SeatradeMaritime: Investors bet on container lines profiting from disruption

Asian carrier share prices show the biggest gains as Dynaliners Share Price Index as the expectation from vessel owners and operators is that the disruption will see increased profits.

Dynamar analyst Darron Wadey reports that with around 500,000 teu “bottled up” in the Arabian Gulf, according to the latest Xeneta data, and more ships with Middle East cargo already on the water there will be an effect on trade.

“Nearly twice as many container shipping related shares went up as went down,” said Wadey, “Share prices for those involved with vessel assets, namely the shipowners and carriers, did well, companies located in China, Japan, South Korea or Taiwan dominated the list of biggest gains, while the share prices for those perhaps to be impacted by reduced activity, such as ports, lagged in comparison.”

According to Wadey this is not a vote of confidence that the conflict will be rapidly resolved, but quite the opposite, markets are looking to make short-term investments through looking at who will benefit from the disruption.

Cargo owners have already been told that freight that is on the water will be diverted to safe ports, shippers will need to provide onward instructions for their cargo and shippers will bear the costs of those additional moves.

“All costs associated with the diversions and on-forwarding will have to be borne by the shippers. Rates ranging from $1,500 to $2,000 per teu have already been advised for such containers,” said Wadey.

As seen in previous major disturbances the ripple effect from the epicentre of the disruption can be felt globally very quickly, impacting trade through port congestion delays and rapidly escalating freight rates, according to Xeneta chief analyst Peter Sand.

Xeneta data shows 147 container ships are locked into the Middle East Gulf, with no possibility of leaving, except by “sailing through an active conflict zone”.

The question for the freight that is now sailing towards the Gulf is which ports will they discharge their cargo.

“Alternative ports are not equipped to deal with a sudden increase in volumes arriving against chaotic schedules, so severe congestion is expected,” commented Sand.

He added that Salalah, in Oman, could be one destination, but that has already been targeted by the Iranian military, with Sri Lankan ports seen as a possible alternative, in terms of proximity to the eventual destination of freight. 

At a Maersk media briefing in Singapore on Wednesday Bhavan Vempati, Head of Asia Market, Ocean Product, said they were looking at how to leverage their hub operation in Salalah, which had not been impacted by the situation.

According to Sand the ripple effects can already be seen as spot rates out of China to Salalah have increased 28% from pre-conflict period, 26 February, 17% to Colombo, Sri Lanka and 9% to the UK.

Spot rates on other major trade routes are also rising, though there is an element of a rebound in demand following the return to work in China, and other Asian countries, as the Lunar New Year celebrations end.

Moreover, there have been significant capacity adjustments on all the major trades, with US West and Coast routes seeing declines in capacity of 5.6% and 7.1% respectively.

In addition, North European capacity is down 12.7% and capacity for the Mediterranean is down 3.3%. Only the fronthaul, Europe to North America trades have seen an increase in capacity of 16% compared to one week ago.

Predictably European fronthaul spot rates have already started to climb from $2,224 per feu Far East to North Europe, to $2,338 per feu on 26 February, and $3,334 per feu Far East to the Mediterranean this week to $3,570 Far East to Mediterranean.

On the eastbound Pacific a similar effect can be seen with rates rising from $1,883per feu to the US West Coast to $2,123 per feu this week; and from $2,659 per feu to $2,870 per feu, Far East to the US East Coast