Container bottlenecks for shipping could persist until 2022.
You’ve probably heard it before; however, if you’ve not yet begun your Christmas shopping, it’s best to do it now as quickly as possible. Shipping bottlenecks are predicted to last until 2022 due to slow growth in capacity and a lack of truckers and containers. The continuing semiconductor chip shortage has slowed the production of new trucks to last-mile delivery. The “perfect storm” disruptions have resulted in a variety of problems for logistics and shipping businesses. As is usually the scenario, bad news can also be positive, particularly to investors who have witnessed the containers’ shares rise over the past one-year period since the outbreak began.
A.P. Moller-Maersk, the world’s leading carrier, has seen its profits rise by around 190% during Copenhagen trading. The company reported its results in September. Bloomberg analysts predicted that Maersk’s net earnings in 2021 will be approximately $16 billion. That will be a record for not only the company but for all Denmark-listed companies. (Danish pharmaceutical giant Novo Nordisk holds the current record for record-setting profits after generating more than $6.5 billion in profit in 2020.)
Maersk’s profit margins have increased over the last ten years thanks to shipping costs that are unheard of. For instance, the Freightos Baltic Index (which measures the cost of shipping containers globally currently sits at an average of $10,321 for a 40-foot container. The previous year the container was worth $2,231, or four-and-a-half times less to ship. For a single container to be sent to Shanghai in China to Los Angeles, companies must pay a staggering $17,478, as per Freightos. Shipping costs continue to increase from the summer of this year.
Looking at the chart above, you’ll observe that rates are moving over and might conclude that markets are currently returning to normal. While that may bring relief to consumers, we may see several months of disruptions to the supply chain. Morgan Stanley: Higher for Longer
According to experiment conducted by Morgan Stanley, which said in a recent report, it believed that “the market may stay peaked for longer.” The investment bank anticipates shipping revenue to be at or above until the 2nd quarter of 2022. The earnings for the quarter might not be at their peak, however, which means there’s an opportunity for growth for investors who want to be part of it.
Then there’s the problem with chips. As with many things produced today, the latest trucks aren’t able to function without chips. This has hindered production.
President Joe Biden recently brokered an agreement to allow ports like Los Angeles and Long Beach to operate 24/7 to ease the congestion in shipping. However, if there are not enough truck drivers and trucks to transport containers, it doesn’t matter when the ports are open. At one point during the last week, more than 100 ships, a record for all time, were waiting to load their cargo out of LA and Long Beach, which together represent 40 percent of all containers that enter the U.S.
In the end, Supply chain disruptions might be the norm at the very least for the next six or 12 months.
This could cause logistics firms to face a myriad of problems. However, it could also turn out to be highly lucrative for the investors.
Shipping Is a Long-Term Growth Story
Investors must know that all I’ve written until now deals only with the immediate future. Shipping and global trade make up a longer-term historical narrative and at the core of which lies the growing middle class in the world. Through the course of this century, trading has been steadily increasing without interruptions because the percentage of people classified as the middle class has been growing, particularly those living in China and India. Even though the pandemic has stopped the growth of household incomes in certain regions, an astounding one billion Asians are expected to be part of the middle class by 2030, according to World Data Lab. World Data Lab. A majority of these individuals will want the middle-class lifestyle, complete with furniture that is middle-class equipment, appliances, gadgets, and much more, and all of these will help logistics and shipping businesses for years to come.
There has been a steady hike in trade between countries in the last 20 years. Air Cargo Up Nearly 8% in August Compared to Pre-Pandemic Levels.
It’s not just ocean cargo that’s attractive in the present. Air cargo companies also profit due to increased demand from the consumer as cargo volumes grew by 7.7 percent in August compared to the same time in 2019, as per the International Air Transport Association (IATA). It’s a slight decrease from an 8.8 percent increase in July; however, nonetheless a great report.
I’m happy to see the daily traffic recorded to TSA in terms of commercial airline passenger numbers. Transportation Security Administration (TSA) started to rebound following the summer months that saw Delta’s impact. There are still half a million passengers daily from levels in 2019. However, the 50-day moving average indicates we’re entering a growth phase.
The number of passengers has increased since January next growth catalyst will occur on the 8th of November. This is when restrictions are lifted for those traveling from China, India, and most of Europe. The limitations have been in effect since the start of the pandemic in 2020. It shouldn’t come as a shock to me to see a massive increase in travelers who are eager to travel to the U.S.