As a representative of cyclical stocks, shipping stocks are known for their large stock price fluctuations in the capital market.
In the last round of the cycle, China Shipping Remote Holdings from July 2020 to the lowest 2Starting at $42 and reaching a maximum of $25 in July 202169 yuan, the stock price has increased nearly 10 times in a year. However, with the decline in demand and the increase in capacity, COSCO Shipping Holdings' share price also fell by 4% in just 4 months.
At present, shipping stocks are facing new changes. The Palestinian-Israeli conflict has expanded, and Yemen's Houthi rebels have frequently launched attacks on merchant ships in the Red Sea, resulting in a detour of merchant ships, bringing shipping price increase dividends, and last week, the freight rate of the European line soared by as much as 4548%, a number of shipping stocks up and down.
However, with the safe deployment of European and American escorts, some shipping companies are ready to resume shipping in the Red Sea, and the price increase dividend of shipping stocks is facing the threat of failure. Affected by this news, shipping stocks also saw a retracement of stock prices on December 25.
The investment opportunities identified in the shipping cycle may be more certain than the recurrence of events in the Red Sea. This article holds the following views:
The price increase dividend may be disappointed. Maersk, the global shipping leader, said on Sunday that it was preparing to resume shipping in the Red Sea as a result of a new multinational maritime task force that would protect ships from navigating. Once the Red Sea reopens and global shipping returns to normal, shipping price increases will also face a full take-back.
The situation of shipping being in short supply is becoming more and more serious. In the case of shipping alliances suspending sailings and reducing capacity, shipping prices have continued to decline since 2022, and the industry has essentially oversupplied. As the economic downturn comes in, global shipping demand still shows no signs of improving. In 2024, the new container ship will be delivered soon, and the global capacity will be increased again.
The divergence in shipping stocks extends investment opportunities. On the one hand, the cycles of different shipping sectors are not synchronized, although the overall supply exceeds demand, but the oil transportation has a shortage of supply, and the oil transportation stocks have risen better. On the other hand, there is a trend of centralization in container transportation, and the stock prices of small and medium-sized companies are retreating, but the leading companies are rising.
01 The price increase dividend may be lost
In the past week or so, shipping stocks have been the focus of the capital market.
In mid-December, as the Israeli-Palestinian conflict intensified, Yemen's Houthi rebels issued statements saying that any ships heading for Israel would be "legitimate targets" for attacks. Subsequently, Yemen's Houthi rebels began to launch frequent attacks on merchant ships in the Red Sea. In order to avoid risks, more and more shipping companies have announced the suspension of navigation in the Red Sea and nearby waters.
The Red Sea incident directly took the shipping stocks off. On December 19, Huaguang Hai rose by nearly 17%, and Ningbo COSCO, Jinjiang Shipping, COSCO Shipping Energy, Haitong Development, Zhongchuang Logistics, etc.
The logic of the daily limit of shipping stocks is very simple, and the detour brings price increase dividends. After the suspension of the Red Sea route, merchant ships that originally passed through it will detour through the Cape of Good Hope-Africa route for at least about 10 days.
The extension of time will lead to an increase in the cost of passage, and in addition to the detour and lengthening the voyage, it will reduce the turnover efficiency of the ship, increase the capacity of the ship, and transmit it to the freight rate. Last week, the freight rate of the European line soared by as much as 4548%, per TEU (standard 20-foot container) came to $1,497, up $468 for the week.
However, shipping stocks, which were originally thriving, fell heavily on the 25th, with Ningbo COSCO falling to a limit, Air China COSCO falling more than 7%, Jinjiang Shipping falling more than 6%, and Phoenix Shipping falling more than 5%.
Behind the stock price of shipping stocks**, the market is worried that the price increase dividend caused by the Red Sea incident may be short-lived. Maersk, the global shipping leader, said on Sunday that it was preparing to resume shipping in the Red Sea as a result of a new multinational maritime task force that would protect ships from Yemen's Houthi attacks. Once the Red Sea reopens and global shipping returns to normal, shipping price increases will also face a full take-back.
And once the price increase fails, shipping stocks will once again be trapped in the shipping cycle.
02 Growing oversupply
Since the beginning of this year, the performance of shipping stock companies has generally declined. In the first three quarters of this year, the revenue of COSCO Shipping Holdings, the "Sea King", fell by 57% year-on-year5%, net profit fell 77% year-on-year5%。COSCO SHIPPING Development's revenue fell 44% year-on-year5%, net profit fell 676%。
The decline in the performance of shipping stocks stems from the fact that shipping has shifted from an upward cycle to a downward cycle. Since 2020, affected by the continuous spread of the overseas epidemic, the global shipping capacity supply has been seriously insufficient, which has triggered a once-in-a-decade major in the shipping industry.
China's export container freight index (CCFI) hit a new high in the past decade in 2021, of which the CCFI European route freight index rose from 1,000 points before the epidemic to nearly 6,000 points.
Soaring freight rates have allowed shipping companies to expand the supply of new cargo tankers and boost shipping capacity. However, since 2022, the impact of the overseas epidemic has faded and the capacity of new ships accepted by container shipping has gradually entered a downward cycle. By 2023, the CCFI European route freight index will drop from a high of nearly 6,000 points to around 1,000 points.
You know, at the beginning of this year, it was reported that shipping companies will cancel half of the flights departing from Asia", and the cancelled routes mainly include scheduled voyages from Asia to Northern Europe and the United States. This means,The current freight rate level is still achieved by the alliance formed by major shipping companies to actively reduce effective capacity through the suspension of sailings, and the market has essentially exceeded demand.
The current trend of oversupply will continue. According to the "Maritime Freight Review" released by the United Nations, the global supply of sea freight** may continue for 5 years. From the supply side, container ship orders have gradually increased since November 2020, and as of May 2023, container ship orders in hand have reached 7.52 million TEU, accounting for 28 percent of the current total capacity7%。Based on a 14-20 month lead time, these orders will be delivered centrally in 2023 and 2024.
New ships are delivered but old ships are withdrawn limitedly, and the average age of container ship dismantling in 2022 is 2774 years. The total capacity of ships over 27 years is 328,848 TEU, accounting for only 1 percent of the current container capacity29%。Combined with the delivery of new ships and the withdrawal of old ships,According to the data of "Full Investment Finance", the market as a whole will increase in 2023 and 20248% of the container ship capacity.
Despite the increase in capacity, demand is limited. In January 2023, the inventory of U.S. retailers is still at a historically high level, European countries are also mired in inflation, and some developed economies will even enter a recession, which is bearish for international ** volume. According to Tiger Sniff data, the growth rate of container shipping demand in 2023 and 2024 will be ., respectively3%。
The global shipping supply side is expanding, but the demand side has not recovered, which means that the oversupply of the shipping market is becoming more and more serious. In other words, shipping stocks are still in a downward cycle.
03 Where are the investment opportunities in shipping stocks?
Shipping is divided into sub-sectors such as container transportation, dry bulk shipping and oil transportation, and the cycles of different sectors are not synchronized. Although the overall supply of container transportation is in a state of oversupply, the contradiction between supply and demand has begun to appear in oil transportation.
Unlike the container freight rate, which is determined by supply and demand, the situation affecting the oil freight rate is more complex, which is affected by three factors: supply and demand, finance, and politics. Due to the Russian-Ukrainian conflict breaking the original route, lengthening the transportation distance, as well as the release of the United States' strategic reserve inventory and the increase in exports, the demand for long-distance transportation has increased significantly. According to Clarksons data, the growth rate of oil transportation demand in 2023 will be 939%, and the demand growth rate is expected to be 624%。
In the face of the surge in demand for oil transportation, the supply of oil transportation is insufficient. Due to the unavoidable political factors affecting oil transportation, shipowners have placed orders lagging behind demand, and the current shipyard capacity is tight and the delivery cycle is about 2 years, and new orders for tankers will not be delivered until 2025. Ahead of the delivery of the new orders, Clarksons expects a gap of 624%。In the face of the contradiction between supply and demand, oil transportation companies COSCO Shipping Energy and China Merchants Shipping have performed well in the capital market. Since June, COSCO SHIPPING Energy's share price has risen by more than 116%。
And in the downward cycle, the container stocks are not without opportunities, and the container stocks are diverging. Although the stock price of some shipping stocks has declined this year due to the impact of oversupply in the market, the holding price of COSCO Shipping, the leading container shipping company, still rose by more than 12%.
COSCO SHIPPING Holdings' share price growth in the downward cycle is due to the fact that profits exceed expectations, and the market expects COSCO SHIPPING Holdings' net profit attributable to the parent company to be 256 in 20236.3 billion, and in the first three quarters of this year, COSCO Shipping Holdings' net profit reached 2599.9 billion, far exceeding expectations.
COSCO SHIPPING Holdings' net profit exceeded expectations because of the trend of centralization in the container shipping industry. Unlike the upstream and downstream concentration caused by the concentration of oil and dry bulk carrier customers as resource-based enterprises, the container transportation customers are factories and consumers, so a pattern of centralized transportation and decentralized upstream and downstream has been formed. At present, the market share of container CR4 is nearly 60%, while that of dry bulk CR4 is 85% and 15 for oil shipments2%。
The high market concentration makes the leading enterprises have a higher industry position. In recent years, China Shipping Remote Holdings has signed a large number of long-term contracts with customers. On the one hand, the signing of a long-term contract can enable the enterprise to ship according to the long-term agreement in a given period, and the freight rate fluctuates less, so that the enterprise has a more stable performance. On the other hand, it will also squeeze the orders of small and medium-sized container transportation enterprises and further increase market share.
From the above perspective, although shipping is in a downward cycle as a whole, the different cycle rhythms of shipping stocks and changes in the competitive landscape still make shipping stocks worth tracking and observing.