The ports are on hold. A record number of liners wait off the berths to unload their cargo. Shipping containers cannot be found. Captains are reorienting their ships to prevent ports from being closed by coronavirus outbreaks.
And for many of the world’s largest shipping companies, the profits have never been higher.
The pandemic has been a double-edged sword for the shipping industry. Its disruptions have increased costs for shippers, who must contend with the inefficiency of letting their liners idle outside crowded ports. At the same time, however, demand for consumer goods is skyrocketing and stocks at retailers are running out. Thus, companies desperate to sell their products are prepared to pay exorbitant freight prices to have their goods loaded on freighters.
Maersk, the world’s largest shipper, expects its profits to increase this year to between 215% and 240% above pre-pandemic levels using earnings before interest, taxes, depreciation and amortization, or EBITDA, as an imperfect measure of profit.
Hapag-Lloyd, the world’s fifth-largest shipper, expects an even more dramatic increase. In its latest earnings report, the company forecast an increase in EBITDA from 815% to 1,025% in 2021 compared to 2019.
Senders meet their dividends
Shipping companies have also invested part of their windfall profits in expand their fleets to answer the question. But the five biggest shipping companies use a large chunk of their profits to increase dividend payments to shareholders. NYK Line, the world’s second-largest shipper, plans to increase its dividend per share by 1,650% this year from 2019 levels.
Some shipping companies plunge almost all of their profits into the pockets of shareholders. Hong Kong-based COSCO’s payout ratio, which compares the amount the company pays in dividends to the amount of profit it makes, as measured by EBITDA, reached 99.6% last year.
Rumors of mergers and acquisitions in the shipping industry
Industry publications are rife with speculation that shippers will use their extra cash to acquire smaller competitors. But few acquisitions have materialized during the pandemic. On the one hand, the industry was already fairly consolidated: the 10 largest shipping companies controlled 82% of the market in 2019. This has attracted the interest of politicians, including US President Joe Biden, who in July ordered regulators antitrust to investigate the industry. Another factor in the lack of new mergers is the cost: it’s more expensive than ever to buy a shipping company these days. Greedy investors are gobbling up shares of shipping companies, sending their market caps to new highs.
Shippers could invest their profits to decarbonize their fleets, which will be a key step towards achieving UN climate goals and customer demands to reduce their climate impact. The International Maritime Organization estimates that shippers will need to invest between $ 1.4 and $ 1.9 trillion to reduce their carbon emissions to zero by 2050, as companies like Maersk have pledged to do. So far, shareholders seem to come first.