Letter from the Editor

By Mark Szakonyi

Beyond driving record short-term earnings, the disruption during the pandemic set carriers on a more profitable course.

This container shipping downcycle is shaping up to be“ shallow,” and there’ s an argument to be made that so-called ship over-ordering may be prudent in the long-term despite overcapacity rising over the next few years.

Most immediately, ocean carriers have a stronger financial backstop than past downcycles, having retired significant debt after reaping $ 600 billion in operating profits from 2021 through 2024, said Rahul Kapoor, S & P Global’ s global head of shipping and analytics research.

Average leverage for the industry, as measured by total debt to earnings before interest and taxes( EBIT), was a mere 1 % to 2 % in 2021 – 25. Comparatively, the average leverage was in the range of 7 % to 8 % in 2012 – 20.

“ When we look at the industry and when we look at this downturn which we are talking about, I think the industry is very well-prepared, and we have to look at that when we’ re talking about the container shipping downcycle which is going to come,” Kapoor said March 2 at the Journal of Commerce’ s TPM26 conference in Long Beach.“ So in our view, it’ s a shallow cycle.”

Beyond driving record earnings for the industry in the short term, the disruption during the pandemic set carriers on a more profitable course, recording EBIT margins of 21 % to 22 % in 2021-25, compared to EBIT in the range of just 2 to 3 % in the nine prior years, he said. The data is based only on carriers that report earnings, and thus excludes Mediterranean Shipping Co.

Kapoor said he expected the container lines to report losses over the next two or three years. Profitability is already falling. The average operating profit of major carriers fell to 5.3 % for the fourth quarter of 2025 and was the first quarterly operating loss since the first quarter of 2024, according to analyst Alphaliner.

But while overcapacity will pull balance sheets into the red in the coming years, container ship orders, representing more than onethird of the existing fleet, are a better bet than they appear, Kapoor said. In a capital- intensive industry, ordering more ships, partly to prepare for tighter decarbonization regulations, makes more sense than returning the profits to shareholders, he said.

“ Maybe [ the industry ] went a bit overboard. It always does. But the balance sheets are strong,” Kapoor said.“ The cash buffers are extremely strong, and the windfall profits the industry saw were better utilized.”

Since 2020, there’ s been two waves of ship orders, with the first, in 2021 – 24, being driven by record profits tied to pandemic-era disruption.

“ They were all building and forming a long conga line with a glass of champagne in their hand, and they ordered,” Jan Tiedemann, senior analyst at Alphaliner, said at TPM26.“ But now there’ s a second ordering wave going on. We have to think about why that is happening because this one is clearly deliberate, and it also focuses on more and smaller ships.”

Whereas the first wave of orders centered on ships with capacities of up to 24,000 TEUs, the second wave is dominated by orders of small ships with capacities under 6,000 TEUs. Non-operating common carriers are also driving the ordering of small ships.

“ Since roughly 2005, if you look at the fleet and the fleet growth over these 20 years, it’ s gone up in an almost linear way,” Tiedemann said.“ It’ s 1 million [ TEUs ] added year-in, yearout, and it’ s almost stable.”

Industry consolidation, with the top 10 carriers operating 85 % of the total fleet compared to 65 % a decade ago, and record profits during the pandemic give the major ocean carriers confidence in the long-game, he said.

“ They understood that the ship is an asset which probably can break even for 10 years of its lifetime, probably can be slightly lossmaking for another 10 years of its lifetime, but then makes all its money back in five years,” said Tiedemann.“ So you have that asset, and especially in this time of constant disruption, where we’ re going into a phase where disruption is the new normal.”

Not all container lines were able to capitalize on the disruption caused by diversions away from the Suez Canal starting in late 2023 because they failed to order enough tonnage, Tiedemann said. Carriers without enough tonnage for the longer sailings around the Cape of Good Hope had to turn to more expensive chartering and buying secondhand ships.

Simon Heaney, senior manager of container research at Drewry, doesn’ t see the massive order book as benign as others. Betting on a“ black swan” event to cause disruption and soak up functional capacity“ doesn’ t constitute a plan,” he said.

“ Also, over-ordering means they are not fully capitalizing on the given situation,” Heaney said.“ A smarter bet would have been to limit orders as they would win in any scenario without the expense.”

email: mark. szakonyi @ spglobal. com

4 Journal of Commerce | April 6, 2026 www. joc. com