The Red Sea Panic in the Da Mo market has been excessive, and freight rates have been overloaded

On January 31, Morgan Stanley released its latest report, saying that the container freight rate on the Asia-Europe route soared by 236% due to shipping companies detouring to the Cape of Good Hope at the southern tip of AfricaBut the market has overreacted to the "Red Sea Panic", and ** freight rates are about to fall.

Here are the key takeaways from the report:

1) The Suez Canal is a key waterway in the world, especially for containers. According to Da Mo's analysis, 12% of the world's ** and 30% of container** pass through the Suez Canal. Due to the disruption of shipping in the Suez Canal and the detour of shipping companies to the Cape of Good Hope at the southern tip of AfricaContainer freight rates on the Asia-Europe route soared 236%, and the market has overreacted to the "Red Sea Panic", ** freight rates are about to fall. Aspects,The decline in freight rates will reduce shipping costs, and the earnings of European consumer stocks (which rely on imported goods), which had previously "fallen miserably", are expected to improve, and the stock price is expected to realize**. Global shipping stocks may have been overvalued, and analysts are cautious about them and downgrade**.

Economically,Considering that the balance between supply and demand of global ** goods is much better than in 2021, and the ** level is still higher than before the epidemic, the impact of ** chain disruption on inflation is limited and is unlikely to trigger sharp inflation fluctuations.

If the crisis in the Red Sea intensifies(such as higher shipping costs or longer chain disruptions) will have a greater impact on the European refining industry, oil prices will rise, and inflation may also heat up further.

Container ** surplus:New containers** are expected to increase by 8% in 2024, which is twice as fast as demand. **Excess often results in lower shipping costs.

*Growth is significantly higher than demand growth2).The cost of shipping far exceeds the cost of shipping:The spot container freight rate was 236% higher than the same period last year, while the transportation cost was only about 30% over the same period, and this disconnect suggests that the freight rate is beyond the reasonable range of cost increases.

While maintaining the same shipping speed and transit time, spot freight rates climb much higher than shipping costs3).The daily charter rate of container ships is only **17%:The shipowner owns the vessel, while the operator makes a profit by leasing the vessel from the shipowner to provide transportation services to the cargo owner.

The daily charter rate of container ships (i.e., the daily rent of chartered container ships agreed between the owner and the operator) is only 17%. Compared with the large rate of immediate freight rate of containers, the proportion of daily rate rate is relatively small. In the medium term, these reflect the expectation that these disruptions will have a more modest impact on the long-term supply-demand balance, with rental costs not increasing as much as immediate rates.

**Competition begins:Freight rates on the Asia-Europe route have fallen for two consecutive weeks, which is seen by Da Mo as a sign of competition in the market. In the shipping industry, companies tend to pay more attention to expanding or maintaining market share, rather than immediately pursuing high profits, and there will be more ** cuts in the future.

The terminal retail customer chooses to wait before signing the contract:Retail customers are likely to have taken these four factors into account and expect a downward trend in freight rates in the future, so they choose to wait in the hope of obtaining more favorable freight contract terms.

Container traffic in the Suez Canal has been significantly reduced:Container traffic through the Suez Canal has fallen by 80% year-on-year due to transport disruptions, and the increased risk from the Suez Canal appears to be limited.

The short-term impact of shipping disruptions in the Red Sea region on global container shipping stocks and certain European retail stocks may have peaked and are starting to show signs of easingBut this effect will not be evenly distributed across all **, but will be more skewed towards specific ** or plates1) Previously, the ** chain disruption led to the largest increase in the share price of global container shipping stocks. But for now, analysts believe these ** are "overvalued" and the market is overreacting to the disruption of Red Sea shipping. Analysts are cautious about "global container shipping stocks", and out of the selected 10 shipping stocks with large gains, 5 "**" and 1 "flat" ratings.

Affected by the Red Sea crisis, the transport and logistics category** rose the most2) Previously, the chain disruption led to the biggest declines in European discretionary retailers and consumer staples. At present, analysts believe that with the decline in freight rates, the cost pressure of such companies will be reduced, and the profit prospects will improve, and such companies will achieve a certain extent. Analysts upgraded two of these stocks to "overweight".

Consumer staples Retail stocks fell the most due to the Red Sea crisis, with analysts upgrading two of them to "overweight".3) Analysts also assessed the impact in a number of sectors, including European airlines, automobiles, capital goods, metals and mining, chemicals, and diversified financial services. While the impact has varied across industries, it has not been as severe as the chain disruption was at the beginning of the pandemic

Moreover, the interruption of the ** chain will prompt some long-term industry and ** chain adjustments. For example, about 60 to 80 percent of steel imports come from Asia and are shipped to Europe via the Red Sea. The disruption of the chain has led to higher costs and longer delivery times for downstream users. This is likely to prompt more companies to consider "returning to production" (i.e., re-producing in their home country) to increase capacity utilization at domestic steel mills. Such a shift would not only reduce dependence on imported steel, but also potentially improve the competitiveness of local production, although it could lead to increased costs in the short term.

Given that the ratio of global commodities to pre-pandemic ratios is already relatively high, and that global commodity supply and demand are now more balanced than in 2021, this can help curb inflationary pressures. By quantifying the relationship between the extension of delivery time and inflationAnalysts estimate that the extension of the delivery time of ** merchants could lead to a rise in inflation in the eurozone by about 01%, compared to 0 in the UK15%。The data is seen as the upper limit of inflation, and even if there is a chain disruption, it is unlikely that inflation will rise more than these estimates. For now, all that remains to consider is whether there is an upside risk to inflation due to longer-term transport disruptions in the future.

* Longer delivery times could raise inflation in the eurozone by about 01% and 0 in the UK15%

First, European refineries rely on imports from the Middle East and Asia to produce refined products. The Suez Canal is a key shipping route connecting these regions to the European market. If this route is severely impacted, the cost and time for refiners to access raw materials will increase, which in turn will affect their production efficiency and profits.

In the event of a transport disruption, different types of cargo transport are affected to varying degrees, and so far the direct impact on transport is less than that on container transportNonetheless, the need for diversions increases the "ton-mile demand" for transport, i.e., it takes longer distances to transport the same amount, which increases the cost of transport.

Second, tankers transporting refined oil products, such as diesel or gasoline, have been more affected, and their freight rates have risen significantly, sometimes to the highest levels in a decade. This freight rate** is bad for Europe as a whole because it increases the cost of imported oil products, putting pressure on the economy and consumers.

Europe imports about 1 million barrels of middle distillate (e.g. diesel, jet fuel) per day from refineries east of Suez. Europe may need to increase the selling price of these oils due to rising transportation costs. In this way, refiners are still willing to import these oils even in the face of higher import costs, as they can maintain their profit margins by increasing sales**.

The Suez Canal transport is particularly important for the European refining industry, particularly affecting middle distillate and fuel oils**