The majority of container shipping lines lost money in the first three months of 2017, but higher rates and fast-growing demand will soon show on the bottom line.

In Drewry’s last Container Forecaster report we forecast that the industry would make operating profit of about $1.5 billion in 2017, to reverse heavy losses incurred in 2016. Do the various income statements for the first quarter of the year support our outlook?

Not for the first time, the sample of 13 carriers that have thus far published comprehensive financial reports for 1Q17 offered up some very mixed results. Only five carriers were able to turn a profit in the period with a wide gap between the best performing line (CMA CGM with an operating margin of 5.5 percent) to the worst (HMM at -10.1 percent). The disparate set of results is perhaps the most interesting takeaway from the first reporting season of the year, showcasing how despite claims the industry is increasingly becoming commoditized there remain significant differences between companies in terms of scale, cost structures, trade coverage, customer base, and spot-contract ratios. Over time, as the effects of M&A filter through, it is likely that we will see greater homogenization of operating margins.

Back to the present day and the combined operating loss of $16 million and -0.1 percent margin in 1Q17 compares favorably against the same period in 2016 when the aggregate deficit was close to $500m, but is hardly a start to the year to make pulses race.

While we were expecting better for the first three months, our profit forecast already built in that the market recovery would only really push on from the second quarter onwards when new contracts roll over. Therefore, despite the disappointing start to 2017 we see no reason to downgrade our profit guidance and will most probably raise it for the next Container Forecaster. Exceptionally strong demand growth in 1Q17 and far higher annual contract rates will create even more profitable conditions for the remainder of the year than we had envisioned.

This view appears to be shared by the major carriers. For example, when publishing its first-quarter results Maersk Line CEO Søren Skou conceded that his company was dissatisfied with the performance, but more crucially maintained the guidance that the shipping line would deliver a $1 billion improvement over 2016. Skou added that rates (both spot and contract) were gaining traction throughout the quarter, including on the more troublesome north-south routes.

A survey of available freight rate information confirms that the old contract rates did weigh heavy on the average prices carriers charged to customers in the first quarter. Of the six carriers that provide such revenue per teu data the highest year-on-year increase was the four percent achieved by Maersk Line, while only two others saw minor 1 percent improvement (CMA CGM and Zim). This was despite spot rates being up by 35 percent for the first three-months, according to Drewry’s Global Freight Rate Index, a weighted average of spot-market rates worldwide as published in our Container Freight Rate Insight. That will change in the second quarter as more of the higher-yielding contracts feed into the accounts.

Carriers will have to wait slightly longer than expected for the profits to roll in, but all the indications are that they will be very pleased with the results from the second quarter onwards.