In 2010, the shipping industry staged a strong comeback after the financial crisis of 2007-2008. That year, Evergreen Marine made NT$15 billion. But the global economy quickly tanked again. Between 2010 and 2019, Evergreen Marine posted net profits of just NT$8.4 billion, which translates to a meager NT$800 million per year on average.

In the first quarter of 2022, however, Evergreen Marine raked in NT$100 billion, which amounts to NT$1.1 billion per day. This is more than during an entire year in recession times.

The disruption and restructuring of global supply chains due to the pandemic has been a boon for the container shipping industry.

The Shanghai Containerized Freight Index (SCFI), which reflects ocean shipments, has risen four-fold over the past two years.

Evergreen Marine last year recorded revenue growth of 136.3 percent, with net after tax profit jumping nine-fold to NT$239.02 billion. With these results, the shipping company became the second-most profitable company in Taiwan ahead of the world’s largest electronics assembler HonHai/Foxconn and second only to the world’s largest chip foundry, Taiwan Semiconductor Manufacturing Company (TSMC).

“This is a once-in-a-century event. Even my father has never seen anything like this; I can call myself lucky,” says Evergreen Marine Chairman Chang Kuo-hua, the founder’s eldest son, not hiding his own astonishment.

Evergreen Marine is not the only ocean shipper making big money, but it outstripped its industry peers in terms of overall financial performance with an EBITDA of 64.1% last year. The world’s largest container shipper, Denmark-based A.P. Moller – Maersk, achieved an EBITDA of just 44.4% in 2021. This means that Evergreen Marine is currently the ocean shipping company with the most profitable core business in the world.

“We serve many east-west shipping routes; these are more sought-after,” notes Chang in explaining the company’s good fortunes.

As Chang points out, Asia is the world’s factory, and exports its products worldwide. Therefore, westward shipping routes from Asia to North America and from Asia to Europe have been lucrative “golden” routes during the past 18 months as freight rates rose to record highs. Evergreen Marine particularly profited from this trend more than others because Asia/America and Asia/Europe routes account for a high share of its overall business, and they are served with larger vessels than in the past.

From not ordering large vessels to ordering mega ships

High demand for westward routes was not the only factor boosting Evergreen Marine. Thanks to a strategic reorientation toward mega vessels in recent years, the shipper was able to provide the container capacities needed to meet skyrocketing demand.

Last July, the Ever Ace, with a capacity of 24,000 TEU the largest container ship in the world, began to serve the Asia/Europe route. At current freight rates, which stand at US$8,000 per TEU, the Ever Ace is recouping its manufacturing cost of US$140 million with just a single voyage.

Meanwhile, Evergreen Marine has five 24,000-TEU mega vessels in service, which are expected to generate massive profits. Another eight supersized container ships of the same class are slated to enter service before 2026.

(Source: Chien-Tong Wang)

Ironically, the company founder was not into mega vessels at all.

Chang Yung-fa was known in the industry as a “lone wolf” because Evergreen did not join any industry alliances under his leadership. Against this backdrop, mega vessels would have been deemed too great a risk since a single operator would not have been able to load them to capacity during periods of low demand.

By 2011, however, alliances among ocean shipping companies were emerging. The Evergreen Marine management team concluded that joining an alliance was only a matter of time, and that larger vessels were needed to remain competitive.

Bronson Hsieh, who served as vice president at the time, worked hard to convince Chang Yung-fa that ordering large vessels was imperative. “I had hardly stepped into the president’s office when, spotting the documents, he asked me, ‘Do we really have to do this?’,” recalls Hsieh.

After Hsieh delivered a detailed explanation of the market situation, Chang agreed to go along, but he insisted that the vessels be leased and not bought. He reasoned that should a recession hit, canceling a lease would be easier than selling an underutilized container ship.

That’s when Evergreen Marine began to include large vessels with a carrying capacity of more than 10,000 TEU in its fleet, which helped it to stay competitive. After Chang Kuo-hua returned to the company in 2014, he embraced the trend toward ultra large container ships to expand the carrier’s capacity. Ordered in 2019 and delivered in July last year, the Ever Ace is by some measure the largest container ship in the world. During its short service period so far, it has generated massive profits for the shipping line.

(Source: Pei-Ying Hsieh)

Expanding carrying capacity, eying global rank five

According to France-based Alphaliner, which constantly ranks the world’s largest container operators and collects global capacity figures, Evergreen Marine’s fleet presently has a carrying capacity of 1,513,650 TEU (as of May 17), and holds rank 6, slightly ahead of Japanese shipping alliance Ocean Network Express (ONE), which groups Kawasaki Kisen (“K” Line), Mitsui O.S.K. Lines (MOL) and NYK Line. It is playing catch up with Germany’s Hapag-Lloyd at rank 5.

Evergreen Marine is in a good position to move up in the rankings as it has placed orders for 65 new ships, which will add an estimated 627,200 TEU carrying capacity once delivered. Only industry bellwether Mediterranean Shipping Co. (MSC) has a bigger order book.

As expectations rise for the company’s financial performance, Chang Kuo-hua cannot help but offer a note of caution. He points out that analysts only look at the new ship orders without factoring in the number of vessels that will be decommissioned due to stricter environmental laws or because they reach the end of their service life. “It does not really make sense to compare market share; comparing profits is much more important,” Chang asserts.

While Evergreen Marine has placed many ship orders, the company is also hedging against potential risk by joining OCEAN, one of the three major shipping alliances, along with CMA CGM/APL from France and China’s Cosco Shipping. The alliances could be forced to disband in the future, however, should the EU or the United States mobilize anti-monopoly legislation. 

If shipping lines are forced to fend for themselves again, scale will become the decisive factor. “We now have only 200 ships, whereas Maersk has more than 700, and MSC has more than 600. In terms of TEU, they are even many times bigger, which means there is room for us to grow,” notes Chang.

Preparing for a rude awakening

As a veteran industry observer points out, the larger the fleet, the more money the carrier has made during the pandemic. Yet, given that a large number of new supersized vessels will take up service in 2024, the added carrying capacity could quickly prove excessive should demand weaken. In that case, the larger the fleet, the bigger the losses will be, he predicts.

But there are also short-term factors that might affect profits such as rising oil prices due to the ongoing war between Russia and Ukraine, and possible dock worker strikes on the U.S. west coast should collective bargaining talks fail.

So how much longer will the ocean shipping boom last? Chang says he does not dare make a prediction given that, so far, not a single expert’s analysis has proven correct.

The only thing he can do to gain some visibility is keep a close eye on the freight bookings for the coming four weeks, figures that are updated by the planning department every week, and be prepared for a rude awakening from this dreamlike business situation since, as soon as vessels are no longer booked to full capacity, freight rates are bound to come down.

And with the industry facing a reckoning as countries adopt tighter environmental laws to fight climate change, Chang has decided to act now, shortening the vessel depreciation period from 25 years to 20 years. While this measure will drive up costs, it will also speed up the replacement of older ships with cleaner, more technologically advanced ones, giving Evergreen Marine greater flexibility in facing the challenge of new fuels and new ship-building technology.

“Profits are normally very slim in this industry; losses are common. The situation that we have found ourselves in in the past two years is truly beyond imagination,” says Chang.

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Have you read?

♦ Taiwan’s big 3 ocean shippers hitting it big, but what’s next?
♦ 1984: The Legend of Chang Yung-fa, the Container Shipping King
♦ How Evergreen Marine Corporation Leads Taiwan on a Voyage to Envelope the World

Translated by Susanne Ganz
Edited by TC Lin
Uploaded by Penny Chiang