Aided by the Red Sea crisis and several short-term factors (congestion at Asian ports, booming US imports, less capacity headed to Europe, earlier-than-usual imports amid fears of delays due to geopolitical risks and some possible stockpiling before peak season) spot rates are rising dramatically. Consequently, the WCI reversed its trajectory on 2 May and surged 28.8% before16 May after falling 2.6% WoW on average between 25 January and 2 May. Cumulatively, the WCI expanded 2.1x in YTD 2024 (ending 16 May).

• Higher spot rates are bound to boost container shipping companies’ toplines in 2Q24. Consequently, equity prices are on the uptrend with the broader index rising 19.0% in YTD 2024 (ending 16 May) outperforming the S&P 500 index which increased 11.1% in the same time frame.

• Regarding individual equity prices, ZIM has been the top performer rising 92.0% YTD keeping pace with the WCI, due to the company’s high spot exposure. Barring HMM, Asian stocks are presently outperforming European stocks due to the prevailing congestion at Asian ports which is strengthening ex-Asia freight rates and thereby boding well for their 2Q24 results in continuation with the better-than-expected 1Q24 results. COSCO Shipping, Evergreen, Yang Ming and Wan Hai rose roughly between 20% to 50% amid improved 1Q24 profitability, pulling the latter two carriers’ bottom line out of the red.

• In contrast, European carrier Maersk remains 1.5% down YTD amid its continued expectation of an EBIT loss of up to USD 2bn for 2024 while US-based carrier Matson’s stock price (+5.4% YTD) lagged the index due to its localized services. Contrastingly, Hapag-Lloyd was the only non-Asian carrier whose stock increased 20.7% amid upgraded 2024 outlook of an EBIT profit of up to USD 1.1bn (previously, USD -1.1bn to USD +1.1bn).

In terms of latest acquisitions, MSC via its subsidiary – SAS – offered NOK 7.6bn (USD 701mn) to acquire all 29mn ordinary shares of Gram Car Carriers (GCC) which owns a fleet of 16 pure car carrier vessels. The offer price of USD 24.19 per share implied a 28.3% premium to GCC’s prior day closing price (23 April 2024) and translated into implied EV/EBITDA and P/E multiples of 6.0x and 6.3x respectively. Along with the upbeat outlook of the car-carrier segment, GCC also reported healthy profits in 1Q24 (EBIT margin in 1Q24: 70.4% vs 1Q23: 48.8%). For MSC, GCC’s largely long-term chartered-out fleet will cushion the volatile container shipping earnings. This acquisition follows a trend in the shipping industry where companies are looking to diversify their revenue streams.

The charter market continues to strengthen amid carriers’ requirement for additional tonnage to maintain service frequency. In 1Q24, the TC rates increased sequentially albeit remaining lower YoY (barring midsized vessels, TC rates of which increased YoY as well) – case in point, TC rates of 4,250 teu and 8,500 teu vessels increased 32.8% QoQ (+16.7% YoY) and 21.9% QoQ (-3.0% YoY), respectively. The momentum continues with rates rising MoM in April as well (4,250 teu: +60.5% and 8,500 teu: +45.5%). Strong charter rates are boosting the second-hand (SH) prices for largely all segments with larger feeder SH prices rising the most in April (5-year old 2,700 teu: +11.1% MoM and 10-year old 2,700 teu: +10.5% MoM).

Equity valuations are on the rise as investors anticipate improved profitability for 2024 due to stronger rates in 1H24. Consequently, the sector’s P/B multiple (0.9x) is now trading only 6.1% lower than its long-term average of 1.0x (2009-24, excluding 2020-22 due to exceptionally high values) as opposed to 30.2% lower a month ago.

Source: Drewry Maritime Financial Research