Rising rates and container volumes have lifted Cosco Shipping's first quarter earnings.

Fresh from reporting a 2016 net loss of $1.4 billion, Cosco Shipping Holdings, the container line of the China Cosco Shipping Group, has issued a positive profit alert for the first quarter of 2017 as freight rates rose during the three months with a surge in the volume of containers handled by the company.

The giant Chinese carrier said in a filing to the Hong Kong Exchange that it expected to report a net profit of $37.6 million for the January to March period, an almost $700 million improvement on the result for the first quarter of 2016.

Cosco Shipping Holdings, which before the merger with China Shipping was known as China Cosco Holdings, is involved in container transport, dry bulk shipping, container terminals, and container leasing.

But it is the improving container-handling business that lies behind the state owned company’s financial rebound. In the first quarter, Cosco said container volume in the shipping business increased by 54 percent compared to the same period in 2016.

The carrier described the container shipping market as “firmly recovering,” helped by integration synergies gained from the takeover of China Shipping Container Lines’ business. Also driving up earnings were rising freight rates. Cosco told investors that the average China Containerized Freight Index (CCFI) was 825.3 points, representing an 11.7 percent increase over the same period of last year. This drove up the average freight rates of the container shipping business.

Cosco Shipping is one of the members of theOcean Alliance with CMA CGM, Evergreen Line, and Orient Overseas Container Line. The vessel-sharing agreement launched on April 1 at the same time as THE Alliance and the 2M Allianceplus HMM.

While investors with Cosco Shipping Holdings will be relieved to see the company put the brakes on the massive losses of 2016, the container shipping industry as a whole continues to face a chronic oversupply of capacity that will keep the pressure on rates for the next few years.

Even so, the recovery has helped to offset the impacts of those low rates. Drewry expects the major carriers lost $3.5 billion in 2016, an improvement on the $5 billion in losses for the year the industry analyst had previously estimated.

Vessel capacities of 13,000 teus and larger could represent nearly 20 percent of the fleet in 2019, according to Alphaliner, up from 13 percent in 2016. Most of the mega-ships have to be deployed on the Asia-Europe trade, forcing carriers to continue cascading larger tonnage down to the smaller trades.

Consultants AlixPartners said in their 2017 Container Shipping Outlook, compiled in conjunction with Stifel Capital Markets, that consolidation through M&amp;As and changes to operational alliances were reshaping the industry in terms of services, capacity deployment, and schedules. However, the underlying issue of overcapacity had not been addressed sufficiently</a> as the vessel fleet had not been rationalized and demand had not grown adequately.

“The industry performance continues to get worse and worse, and we don’t see a real recovery shaping up just yet,” said AlixPartner's Jim Blaeser.

Since their Dec. 30 high, spot rates on the major east-west trades have maintained a steady downward trend. The latest reading of the Shanghai Shipping Exchange’s SCFI has the Asia-Europe spot rate at $836 per teu, $332 per container less than the price reached on Dec. 30.

But it is the trans-Pacific trade where the real rate weakness is developing. According to SeaIntel, there have been no noteworthy rate increases since early January, and spot rates have been eroding ever since at a rate of close to $100 a week.

“While not quite as horrific as in 2015, at the current lukewarm rate levels, it won’t take many weeks at this level of erosion before we move into loss-making territory,” said Alan Murphy, SeaIntel CEO in the shipping analyst’s Sunday Spotlight.