Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Equity Bottom-Up

AP Moeller - Maersk A/S / Equity Bottom-Up

Our index suggests average container shipping rates increased by around 6.6% in January. This is the largest YoY increase for our index since June 2019 and follows two consecutive months of YoY declines. However, despite the increase, we believe container shipping margins remain under pressure. The required shift to more expensive low-sulphur fuel (effective January 1st) led to a sharp rise in operating costs, too. We suspect higher average container rates in January -- the result of General Rate Increases (GRIs) and a new Low-Sulphur Surcharge (LSS) in some tradelanes -- recovered less than the full increase in actual fuel expenses. Looking forward, it's clear that the COVID-19 outbreak has temporarily emptied ships sailing from Asia to North America and Europe, and that normalcy may not return for some time. Although carriers continue to push for additional rate and surcharge increases in the coming weeks, we don't think these increases will 'stick' unless or until ships begin to fill up again, which we don't expect to happen in 2020. We continue to believe near-term container shipping earnings are likely to decline for most carriers. Despite optimism about the potential for improved trade relations between the US and China and a a demand 'snap-back' once COVID-19 is controlled, we would avoid the segment for now.

Our index suggests average container shipping rates increased by around 6.6% in January. This is the largest YoY increase for our index since June 2019 and follows two consecutive months of YoY declines. However, despite the increase, we believe container shipping margins remain under pressure. The required shift to more expensive low-sulphur fuel (effective January 1st) led to a sharp rise in operating costs, too. We suspect higher average container rates in January -- the result of General Rate Increases (GRIs) and a new Low-Sulphur Surcharge (LSS) in some tradelanes -- recovered less than the full increase in actual fuel expenses. Looking forward, it's clear that the COVID-19 outbreak has temporarily emptied ships sailing from Asia to North America and Europe, and that normalcy may not return for some time. Although carriers continue to push for additional rate and surcharge increases in the coming weeks, we don't think these increases will 'stick' unless or until ships begin to fill up again, which we don't expect to happen in 2020. We continue to believe near-term container shipping earnings are likely to decline for most carriers. Despite optimism about the potential for improved trade relations between the US and China and a a demand 'snap-back' once COVID-19 is controlled, we would avoid the segment for now.

TRACKING TRAFFIC/Containers & Air Cargo: Rates Rose in January, But Margins Remain Under Pressure

Equity analyst - Containers, Drewry Maritime Financial Research

Nilesh Tiwary

Equity analyst - Containers

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

Thematic (Sector/Industry)

<div>Most of the shipping stocks fell in the third week of January after the breakout of the corona virus caused multiple casualties in China. Nonetheless, we expect limited impact on container shipping companies in the longer term. However, if the severity of the outbreak increases, industrial production and retail sales could be affected, leading to rising inventory on ports. In addition, some carriers have warned of a temporary shortage of containers because, 1) Chinese New Year has been extended in China, 2) a shortage of customs and port labour could hold containers. Meanwhile, our overall view remains unchanged towards the stocks under coverage. If the situation is well managed and contained and depending on economic impact and valuations, we may consider revising our fair values. For now, the shock to demand and the macro environment would more likely be short term rather than the long term.</div>

Most of the shipping stocks fell in the third week of January after the breakout of the corona virus caused multiple casualties in China. Nonetheless, we expect limited impact on container shipping companies in the longer term. However, if the severity of the outbreak increases, industrial production and retail sales could be affected, leading to rising inventory on ports. In addition, some carriers have warned of a temporary shortage of containers because, 1) Chinese New Year has been extended in China, 2) a shortage of customs and port labour could hold containers. Meanwhile, our overall view remains unchanged towards the stocks under coverage. If the situation is well managed and contained and depending on economic impact and valuations, we may consider revising our fair values. For now, the shock to demand and the macro environment would more likely be short term rather than the long term.

Container Shipping - Coronavirus and Initial Thoughts

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/114/303/original/BANNER-CARGO-FINAL.png?1579444685" class="editor-image img-responsive" data-smartkarma-image-id="114303"></figure>In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019 was modest and some peak season (Q3) demand was probably pulled forward to avoid the threat of new tariffs on Chinese goods moving to the US.But it appears key Transpacific Eastbound rates have been declining since late Q3 or early Q4, and we believe profitability probably peaked in Q3 for most carriers. The measures we track suggest average rates declined by 4-5% YoY in November and December. With Transpacific Eastbound under pressure and fuel prices still high, we believe near-term earnings are likely to decline for most container shipping companies. Despite optimism about the potential for improved trade relations between the US and China, we would avoid the segment for now.

In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019 was modest and some peak season (Q3) demand was probably pulled forward to avoid the threat of new tariffs on Chinese goods moving to the US.But it appears key Transpacific Eastbound rates have been declining since late Q3 or early Q4, and we believe profitability probably peaked in Q3 for most carriers. The measures we track suggest average rates declined by 4-5% YoY in November and December. With Transpacific Eastbound under pressure and fuel prices still high, we believe near-term earnings are likely to decline for most container shipping companies. Despite optimism about the potential for improved trade relations between the US and China, we would avoid the segment for now.

TRACKING TRAFFIC/Containers & Air Cargo: For Most Box Carriers, Profitability Likely Already Peaked

Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

HL’s 3Q19 EBITDA margin (incl. JV and Associates) of 17% is the highest since we started tracking its financials in 2013. This has been achieved despite a low revenue growth of 1% yoy or EUR 3.2bn (USD 3.6bn) over 3Q18. Despite muted demand, HL continues to keep a check on its operating cost (OPEX).

HL’s 3Q19 EBITDA margin (incl. JV and Associates) of 17% is the highest since we started tracking its financials in 2013. This has been achieved despite a low revenue growth of 1% yoy or EUR 3.2bn (USD 3.6bn) over 3Q18. Despite muted demand, HL continues to keep a check on its operating cost (OPEX).

Hapag Lloyd (HLAG:GR): Cost Optimization Boosts Bottomline

The stock market, a barometer for any industry’s health, has turned out to be favourable for Hapag-Lloyd (HL) and its investors this year. Not only has the HL stock traded at a historical high since the IPO, touching EUR 70.60 on 6 September, but also remains firm at around EUR 60. Notwithstanding its decent 1H19 results, the current strength in the share price is intriguing considering the general macro headwinds topping the headlines. Two macro headwinds stand out – one is low spot rates and the second is the looming threat of higher bunker fuel prices from 2020 once the IMO regulations kick in. HL’s stock price is now more susceptible to volatility due to the single-digit free float after two of its anchor shareholders increased their respective stakes.

The stock market, a barometer for any industry’s health, has turned out to be favourable for Hapag-Lloyd (HL) and its investors this year. Not only has the HL stock traded at a historical high since the IPO, touching EUR 70.60 on 6 September, but also remains firm at around EUR 60. Notwithstanding its decent 1H19 results, the current strength in the share price is intriguing considering the general macro headwinds topping the headlines. Two macro headwinds stand out – one is low spot rates and the second is the looming threat of higher bunker fuel prices from 2020 once the IMO regulations kick in. HL’s stock price is now more susceptible to volatility due to the single-digit free float after two of its anchor shareholders increased their respective stakes.

Hapag Lloyd (HLAG:GR): High Stock Price Anomaly

Germany

Hapag-Lloyd AG operates as a container shipping line company. The Company offers transportation of goods by sea, road, rail, and inland waterway vessels. Hapag-Lloyd serves customers worldwide.

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Hapag-Lloyd (HLAG GY)

TRACKING TRAFFIC/Containers & Air Cargo: Rates Rose in January, But Margins Remain Under Pressure

Our index suggests average container shipping rates increased by around 6.6% in January. This is the largest YoY increase for our index since June...

Daniel Hellberg

Container Shipping - Coronavirus and Initial Thoughts

Most of the shipping stocks fell in the third week of January after the breakout of the corona virus caused multiple casualties in China....

Drewry Maritime Financial Research

TRACKING TRAFFIC/Containers & Air Cargo: For Most Box Carriers, Profitability Likely Already Peaked

In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019...

Daniel Hellberg

Hapag Lloyd (HLAG:GR): Cost Optimization Boosts Bottomline

HL’s 3Q19 EBITDA margin (incl. JV and Associates) of 17% is the highest since we started tracking its financials in 2013. This has been achieved...

Drewry Maritime Financial Research

Hapag Lloyd (HLAG:GR): High Stock Price Anomaly

The stock market, a barometer for any industry’s health, has turned out to be favourable for Hapag-Lloyd (HL) and its investors this year. Not only...

Drewry Maritime Financial Research

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