Source: The Economic Times
The French company controlled by billionaire Rodolphe Saade and his family returned to profit in the first quarter from a loss in the final three months of 2023, according to a statement Friday. CMA CGM said the turnaround was driven by the conflict in the region and better-than-expected demand for cargo shipping, but it likely won’t last.
“The situation in the Red Sea has absorbed nearly all new capacity that was put on the market in the first quarter,” Chief Financial Officer Ramon Fernandez said on a call. He added that the upward pressure on freight rates due to the conflict and robust consumer demand for goods “will decline in the second part of the year.”
Maritime transport prices spiked into early January after ships started taking a much longer route between Asia and Europe via southern Africa in order to avoid Houthi rocket and drone attacks in the Red Sea. The longer journey reduced capacity, which carriers are gradually building up with new vessels ordered during an unprecedented boom in the sector during the pandemic.
“There will come a point when the detours around the Cape of Good Hope won’t be enough to absorb this overcapacity,” Fernandez said, adding that the global fleet is expected to expand by as much as 10% this year with about 7% still to come. “This will bring overcapacity in the maritime cargo industry.”
On Friday, Marseille-based CMA CGM reported first-quarter profit of $785 million compared with $2.01 billion a year earlier and a loss of $93 million in the final three months of 2023.The industry boomed in 2021 and 2022, when a surge in demand during the pandemic sent cargo rates soaring and profits to record highs. With the windfall, CMA CGM and others to order vessels that are now entering service.
CMA CGM is maintaining passage in the Red Sea conflict zone on a case-by-case basis, with escort from the French navy and the EU’s Aspides mission, Fernandez said. The Iran-backed Houthi militants, who say they are targeting Israeli-linked cargo ships, have caused the most significant diversion of seaborne trade in decades.
Wave of New Ships
CMA CGM follows rival A.P. Moller-Maersk A/S, the second-biggest container line, in predicting overcapacity will prevail — implying lower rates — during the second half.
Surging pandemic profits filled the coffers of the Saades and rival European shipping tycoons like Gianluigi Aponte, founder of Mediterranean Shipping Co., and Klaus-Michael Kuehne, who has stakes in logistics and shipping companies.
CMA CGM went on a buying spree to diversify into logistics, air cargo and media. In the last quarter the company closed its biggest deal to date: the purchase of Bollore SE’s logistics arm for an enterprise value of €5 billion. It’s expecting to complete the purchase of Altice Media, which owns French news channel BFM TV, for a total enterprise value of €1.55 billion this summer.
