The high seas are known for their volatile weather conditions, posing a peril to those who navigate them. Similarly, the container-ship industry faces treacherous waters in volatile markets, handling 80% of internationally traded goods. The global pandemic of 2022 led to a surge in container rates as people stayed home and increased their buying, resulting in shipping lines seeing returns on capital exceeding 40%. However, as demand decreased and new vessels ordered during the boom began to arrive, rates and returns started to tumble. The situation worsened when attacks by Houthi rebels in the Red Sea disrupted shipping through the Suez Canal, sending rates back to record levels previously seen only during the pandemic.
Despite the current good times, history suggests that the shipping industry is prone to value destruction. Between 2002 and 2019, shipping firms’ average return on capital was 4.7%, falling short of the average cost of capital, which is around 10%. Building new ships takes time, with the global fleet adding a record capacity of around 2.3 million 20-foot equivalent units in 2023, surpassing the previous annual record by 37%. Additionally, another 1 million units arrived in the first four months of 2024, raising concerns about overcapacity. In February, A.P Moller-Maersk, the world’s second-largest shipping line, warned of potential losses of up to $5 billion for the year.