able to lower its break-even line and still make more money on every box it moves. Drewry estimates that it made $115 per teu in the first half 2014, up from $76/teu in the same period last year. To give some context to its competitive edge, CMA CGM’s profit per teu in 1H14 was estimated at $66, with OOCL’s pegged at $48.

While the outlook for industry profitability is definitely improving, it wouldn’t take much to derail the recovery. Further unit costs are expected for next year, but there is a limit to how much fat can be trimmed (a topic we will cover in a future edition of Container Insight Weekly), whereas freight rate reductions can be much deeper, as witnessed by the recent collapse in the Asia-Europe spot market.


Carriers must continue to lower unit costs to be profitable in the short-term as freight rates will decline. For more sustainable industry profits, carriers will need to reverse the unit revenue trend at some stage.


Container Annual Review & Forecast 2014/15 is published annually by Drewry Maritime Research and is priced at £1,395. It is also available as the 3rd quarter report from Drewry’s Container Forecaster product, published in March, June, September and December.

The report is available from the Drewry website.