The Economist - USA (2021-12-18)

50 Business TheEconomistDecember18th 2021

longer it will take to unwind. Most pundits

see  little  hope  of  improvement  until  after

Chinese new year in February. Disruptions

may last all of 2022. Though rates may have

hit a peak, they are unlikely to fall much in

the next six months and are set to remain

elevated  into  2023,  thinks  Lars  Jensen  of

Vespucci  Maritime,  a  consultancy.  Only

then will new vessels ordered in response

to high rates start to hit the waves. 

Even if spot rates have peaked most cus­

tomers  will  face  higher  bills  in  2022.  The

long­term contracts that govern the bulk of

container  traffic  are  currently  far  lower

than spot rates—perhaps $2,500­3,000 per

feu between  China  and  America.  But  as

David  Kerstens  of  Jefferies,  a  bank,  points

out,  spot  rates  inform  contract  rates.  In

2021 two­thirds of the contracts signed by

Maersk,  the  world’s  biggest  container­

shipping firm, which controls a fifth of the

global  market,  have  been  long­term  ones.

As Maersk’s contracts and those of its rivals

roll over, the rates could double. And with

customers more concerned about securing

scarce  capacity  than  haggling  over  price,

some  are  signing  contracts  for  two  years

rather than one. 

Fears  that  a  trend  for  “near­shoring”

might  hit  demand  seem  unwarranted  for

now. Soren Skou, boss of Maersk, sees little

evidence  of  it  so  far.  Many  firms  that

source  supplies  from  China  are  having

doubts  about  relying  on  one  country.  A

“China plus one” policy of adding a suppli­

er in another part of Asia, such as Vietnam

or Thailand, needs more ships to transport

these goods directly to America or to giant

Chinese hub ports for their onward trip. 

The  industry’s  response  to  the  crunch

reflects  changes  to  its  structure  that  pre­

date covid­19. In the words of Rahul Kapoor

of the Journal of Commerce, a sectoral must­

read, “The era of cheap shipping is behind

us.”  Shifting  goods  around  the  world  has

been inexpensive because the response to

high rates has historically been a frenzy of

orders.  That,  in  turn,  has  led  to  a  flood  of

vessels that arrive just as economic condi­

tions worsen and trade slows. 

Butbloodypricewarsovermarketshare

maybegoneforgood.Since2016,whena

previousship­orderingbingecollidedwith

slowing trade, collapsing rates and big

losses,theindustryhasconsolidated—20

bigfirmshavebecomesevenbiggeronesin

three global alliances. This has helped

themmanagecapacitymoreruthlessly.As

aresult,thecyclicalindustrymaysuffer

shallowerandshorterdownturns,saysPa­

rashJainofhsbc, anotherbank.

Thestrangeresultofthepandemicis

that the industry is awash with cash.

SimonHeaneyofDrewry,aconsultancy,

says thatprofits could reach$200bn in

2021 and$150bnin2022,anunimaginable

bonanza besidethe cumulative total of

around$110bnfortheprevious 20 years.As

well as returning cash to shareholders,

Maerskmayacquiremorefirmsine­com­

mercefulfilmentandair­freightaspartof

itsefforttobuildanend­to­endlogistics

businessthatferriesgoodsbysea,landand

air,takingondhlandFedEx.Other big

container­shipping companies such as

China’scoscoandFrance’scma-cgmare

doingthesame.

Thebigquestionishowmuchnewca­

pacity is in the offing. As world trade

boomedintheyearsbeforethefinancial

crisisof2007­09,orderbookswererough­

lyequivalentto60%oftheexistingfleet.

Theynowstandatalittleover20%.Re­

straintisdueinparttouncertaintyover

the technology needed to make vessels

whichhavea25­yearlifespancompliant

withtoughercarbon­emissionsrulesthat

theindustryisexpecting.Still,capitaldis­

ciplinemayhaveitslimits.Ordershavebe­

guntoswellagain(seechart2).Butitwill

taketwo tothreeyears beforeshipsor­

deredtodaystartrollingdownslipways.

Theeraofpriceyshippingcouldwelllast

foranotherChristmasortwo. n

Spotthepandemic

Spotcontainer-freightrates,fromChinato

selecteddestinations,$’000per40-footcontainer

Source:Freightos

1

25

20

15

10

5

0

2017 21201918

Europe

UnitedStates

EastCoast

UnitedStates

WestCoast

Ship, ship, hooray!

Container ships, order-book-to-fleet ratio, %

Source: IHS Markit

2

25

20

15

10

5

0

2017 21201918

Ayearinfourcharts

2021 has brought mixed blessings for business. American tech giants thrived while

Chinese ones suffered (chart 1). Chip firms couldn’t keep up with soaring demand

(chart 2), helping snarl up supply chains. Wall Street rainmakers have been working

overtime (chart 3). Yet even many of them have toiled from home (chart 4). 

Plots uncovered in 2021

Sources:RefinitivDatastream;WorldSemiconductor

TradeStatistics;Refinitiv;WFHResearch

*$terms,weightedbymarketcapitalisation

†ToNov23rd ‡Excludingthoseunabletoworkfromhome

1 2

3 4

Sharepriceindices*,selectedtechnology

firms,January1st221=1

DNOSAJJMAMFJ

Worldwidemergersandacquisitions

6 5 4 3 2 1 0

60

50

40

30

20

10

0

1980 90 2000 10 21†

Numberofdeals,’ Value,$trn

US,“aftercovid-1,howoften would you

liketohavepaidworkdaysat home?”

Workerssurveyed‡,Mar22-May 221, % replying

200 40 60 80 100

Five Four Three Tw o One

Daysperweek

Rarely or

never

Worldwide semiconductor revenues

$bn

600

500

400

300

200

100

0

2014 16 18 20 22

140 F’CAST

120

100

80

60

40

China

Alibaba,Baidu,Meituan,

Pinduoduo,Tencent

United States

Alphabet, Amazon, Apple,

Meta, Microsoft