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Container ships more profitable than cruise ships.....


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Heard a second source/report that a container coming across the Pacific costs the shipper $20k (vs. $2k a few years ago).  Not sure if this $20k is for a TEU (Twenty Foot Equivalent Unit or ~ a 20' container) or a more-common 40' one.  Let's assume it's the latter.  That means a 10,000 TEU container ship is bringing in 20,000 * 5,000 = $100 million per crossing from Asia to west coast North America, for 2 weeks of sailing with minimal crew (20-26 sailors and officers).  Bet that beats profitability of a cruise ship.

 

Shipping line I took a container ship (line isn't the biggest and the ship I sailed on wasn't either - line used to own a luxury cruise line which coincidentally was the last line I cruised on) crossing on 5 years ago is making profits in the billions of dollars every quarter for the past 2.  2021 Q2 revenue is over USD$2k per TEU for the quarter, while "profit" was $3.5 billion or $614 per TEU.  Carnival Corp has not managed that in a year at the best of times.

 

I can see MSC ditching the cruise line to focus on container ships if this continues (not that it likely will) 

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5 minutes ago, cruising cockroach said:

I can see MSC ditching the cruise line to focus on container ships if this continues (not that it likely will) 

Doubt it. Many crazy rich people own assets like luxury hotels, private jets, sport teams etc for bragging right and to show off among their peers at their country club dinner party. Making money or not is secondary to them.

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MSC only fairly recently entered the cruise market —- which (COVID aside) has shown itself to be very profitable.  So what if analysis shows that container shipping might be “more profitable” ?— As long as cruising is profitable, there is little reason to drop out.

 

Virtually every two-or-more product enterprise will find that one of their products is less profitable than others -    that is hardly a reason to reject diversification.

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The reason container rates are so high is the shortage of containers.  Why is there a shortage of containers?  Because there is a shortage of truck drivers to move them from the ports to their destinations, so containers pile up in ports, or on ships sitting at anchor awaiting berths (actually awaiting space for the unloaded containers to go), so the shipping company is losing money while the ship sits.  Further, the supply chain shutdowns of last year, resulted in stacks of empty containers being left where they were emptied, not back where they are needed to be filled.  With the ships running out of crew, sailings were curtailed, and empties were not taken.  So, in the very near future, the ships will need to start carrying entire loads of empties back to Asia, at little to no profit.  Most of the container lines have heavily invested in their own containers, so having these stack up empty is not a good long term outlook.  Shipping is a very capital intensive industry.  And, the "profit" per TEU is for each TEU carried, not per TEU the company owns.  Not quite as simplistic as you set out, and I don't foresee MSC dumping huge assets like their cruise ships at what would be bargain basement rates just because of a temporary downturn, and it was only a few years ago that overcapacity in the container fleet led to very low freight rates.  Shipping is also cyclical, where short capacity leads to higher rates, so ships are ordered and built (with 1-2 year lead times), and then when these ships come on line, over capacity leads to falling rates, until demand catches up, and the cycle repeats.

 

More important than "profit" is "return on investment", which is traditionally lower mid-range of industry-wide averages, for ship owners, due to the long term capital tied up in the ships.  Both cruise ships and container ships have had similar ROI results for decades.

Edited by chengkp75
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2 hours ago, chengkp75 said:

The reason container rates are so high is the shortage of containers.  Why is there a shortage of containers?  Because there is a shortage of truck drivers to move them from the ports to their destinations, so containers pile up in ports, or on ships sitting at anchor awaiting berths (actually awaiting space for the unloaded containers to go), so the shipping company is losing money while the ship sits.  Further, the supply chain shutdowns of last year, resulted in stacks of empty containers being left where they were emptied, not back where they are needed to be filled.  With the ships running out of crew, sailings were curtailed, and empties were not taken.  So, in the very near future, the ships will need to start carrying entire loads of empties back to Asia, at little to no profit.  Most of the container lines have heavily invested in their own containers, so having these stack up empty is not a good long term outlook.  Shipping is a very capital intensive industry.  And, the "profit" per TEU is for each TEU carried, not per TEU the company owns.  Not quite as simplistic as you set out, and I don't foresee MSC dumping huge assets like their cruise ships at what would be bargain basement rates just because of a temporary downturn, and it was only a few years ago that overcapacity in the container fleet led to very low freight rates.  Shipping is also cyclical, where short capacity leads to higher rates, so ships are ordered and built (with 1-2 year lead times), and then when these ships come on line, over capacity leads to falling rates, until demand catches up, and the cycle repeats.

 

 

A few replies to all above.

 

Freight volume from Asia to the U.S. is actually way up (I think I've seen a figure of 30%) compared to pre-COVID. Looks like it's 24% for L.A./Long Beach (2021H1 over 2019H1). 

Record volumes push US container ports up in global rankings: Alphaliner | S&P Global Platts (spglobal.com)

 

At $100 million per one-way trip (vs. $10 million a few years earlier), it won't take too long to recover the investment of a new container ship.  Profitability was very low in the past (even managed to kill Hanjin line just a few years ago) but who knows where it will go.  

 

As for MSC? Could spin off the cruise line but it's privately-held so the owners can do whatever they want.

 

I'd be interested to see what the rates are to west coast Canada.  No waits, at least not more than 3-4 days at the very very most and maybe once in a while, for container ships to berth.

 

Where I am, it's been more profitable to haul back empty containers to Asia than wait for them to be loaded, for quite a few months if not close to a year or even more.  Shipping companies were reported giving shippers in Canada only a few hours  (as in much less than a work day) to load otherwise the container got hauled away empty.   No apparent shortage of truckers either. It may be a Los Angeles/Long Beach thing but certainly not up the coast.

 

This is ShangHai freight index.  Low of 600 and now it's just under 4,000

 

Shanghai Containerized Freight Index (container-news.com)

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I won't even begin to pretend I understand the entire economics of it all. However, in the grand scheme of things, you have your travel business that is fighting to get customers because of all of the panic, restrictions, etc and then multibillion dollar organizations that need to get their goods because of a labor shortage. Big companies are not going to lose sales due to this when they have the deep pockets to pay top dollar for the labor.

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MSC was in the shipping business long before it dove into the cruise business.

 

From Wikipedia...

As one of the world's leading container shipping lines with headquarters in Geneva, Switzerland, MSC operates 524 offices across 155 countries worldwide with over 100,000 employees.[4] MSC's shipping line sails on more than 215 trade routes, calling at over 500 ports.[4] MSC operates vessels with a capacity of up to 23,756 TEU, including (as of 2019) the world's two largest container ships, MSC Gülsün and MSC Sama

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4 hours ago, thinfool said:

MSC was in the shipping business long before it dove into the cruise business.

 

With the deep pockets that MSC has, thanks to their cargo operations, their cruise business was an attempt to further diversify as many, many companies have done in the past to help increase the company's bottom line.  If one "division" is not being as productive as another as expected, other divisions profits help to support the weak division.  

 

Given the tremendous investment that MSC has already made in the cruise industry, they plan to "be around for awhile."  Since they are a private company, they are actually more likely to be around for longer than some of the publically held companies if the cruise industries fortunes do not return to some semblance of the "days of old". 

 

 

On 11/6/2021 at 10:45 AM, Joebucks said:

I won't even begin to pretend I understand the entire economics of it all.

 

Neither do I nor do I care to do so as to cargo vs. cruise.  

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I was looking at the cost of container ships and CMA CGM signed a contract for 10 (LNG-fuelled) 15,000 TEU ships a few years ago for just over $1.1 billion .  If the ship was filled at spot and not contract rates, one voyage would pay for the entire new purchase price.  If they could break even at $2,000 per container, imagine what they're earning at $20,000.

 

Seems the container lines are earning a decade of earnings in just one year.

 

https://www.latimes.com/world-nation/story/2021-11-10/china-global-shipping-supply-chain-crisis

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"I'd be interested to see what the rates are to west coast Canada.  No waits, at least not more than 3-4 days at the very very most and maybe once in a while, for container ships to berth."

 

As of October, Port of Oakland, CA, was begging for business. The Oak port authorities were quoting 24-48hr turnaround, but the shipping lines were still send their ships to LA. Y? There's not enough outgoing cargo and empties in Oakland for them. Nevertheless, two shipping lines have agreed to redirect future shipments from Asia directly to Oakland.

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4 hours ago, Philob said:

As of October, Port of Oakland, CA, was begging for business. The Oak port authorities were quoting 24-48hr turnaround, but the shipping lines were still send their ships to LA. Y? There's not enough outgoing cargo and empties in Oakland for them. Nevertheless, two shipping lines have agreed to redirect future shipments from Asia directly to Oakland.

 

Very interesting and I appreciate you posting this.  Something that I have wondered about as to why I view some port webcams and see cranes not being used and empty docks.  

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13 hours ago, Philob said:

As of October, Port of Oakland, CA, was begging for business. The Oak port authorities were quoting 24-48hr turnaround, but the shipping lines were still send their ships to LA. Y? There's not enough outgoing cargo and empties in Oakland for them. Nevertheless, two shipping lines have agreed to redirect future shipments from Asia directly to Oakland.

 

Thanks.  Very interesting.  Perhaps LA/LB is the distribution hub and not many importers have facilities to unload, warehouse and distribute from the Bay area.

 

I imagine it's a shortage of containers to load back up.  The shipping companies want them full or empty to haul back to Asia and cash in on the high rates.  I imagine rates from west coast N. Am. to Asia (China specifically) are still rock bottom.

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  • 4 weeks later...

Funny but kind of sad.  Biggest U.S. export Jan.-Oct. this year was.... air.  >59% of containers that left the U.S.'s 9 biggest ports just contained.... air.  Shows you how valuable containers are for shipping stuff to the U.S. that no one wants to wait for containers to be filled to carry things the other way.

 

https://ca.news.yahoo.com/us-biggest-export-air-thanks-162351809.html

 

Looks like just one trip from East Asia will pay the entire cost of a brand-new container ship (if companies could make a meagre profit/breakeven at $2k a container, imagine what they're making at $20k for the same).

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2 hours ago, cruising cockroach said:

Funny but kind of sad.  Biggest U.S. export Jan.-Oct. this year was.... air.  >59% of containers that left the U.S.'s 9 biggest ports just contained.... air.  Shows you how valuable containers are for shipping stuff to the U.S. that no one wants to wait for containers 

This should be a matter of concern: how long can we go on buying stuff from other countries without selling much to them?

 

 

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2 hours ago, navybankerteacher said:

This should be a matter of concern: how long can we go on buying stuff from other countries without selling much to them?

 

 

We've run a trade deficit for the last 50 years (as well as from 1800-1870), and we're doing just fine, thank you. Here are a few key points from a short piece by the St. Louis Fed:

 

https://research.stlouisfed.org/publications/economic-synopses/2019/05/17/historical-u-s-trade-deficits

 

"Running a trade deficit is nothing new for the United States. Indeed, it has run a persistent trade deficit since the 1970s—but it also did throughout most of the 19th century. "

 

"During the early 1970s, the U.S. trade balance experienced another inflection point—from trade surpluses to trade deficits—as U.S. financial assets became more attractive to foreign investors. Again, this shift also corresponds with a structural change in the economy as the United States entered the third stage of industrialization. "

 

"The United States ran persistent trade deficits for large parts of its history, just as it does today. Trade deficits did not inhibit U.S. development, however, and may have even facilitated industrialization as the United States could import capital goods to improve its own manufacturing during its first phase of industrialization."

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6 hours ago, navybankerteacher said:

This should be a matter of concern: how long can we go on buying stuff from other countries without selling much to them?

 

 

Running a trade deficit in itself is not a problem, and can in fact lead to a stronger economic position for the country concerned. The US runs an enormous deficit, and has done  so since the 1970s. To automatically think that a trade surplus is good, and a deficit is bad,  is a simplistic and unconsidered view  of  macro economics.

The US, Canada, UK, France, Ireland, India all run trade deficits.  

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Sure, we have run a deficit for many years - ultimately the deficit is covered one way or the other.  One way it has been covered is the transfer of ownership of assets, such as (to name just a few):  Chrysler Corp, Smithfield Foods, AMC Theatres, The Waldorf Astoria, Starbucks, Motorola, GE Appliances, Nestle Foods’ many subsidiaries, etc, which are now partially or fully foreign-owned.

 

The fact is: our major export is new technology - which we sell to foreign entities to do the producing of goods which we wind up buying.  

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37 minutes ago, navybankerteacher said:

The fact is: our major export is new technology - which we sell to foreign entities to do the producing of goods which we wind up buying.

And which we could not find people to produce those items anyway.  The average age of a shipyard worker in the US is 65, and other manufacturing jobs are similarly aging out.

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42 minutes ago, chengkp75 said:

And which we could not find people to produce those items anyway.  The average age of a shipyard worker in the US is 65, and other manufacturing jobs are similarly aging out.

Perhaps because we have failed to train such workers - and to have policies which support long term investment in facilities which would employ them.  What would you say is the average age of US workers building  mass transit rolling stock, TV sets, cameras and watches?

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11 minutes ago, navybankerteacher said:

Perhaps because we have failed to train such workers - and to have policies which support long term investment in facilities which would employ them.  What would you say is the average age of US workers building  mass transit rolling stock, TV sets, cameras and watches?

There aren't many,  because the wages are so low, and conditions not desirable. Training is one thing, getting workers to take the job is another. 

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3 hours ago, navybankerteacher said:

Perhaps because we have failed to train such workers -

 

Perhaps I am being too optimistic, but in my State there is an increasing recognition of the need to train workers for the types of manufacturing jobs that exist and are expected to exist in the foreseeable future.  Starting in Middle School, students are being introduced to the trades and most high schools have technical oriented classes that are leading to students  being sufficiently trained that they can qualify for apprenticeship programs if not a regular job in the trades.  We have a long way to go.  But, while a Bachelor's Degree is still very desirable, there is the recognition that not everyone needs that degree and still can get a high  quality job and make an excellent living.  

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2 hours ago, rkacruiser said:

Bachelor's Degree is still very desirable

I would say it depends on the degree and what determines if something is desirable.   A bachelor's in a STEM field of study is likely to be quite valuable.  In other areas less so unless it is considered a prerequisite to some other professional/ graduate degree.

 

https://www.bankrate.com/loans/student-loans/most-valuable-college-majors/

 

I would bet good plumbers and electricians make way more money than some of the lesser valued BA/BS degrees.  Of course I am using money as a proxy for job desirability which might not be correct..

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2 hours ago, SelectSys said:

I would say it depends on the degree and what determines if something is desirable.   A bachelor's in a STEM field of study is likely to be quite valuable.  In other areas less so unless it is considered a prerequisite to some other professional/ graduate degree.

 

https://www.bankrate.com/loans/student-loans/most-valuable-college-majors/

 

I would bet good plumbers and electricians make way more money than some of the lesser valued BA/BS degrees.  Of course I am using money as a proxy for job desirability which might not be correct..

There are a lot of people working towards degrees in fields which may interest them, but which have little practical use -- and they run up substantial debt doing so (which some politicians now want to unload on the general public). 

 

 Part of "The Great Society" of the 1960's involved the introduction of major student loan programs and the creation of many post-secondary educational institutions --some real, and some for-profit scams.   One immediate result was the deferral of job-seeking on the part of high school graduates lowering unemployment figures (at least temporarily) but creating a fairly large group of "educated" people who were trained for nothing.

 

At this point, there is a growing awareness that trained electricians, carpenters, plumbers, etc. are far more useful to themselves and to society than a lot of liberal arts graduates who may feel frustrated at having lost several earning years while incurring debt in acquiring knowledge of questionable practical use.

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17 hours ago, navybankerteacher said:

At this point, there is a growing awareness that trained electricians, carpenters, plumbers, etc. are far more useful to themselves and to society than a lot of liberal arts graduates who may feel frustrated at having lost several earning years while incurring debt in acquiring knowledge of questionable practical use.

 

I don't recall the sources where I have read this, but they were credible sources.  For some businesses, a candidate for a job may be preferred if they have a liberal arts education because of the breadth of knowledge they have and the experiences that are associated with a liberal arts degree.  

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