Shipping news makes grim reading for central banks

Containers are seen at a terminal in the port of Hamburg, Germany, November 14, 2019. REUTERS/Fabian Bimmer

LONDON, Feb 9 (Reuters Breakingviews) - Denmark’s shipping magnates are on a different wavelength to central bankers. A.P. Moller-Maersk (MAERSKb.CO) read more and DSV (DSV.CO), two of the biggest names in global logistics, on Wednesday predicted another bumper year of profits due to continued backlogs in ports and other bottlenecks. That scuppers rate-setters’ hopes that falling freight prices might lend a hand in the fight against high inflation.

Container operators have been one of the biggest beneficiaries of pandemic-related disruptions. Port closures threw ocean-going timetables into disarray. When economies started to reopen in the middle of last year, freight rates skyrocketed. In September, the cost of shifting a 40-foot container from China to California jumped to nearly $21,000, compared with $1,500 in 2019.

With a largely fixed cost base, companies like $63 billion Maersk have been able to surf the wave. Chief Executive Soren Skou said Maersk made $24 billion in EBITDA last year, as much as six times what it achieved in “normal” years like 2018. The Dane’s forecast of an equally profitable 2022 suggests average freight rates will be roughly in line with 2021 levels.

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His shareholders’ delight will contrast with the queasiness this may induce at the U.S. Federal Reserve and European Central Bank. That’s because the longer shipping costs stay elevated, the longer it will take inflation – which has hit multi-decade highs in most developed countries – to subside. This is a problem for Fed Chair Jerome Powell and his global peers, since it means they may have to tighten monetary policy more aggressively to curb price pressures, jeopardising growth.

The cost of the average trans-Pacific shipment has eased since September’s spike, but is still around $15,000, compared with its $11,250 average for the whole of 2021. If it remained steady for the first half of the year – as Maersk and DSV’s predictions suggest will be the case – the price would then have to average $7,500 for the rest of the year. But that’s still five times higher than the average pre-pandemic cost, suggesting high shipping costs will linger for a while.

If anything, the pressures are to the upside. DSV predicted a 15%-plus increase in operating profits for this year, even though oil prices have nearly doubled in the last 12 months and show no signs of retreating. Ocean-goers’ gain will be central bankers’ pain.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

- Container shipping giant A.P. Moller-Maersk said on Feb. 9 that its 2022 earnings would be in line with 2021’s record profits, with supply chain disruptions continuing to support global freight rates for at least the first six months of the year.

- The Danish company reported $24 billion of EBITDA for 2021, three times its EBITDA for the previous year. Revenue in 2021 was nearly $62 billion, compared with $39.7 billion in 2020.

- Freight forwarder DSV, another major Danish logistics operator, predicted that congestion, tight capacity and high freight rate levels would persist well into 2022. “A gradual reduction of the congestion could start in the second half of the year,” it added.

- DSV predicted operating profit for 2022 of between 18 billion Danish crowns and 20 billion Danish crowns, higher than the 16 billion Danish crowns it achieved last year.

- DSV shares were up 3.3% at 1,336.50 Danish crowns by 1000 GMT on Feb. 9. Maersk shares were up 1.6% at 22,040 Danish crowns.

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Editing by Swaha Pattanaik and Oliver Taslic

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Ed is Associate Editor of Reuters Breakingviews, based in London. He joined the London Breakingviews team in 2018 as Africa columnist. Before that, he was Reuters sub-Saharan Africa bureau chief, based in Johannesburg. During two decades at Reuters, Ed has reported from three continents, with postings in London, Edinburgh, Phnom Penh, Bangkok and Johannesburg. Along the way, he has covered everything from the dotcom bubble to the death of Nelson Mandela and fall of Robert Mugabe. He holds a degree in Classics from Cambridge University.