Shares of container shipping companies were on the rise on Monday, continuing their recent upward trend that analysts believe will persist for the foreseeable future.
In Taiwan, the stock of Yang Ming Marine Transport (2609) saw a significant increase of 9.9%. This comes after a 5.5% gain last Thursday and a 9.9% gain on Friday. Denmark’s AP Moeller Maersk MAERSK.B saw a significant increase of over 7% as it reopened after a two-day market holiday in Copenhagen. The shares experienced a steady increase over three consecutive sessions leading up to that break.
Shares of ZIM Integrated Shipping Services, a U.S.-listed Israeli group, have been on a winning streak, with six consecutive sessions of gains. On Friday, the stock surged by 8.3%, and it is now up by 4% in premarket trading.
The shares have experienced a significant increase due to the rise in freight rates.
According to Jefferies analysts, the Shanghai Container Freight Index reached its highest reading of 2024 last week. It has seen a significant increase of 31% since the beginning of the year and a remarkable 72% since mid-December.
Shanghai Shipping Exchange
Freight rates have experienced a significant increase following a temporary period of calm along the major trade lanes, and this positive momentum is also impacting the non-mainlane routes. Analysts led by Omar Nokta noted in a client update on Monday that supply constraints persist due to ongoing re-routing in the Red Sea, while trade volumes have seen a noticeable increase.
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 have given a buy rating to Maersk and Zim shares. However, they caution that the high season for shipping may come to a close earlier than usual, owing to its early start. According to him, it is anticipated that there will be a market slowdown in the late summer, which will result in a significant drop in freight rates due to the increased number of available ships.
Currently, the equities are in a favourable position due to the positive momentum in freight rates, the potential for upward guidance, and the market’s lack of preparedness for the unexpected rally in peak season spot rates’, they explained.
