Full-year results from market-leading shipping and logistics companies Maersk (MAERSK B) and DSV (DSV) have validated this thesis, with the latter now also stating that shipping market normalisation won’t materialise until the second half of the year.
These companies in the meantime are profiting from tight capacity in the shipping markets due to the bottlenecks, and Maersk’s ocean business in 2021 returned more than 45% on invested capital, far above its long-term goal of 7.5%, with the shipping industry generating more profit over the past year than it did in the last decade combined. Although freight rates will come under pressure and supply chain bottlenecks should ease in the second half of the year, we expect another blowout year for shipping and logistics firms as it takes a long time for these changes to permeate down to the end client.
And on top of that, the biggest shippers have been slowly switching customers to longer-term contracts, in the face of an existential threat of the market pushing rates up and shipping availability getting tighter. Maersk anticipates that 70% of volumes this year will be shipped under long-term contracts that were signed long before the coronavirus and at relatively high costs. That effectively means most of the input cost inflation we’ve witnessed across both consumer and industrial goods is going to be around for a while.
The knock-on impact of the supply chain crisis has been at the forefront of late via commentary from companies as different as carmaker Tesla (TSLA), security provider Securitas (SECU B) and asset manager Abrdn (ABDN) all sensing the impact on end markets. It’s always darkest before the dawn and, while we believe the situation will improve in the second half of the year, we expect to hear a lot more anecdotes about how businesses are upended between now and then.
Ocean schedule reliability is hardly registering an improvement albeit very late 2021, whereas shipping delays (in terms of average days) remain massively elevated compared to previous years.
