Container shipping companies have been on a tear. That won't halt soon, say analysts
By Barbara Kollmeyer
Shares of container shipping companies were climbing on Monday, keeping pace with a recent run of momentum that analysts say is unlikely to end soon.
In Taiwan, stock of Yang Ming Marine Transport (TW:2609) jumped 9.9%, following a 5.5% gain last Thursday and 9.9% gain on Friday. Denmark's AP Moeller Maersk (DK:MAERSK.B) climbed over 7%, reopening after a two-day market holiday in Copenhagen. The shares rose three straight sessions ahead of that break.
U.S.-listed Israeli group, ZIM Integrated Shipping Services (ZIM), which has seen six straight sessions of gains that includes a 8.3% pop on Friday, rose 4% in premarket trading.
Those shares have climbed alongside higher freight rates.
The Shanghai Container Freight Index, which calculates shipping rates from major China ports, had its highest reading of 2024 last week, and is now up 31% on the year and 72% since mid-December, noted Jefferies analysts.
"Freight rates have surged after a brief lull across the major trade lanes, and the strength is spilling over to the non-mainlane routes. Red Sea re-routing continues to constrain supply while trade volumes have been noticeably higher," said analysts led by Omar Nokta, in a note to clients on Monday.
For the past several months, ocean carriers have been diverting away from the Red Sea and around Africa's Cape of Good Hope due to Houthi-led attacks on those vessels. The detour that adds thousands of extra miles to those journeys, is likely to remain in place this year, say Jefferies analysts, who estimate 90% of normal Red Sea capacity is being diverted around Africa.
Nokta and his colleagues noted that the container market is tightly balanced and vulnerable to shocks, with an "exceptional" 2024 so far, shaped by tightness in vessel capacity. "Stronger trade flows and longer distances have negated much of the newbuilding deliveries, leaving the sector tightly balanced with peak season now commencing," they said.
Peak season typically runs from June to September, but the early start comes as shippers scrambled for capacity, which is likely to support freight rates "deep into Q2 [second quarter]," said the analysts.
"In a scenario where demand remains robust through the peak months, this may mean that freight rates will see further upward pressure - which would be supportive for ocean carriers," added Cristian Nedelcu and Amy Yi, at UBS.
The Jefferies analysts rate Maersk and Zim shares as buy, but warn the high season for shipping will likely end sooner than normal, due to the early start. "Thus, the next market lull likely is coming in late summer, and with it a deep correction in freight rates due to the larger fleet that awaits," he said.
"For now, however, the equities are in a strong position given the freight rate momentum, upwards guidance potential, increasing estimates and a generally flat-footed market given this 'surprise' rally in peak seasonspot rate," they said.
-Barbara Kollmeyer
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
05-13-24 0616ET
Copyright (c) 2024 Dow Jones & Company, Inc.-
These Stocks Are (Still) Powering the Bull Market
-
5 Undervalued Energy Stocks to Play the AI Data Center Demand Boom
-
After Earnings, Is Lowe’s Stock a Buy, Sell, or Fairly Valued?
-
5 Stocks With the Largest Fair Value Estimate Cuts After Q1 Earnings
-
10 Stocks With the Largest Fair Value Estimate Increases After Q1 Earnings
-
Markets Brief: Inflation Back in the Spotlight
-
AI Is Booming, but Consumer Spending Is Slowing. Which Will Prevail in the Stock Market?
-
What’s Happening In the Markets This Week
-
3 Dividend Stocks for June 2024
-
After Earnings, Is Alibaba Stock a Buy, Sell, or Fairly Valued?
-
MongoDB Earnings: Slashing Valuation as Execution and Macro to Blame for Lower Guidance
-
Marvell Earnings: We Raise Our Medium-Term AI Forecast and Bring Our Valuation Up to $75
-
Zscaler Earnings: Impressive Traction in Emerging Products Drives Sales Growth for the Quarter
-
Dell Earnings: Raising Valuation on Strong AI, but the Stock Remains Severely Overvalued
-
After Earnings, Is Nvidia Stock a Buy, Sell, or Fairly Valued?
-
The 10 Best Companies to Invest in Now