Chinese state-owned shipping giant Cosco suspended shipping to Israel through the Red Sea as tensions in the strategic shipping lane continue to rise, Israeli state media reported.
“COSCO’s decision is significant because it cooperates with Israeli shipping line ZIM, which will have to operate more ships on the Far East routes,” Globes reported.
Cosco has another line it jointly operates with Zim. In an e-mail to CNBC, Zim confirmed that it will continue its operations.
“We can confirm that our Tyrrhenian Container Line Service, connecting Israel, Fos Sur-Mer (France), Genoa and Salerno (Italy) which has been operated jointly with COSCO, will continue its operation by ZIM, and is currently planned to maintain a weekly service,” the team said, adding that the updated schedule will be published in the coming days.
Cosco did not immediately respond to a CNBC request for comment.
The Maersk Sentosa container ship sails southbound to exit the Suez Canal in Suez, Egypt, on Thursday, Dec. 21, 2023.
Stringer | Bloomberg | Getty Images
Danish shipping giant Maersk said Friday it would extend its diversion of vessels from the Red Sea for the “foreseeable future” due to safety concerns amid a spate of attacks by Houthi militants.
“The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level,” Maersk said in a statement.
It added that it hoped to now bring customers “more consistency and predictability,” despite delays to deliveries.
The diversion means avoiding the quickest path between Europe and Asia through Egypt’s Suez Canal, and taking the longer Cape of Good Hope route around southern Africa.
Several European firms, including Sweden’s Ikea, British retailer Next and appliance firm Electrolux, have warned of delays on some products due to supply chain disruption.
Maersk had resumed travel through the Red Sea and Gulf of Aden after a December pause, but halted it again on Tuesday after one of its vessels was attacked.
Uncertainty for firms has not eased despite a U.S.-led multinational military operation in the region, which aims to provide a “persistent defensive presence in the Red Sea” and has fired on Houthi boats.
The Houthis are a Yemen-based group backed by Iran. Its leadership has said it is targeting Israel-bound vessels in support of the Palestinian people amid the war in Gaza, but ships bound for multiple destinations have been attacked.
Traveling around Africa can add between two and four weeks to a ship’s transit time between Asia and Europe depending on the speed traveled, Maersk CEO Vincent Clerc told CNBC in a December interview.
Nearly 15% of global seaborne trade transits the Red Sea, according to the U.S. Analysts broadly do not see the current disruption as causing as much upheaval to supply chains as was seen during the coronavirus pandemic due to a sharp increase in supply capacity since 2021.
Maersk‘s Europe-listed shares were choppy after the announcement. It has been one of the top European performers of the new year, gaining more than 16% this week.
German shipping firm Hapag-Lloyd has also said it will continue to divert vessels away from the Red Sea amid Houthi attacks.
“What we can say for the moment [is] we don’t see the passage through the Red Sea and the Suez Canal as safe,” Nils Haupt, head of corporate communications at Hapag-Lloyd, told CNBC’s “Squawk Box Europe” on Friday.
“We had an attack in December, you can’t imagine how hard that was, not only for us as a company but especially for our crew. There were several attacks in the last days and as long as the passage through the Red Sea and Suez Canal is not safe, we won’t pass,” he added.
U.S. ports are receiving multimillion dollar grants to upgrade cargo handling infrastructure.
The grants are part of the Biden administration’s $21 billion commitment to modernize port infrastructure in the U.S.
Midsize port cities such as Baltimore are among the 2023 grant recipients. In November, the Port of Baltimore received a $47 million grant to kick-start an offshore wind manufacturing hub, among other improvements. For example, the funds will pay for a new berth, or dock, for rolling cargo. Baltimore is the top U.S. destination for rolling cargo imports, a category including farm machinery from John Deere and light-duty vehicles from BMW, according to the Maryland Port Administration.
More than $653 million in Port Infrastructure Development Program grants were awarded to U.S. ports in 2023 by the U.S. Department of Transportation, Maritime Administration. Other projects receiving federal funds include the Port of Tacoma Husky Terminal Expansion in Washington state ($54.2 million), and the North Harbor Transportation System Improvement Project in Long Beach, California ($52.6 million).
Baltimore isn’t the only city with a growing port according to maritime economists. Experts say gateways along the U.S. southeast coast are moving more cargo as major points of entry clog up with truck traffic.
“All of the ports on the East Coast are upgrading their infrastructure and capacity,” said Walter Kemmsies, managing partner at the Kemmsies Group, a maritime economics consulting firm currently working with the Port Authority of Georgia in Savannah. “What that does is it makes it more attractive to the ocean carriers. They like to be able to go in and out of a port very quickly, and they like to go to several ports.”
Ports America formed a public-private partnership with the state of Maryland to manage equipment and operations in sections of the Port of Baltimore. The group told CNBC that $550 million in upgrades have gone into Seagirt Marine Terminal alone for densification of the container yard since the partnership began in 2010.
These upgrades build on past plans to revive America’s declining industrial cities. In Baltimore, public officials are addressing bottlenecks along the supply chain beyond the Port. They believe that the Howard Street Tunnel expansion project will increase double-stack rail capacity out of Baltimore, which could help the companies working at the port move goods to and from points in the Midwest.
Watch the video above to see more of the upgrades coming to the Port of Baltimore.
A.P. Moller-Maersk, is one of the world’s biggest container shippers with a market share of around 17%, and is widely seen as a barometer of global trade.
Andia | UIG via Getty Images
Copenhagen, DENMARK — Shipping giant Maersk on Thursday presented its first container vessel moved with green methanol, a landmark moment for one of the world’s most polluting industries.
The new container ship, ordered in 2021, has two engines: one moved by traditional fuels and another run with green methanol — an alternative component, which uses biomass or captured carbon and hydrogen from renewable power. Practically speaking, the new vessel emits 100 tons of carbon dioxide less per day compared to diesel-based ships.
“It’s a really symbolic day of our energy transition, really becoming a reality, something concrete that we can actually demonstrate, not just commitments and hard work, but actually something that everybody can see,” Maersk CEO Vincent Clerc told CNBC.
This is “the first step for us. But it’s the first step for the industry as well. The ship was ordered only in 2021, and she was really the first of its kind. Today, just a couple of years later, we have 125 ships that have been ordered by different companies to actually work on the same technology and the same energy transition. So this ship is really a trendsetter for a whole industry,” Clerc said.
Evergreen and other shipping firms have ordered similar vessels, though they have less ambitious carbon neutrality targets than Maersk.
Shipping accounts for around 3% of global carbon emissions, an amount comparable to major polluting countries. However, decarbonizing the sector has been challenging.
Denmark’s Minister of Industry Morten Bodskov said this is because it is a global industry.
Around 90% of the traded goods in the world are carried via ocean shipping, according to the Organization for Economic Cooperation and Development.
“And if you want to make a global agreement, you have to have, I mean, more or less all countries behind the agreement, and then it is a industry in a highly competitive market. That has also been a key factor,” Bodskov told CNBC.
A so-called shipping tax is a good example of the challenging global conversations on how to accelerate decarbonization efforts.
In June, a group of 20 nations supported a plan for a levy on shipping industry emissions. But China, Argentina and Brazil were among the nations pushing back against such an idea.
Speaking to CNBC, Maersk’s chief said his firm is supportive of such a tax.
“We’ve long advocated the implementation of a carbon tax to really level the playing field and provide the right economic incentives for companies to really lean into the green transition,” he said.
“I’m worried about the rhetoric that energy transition is a downside and not really a great opportunity,” he added.
This vessel is the first of a wider order of 25 that are due to arrive in 2024. Maersk is looking to become climate neutral by 2040, so these new vessels will be an important part of meeting that deadline and updating its fleet of about 700 ships.
However, analysts are worried that Maersk and its competitors might struggle to find enough supply of green methanol. The fuel is scarce and costly to transport.
“When I look at the market for these green fuels, methanol is definitely one of the most advanced products out there at the moment. But what I can hear from the industry and from market participants is that the wrap up of methanol, green methanol, it hasn’t ramped up very fast,” Ulrik Bak, research analyst at SEB, told CNBC on Wednesday.
“There will be a significant time where I believe that we will have more methanol vessels, then there will be green methanol to [supply] those vessels,” he said.
Maersk has signed at least nine agreements with suppliers of green methanol from all over the world in an attempt to push these firms to produce more of the commodity.
“This has been actually the main, the main headache for a while,” Clerc said.
“And it continues to be as we need to scale this up … It continues to be one of the key focus areas that we need to have today,” he said, adding “we are more confident today than we were a year ago (regarding securing supply)”.
A crane loads a shipping container branded A.P. Moller-Maersk onto a freight ship.
Balint Porneczi | Bloomberg | Getty Images
Danish shipping giant Maersk on Friday reported a sharp fall in second-quarter earnings on the back of plunging container rates, but still managed to beat market expectations and upgrade its full-year guidance.
The world’s second-largest shipping company, often seen as a bellwether for global trade, posted a second-quarter profit before interest, tax, depreciation and amortization (EBITDA) of $2.91 billion, well below the record $10.3 billion for the same quarter in 2022. Analysts had projected an EBITDA of $2.41 billion, according to Refinitiv data.
The company has long warned of a steep decline in earnings after an “exceptional” 2022 as the sky-high ocean freight rates that powered it to record-breaking profits began to normalize rapidly.
Revenue sank by 40% year-on-year, from $21.65 billion in the second quarter of last year to $12.99 billion, as container rates continued to fall and volumes remained weak due to “continued destocking particularly in North America and Europe,” the company said in its report.
Maersk warned of a deeper pullback in global shipping container demand, and now expects volumes to fall by as much as 4% versus a previous worst case scenario of 2.5%.
“The Q2 result contributed to a strong first half of the year, where we responded to sharp changes in market conditions prompted by destocking and subdued growth environment following the pandemic fueled years,” CEO Vincent Clerc said in a statement.
“Our decisive actions on cost containment together with our contract portfolio cushioned some of the effects of this market normalisation. Cost focus will continue to play a central role in dealing with a subdued market outlook that we expect to continue until end year.”
Maersk also narrowed its profit forecast for the full year and now expects underlying EBITDA to come in between $9.5 billion and $11 billion, having previously estimated a range of between $8 billion and $11 billion.
It might be a “mild” one, as Moynihan predicts, but from the world of global trade, there are several indicators backing up the bank chiefs’ view of the macroeconomic landscape, flashing warning signals of continued consumer weakness for the first quarter.
The flow of trade is a real-time and forward-looking indicator of consumer spending and the economy because it shows supply, demand, and consumption. Here are four indicators to watch and what they are currently showing.
Indicator No. 1: Warehouse inventory and rates
Warehouse inventory is a good indicator of the health of the consumer because it gauges how much product is sitting in storage. The more product sitting in storage, the more it takes up valuable space and increases the price of storage. According to WarehouseQuote’s Warehouse Pricing Index report for Q1 2023, warehouse rates remain at high levels as a result of warehouse inventories not coming down significantly in November and December.
This is significant because holiday items were brought in early in 2022 to avoid any delays as shippers saw in 2021. Holiday products were shipped from China to the U.S. between March and May of 2022, leading to increased storage in a warehouse, and that resulted in some massive inventory pileups during the summer from the biggest retailers including Walmart and Target. During the holiday season, it took hefty markdowns from retailers to move products. Where products were being moved more successfully was through internet-based sales.
“Based on the inventory, we see more consumers purchased online rather than in-store,” said Jordan Brunk, chief marketing officer of WarehouseQuote.com. “We had more e-commerce inventory from the warehouse than inventory heading to the brick-and-mortar stores.”
Overall, it expects the lack of warehouse capacity, combined with the lack of new square footage coming online due to the rising cost of capital and slower economy, to keep prices elevated even in a weaker consumer environment.
In Maersk‘s TransPacific Report at the end of December, it said weak demand was “expected to continue into 2023 due to a combination of high inventory levels and the likelihood of a global recession that could already be underway.”
Indicator No. 2: Manufacturing orders
The first indicator is manufacturing orders. Orders continue to be down, based on CNBC reporting, with the high inventories and a lack of consumer demand.
“We are still seeing a 40% drop in current manufacturing orders,” said Alan Baer, CEO of OL USA. “The first quarter is going to be challenging.”
The decrease in orders is based on what the factories normally receive from companies.
Indicator No. 3: Ocean freight bookings
As a result of the decrease in factory orders, there is less demand to book freight on a vessel. The SONAR Freightwaves chart below shows the steady decrease in global ocean orders.
The health of the U.S. consumer and the state of inventories for U.S. companies can be tracked by the amount of global product being brought in by ocean carriers. Ninety percent of all U.S. trade is moved on the ocean. The following chart from SONAR FreightWaves shows the diminished volumes on a global basis.
Indicator No. 4: Blank (cancelled) sailings
Blank sailings are a tool used by ocean carriers as a way to artificially constrict available vessel capacity which influences ocean freight rates. As a result of the drop in manufacturing orders and ocean orders, there are too many ships. Because of the lack of demand for the movement of ocean freight, due to the reduced manufacturing orders, ocean rates have precipitously dropped in all trade routes.
According to Xeneta and Sea-Intelligence, ocean carriers canceled more than six times the number of sailings on Asia to the U.S. West Coast trade route ahead of the Chinese New Year than they did during the same time frame in 2019.
“In a normal year, we tend to see very few blanked sailings in the run-up to this major Chinese holiday as shippers stock up on their inventories,” said Peter Sand, chief analyst at Xeneta. “So, this is a worrying development for carriers and, no doubt, a bad omen of what’s to come for the year ahead.”
Canceled sailings on the other leading trade routes also are elevated. The Far East to the U.S. East Coast skyrocketed by 340% over the same time period. Asia to North Europe has had a 715% increase in blanked sailings.
“This really demonstrates the low level of demand gripping the industry,” Sand said.
Shares of large, cash-rich companies have benefitted from a slowing growth environment this year while the broader market has sold off. The iShares Select Dividend ETF — composed of high-dividend-paying U.S. stocks — reflects this trend. It is up 1.63% this year compared to the 17.2% decline in the S & P 500 ETF (which includes the gains earned from cash dividends) over the same period. Given some analysts’ expectations of steep declines in share prices next year, Goldman Sachs has put together a basket of high-dividend stocks that could help investors hide from any potential carnage. Goldman Sachs analysts said that only companies making “sustainable” dividend payouts are included in their list. This process filters out companies that artificially boost dividends by borrowing excessively. Of the 50 equities listed by the investment bank in a note to clients on Dec. 16, CNBC Pro screened for those expected to pay at least 8% in dividends next year and see an appreciation in their share price. Perhaps unsurprisingly, banks are expected to be big dividend payers next year as most benefit from a high-interest rate environment. Goldman expects Madrid-headquartered Banco Bilbao Vizcaya Argentaria to increase its dividends to 8.2% next year from its current 6.48%. The median analyst price target on the stock also gives it 30% upside from current levels, according to FactSet. The world’s second-largest shipping company is also a Goldman favorite for high dividend yields. AP Moller-Maersk , which moves nearly a fifth of all container goods worldwide, is expected to payout 9.3% in dividends next year. The company has benefitted from the soaring cost of transportation during the pandemic. Shipping prices shot up by more than 550% to $10,000 a container in 2021, according to the Freightos freight index . But rather than buying up more ships to expand its fleet, Maersk has chosen to diversify its earnings instead. It invested nearly all of its windfall profits in land-based transportation and warehouse expansions, according to S & P Global Commodity Insights. Along with a big dividend, the median analyst price target gives the stock 22% upside from current levels, Factset data shows. Elsewhere, Norwegian fertilizer maker Yara International is expected to pay out 9% to shareholders, while Belgian mobile service operator Proximus is expected have a 11.6% dividend yield, according to Goldman.
