Recent increases in shipping freight rates linked to the Red Sea crisis would provide a short-term boost in profit for Taiwanese container shipping firms, but the windfall is not expected to last nor end a shipping glut, Taiwan Ratings Corp (中華信評) said yesterday.
Freight rates have risen due to a bottleneck caused by rerouting to avoid attacks by Yemen-based Houthi rebels since the end of last year, the local arm of S&P Global Ratings said.
NEAR-TERM WINDFALL
Photo courtesy of Wan Hai Lines Ltd
“The increases provide a near-term windfall for Taiwanese container carriers,” said Susan Chen (陳宛暄), a corporate analyst at Taiwan Ratings whose clients include Wan Hai Lines Ltd (萬海) and Yang Ming Marine Transport Corp (陽明).
Like their global peers, Wan Hai and Yang Ming have rerouted their Europe, Mediterranean and US east coast ships around the Cape of Good Hope to avoid attacks, but the journey is a much longer one.
Although this would shore up container carriers’ bottom lines in the short term, it is unlikely to mute the impact of the industry’s overcapacity once operating conditions in the Red Sea return to normal, Chen said.
Both companies have become more flexible about their vessel scheduling and have made timely route changes to avoid service disruptions, which have driven up freight rates, she said.
However, the freight rate hikes are unlikely to match previous peaks, as the bottleneck is unlikely to persist and a supply glut is expected to last until the end of this year, the analyst said.
Total container shipping capacity would grow 7 to 9 percent this year, whereas demand would grow 2 to 4 percent, Taiwan Ratings said, adding that freight rates could drop in the second half of this year if there are no other major disruptions.
Demand for tangible goods has been weak amid a global economic slowdown, and there is a relative balance between supply and demand for goods and services compared with the COVID-19 years, Taiwan Ratings said.
That explained why shipping companies’ earnings took a dive last year after freight rates normalized, Chen said.
MARGIN PRESSURE
Wan Hai’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin might recover to 15 to17 percent this year, from 11 to 13 percent last year, due to more balanced supply and demand conditions on intra-Asia routes, it said.
However, the company’s transpacific services could weigh on its margin due to its relative weak pricing power in this area, Taiwan Ratings said.
Yang Ming’s EBITDA margin would remain largely flat at 14 to 16 percent this year owing to more serious overcapacity on long-haul service lines, which underpin more than 70 percent of its total revenue, it said.
Despite pressures on profitability, both companies should maintain positive cash positions due to high cash balances from robust operations in 2021 and 2022, it said.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
RSS