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The Red Sea crisis has caused a surge in costs for container shipping companies, France’s CMA CGM has warned, as it flagged a volatile and unpredictable year ahead after sliding into a fourth-quarter loss.
The Red Sea problems had caused diversions around the Cape of Good Hope, adding up to two weeks to journeys between Asia and Europe and creating extra charges, CMA CGM’s finance chief Ramon Fernandez said.
Although the disruption caused by attacks by Yemen’s Houthis has caused a surge in freight rates since mid-November, boosting shipping lines, this may be outweighed by extra costs.
It also comes against a deepening overcapacity problem, CMA CGM said, as it echoed warnings from rivals such as AP Møller-Maersk that an influx of new ship deliveries was outpacing demand.
An extra 8 per cent in container shipping capacity was likely to come online in 2024, similar to last year’s levels, the company said.
CMA CGM, operator of the world’s third-largest container ship fleet, said it might still use the Red Sea when it could get an escort from French warships.
However, most container ships are avoiding the route as well as the Suez Canal because of attacks by the Houthis.
This has meant shipping lines have had to add port calls in some areas to drop off and pick up containers going to and from areas that are no longer on their direct route.
Lines are also facing high costs to lease the extra ships required to maintain services via the longer routes and higher insurance rates.
“It’s more fuel that’s needed, more maintenance, storage . . . It adds up to a lot of things,” Fernandez told reporters. “There’ll be an economic impact on our activities.”
The Red Sea disruption follows the end of a boom during the Covid-19 pandemic, which sent freight rates soaring and generated huge windfalls for container groups.
Under chief executive Rodolphe Saadé, the unlisted Marseille-based company has used the windfalls to diversify, buying up port terminals and expanding into the less cyclical business of logistics.
However, the strategy failed to prevent CMA CGM sales tumbling nearly 37 per cent to $47bn last year.
Although the company still turned a profit over the 12-month period, with net income down 21 per cent to $3.6bn, in the fourth quarter the group swung into a $90mn loss because of falling shipping rates and against a backdrop of weak consumer demand.
“It’s extremely difficult to risk giving a clear trajectory on our 2024 outlook. We’re in an environment that’s very volatile, very uncertain,” Fernandez said, adding that one bright spot was that trade volumes were picking up.
For this reason, CMA CGM is seeking to keep a tight lid on operational costs, although not envisaging a widespread redundancy round, Fernandez added. Maersk had flagged 10,000 job cuts at the end of last year.
Logistics now account for 15 per cent of CMA CGM’s core profits, compared with under 4 per cent a year earlier.
This does not include some of the group’s latest acquisitions, such as a €5bn deal for the logistics business of French billionaire Vincent Bolloré, and the purchase of British delivery and warehousing company Wincanton.
CMA CGM has also invested hugely in new areas such as air cargo and on more environmentally friendly ships.
It said it had spent $15bn so far on 120 ships powered by liquefied natural gas and methanol that will be delivered by 2027.
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