Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Capital Markets

ZIM Integrated Shipping Services / Equity Capital Markets

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Israel's ZIM Integrated Shipping Services (proposed ticker ZIM US) has filed documents to launch an IPO in the US. Media reports have speculated the container shipping company hopes to raise at least US$100 mn in the deal; some reports say ZIM could try to raise US$300 mn or more.
The objective of this note is to provide some context for the company and the global container shipping industry. After all, it has been over two decades since a global container ship operator has traded in the US (<a href="https://www.smartkarma.com/entities/matson-inc" target="_blank" data-smartkarma-citation="entities:6335:1" rel="noopener">Matson Inc (MATX US)</a> focuses on niche domestic US markets, generally).
ZIM is a small player in global container shipping, and contrary to its claims the company mainly operates in highly competitive segments. Its "asset-light" model is unusual, but it represents a double-edged sword: chartering in the majority of its capacity offers flexibility, but it also means operating costs may rise in tandem with freight rates over the cycle, limiting margin expansion. 
Fortunately, Europe and Asia offer several direct comps for ZIM, including <a href="https://www.smartkarma.com/entities/ap-moeller-maersk-a-s" target="_blank" data-smartkarma-citation="entities:22428:1" rel="noopener">AP Moeller - Maersk A/S (MAERSKB DC)</a> of Denmark and <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a> of Taiwan. These two companies -- both of them far larger than ZIM, and more profitable over the cycle -- will serve as useful benchmarks once ZIM and its bankers announce details regarding deal size and pricing.




Israel's ZIM Integrated Shipping Services (proposed ticker ZIM US) has filed documents to launch an IPO in the US. Media reports have speculated the container shipping company hopes to raise at least US$100 mn in the deal; some reports say ZIM could try to raise US$300 mn or more.
The objective of this note is to provide some context for the company and the global container shipping industry. After all, it has been over two decades since a global container ship operator has traded in the US (Matson Inc (MATX US) focuses on niche domestic US markets, generally).
ZIM is a small player in global container shipping, and contrary to its claims the company mainly operates in highly competitive segments. Its "asset-light" model is unusual, but it represents a double-edged sword: chartering in the majority of its capacity offers flexibility, but it also means operating costs may rise in tandem with freight rates over the cycle, limiting margin expansion. 
Fortunately, Europe and Asia offer several direct comps for ZIM, including AP Moeller - Maersk A/S (MAERSKB DC) of Denmark and Evergreen Marine Corp (2603 TT) of Taiwan. These two companies -- both of them far larger than ZIM, and more profitable over the cycle -- will serve as useful benchmarks once ZIM and its bankers announce details regarding deal size and pricing. 

Planned ZIM IPO: Opportunistic Listing Near Cycle Peak for Minor Industry Player

Equity Bottom-Up

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/990/original/BANNER-CARGO.png?1605979844" class="editor-image img-responsive" data-smartkarma-image-id="172990"></figure></section>Average container rates popped in October, up almost 14% YoY according to our proprietary model. Container volumes out of Asia and into the North American West coast remained firm, too.Carriers (and their customers) have once again begun complaining about a shortage of containers at key origins in Asia. We believe this equipment shortage also supports firmer container rates.Firming rates and volumes, combined with relatively low fuel prices, are delivering a surprisingly good year to container carriers, Covid19 be damned. But we feel most of the good news has been reflected in share prices, many of which have more than doubled from lows in H1 2020.

Average container rates popped in October, up almost 14% YoY according to our proprietary model. Container volumes out of Asia and into the North American West coast remained firm, too.Carriers (and their customers) have once again begun complaining about a shortage of containers at key origins in Asia. We believe this equipment shortage also supports firmer container rates.Firming rates and volumes, combined with relatively low fuel prices, are delivering a surprisingly good year to container carriers, Covid19 be damned. But we feel most of the good news has been reflected in share prices, many of which have more than doubled from lows in H1 2020. 

TRACKING TRAFFIC/Containers & Air Cargo: October Rates Pop | LA Volumes Strong | Box Shortage?

Our research suggests average container rates rose by 6% in September, boosted by improved Transpacific volumes. While inbound to US demand appears strong through October, estimates from the Port of LA suggest early November will see a modest YoY decline in throughput. 
Bunker (ship fuel) prices remain below year-ago levels and carrier profitability in Q3 (and early Q4) likely remains high compared to 2019. Germany's <a href="https://www.smartkarma.com/entities/hapag-lloyd-ag" target="_blank" data-smartkarma-citation="entities:21649:1" rel="noopener">Hapag-Lloyd AG (HLAG GR)</a> lifted full-year guidance this week, reflecting confidence in near-term market conditions. 
After almost tripling earlier in 2020 on a combination of strong demand and limited capacity, it appears air cargo pricing for key Asian carriers has moderated compared versus peak levels in Q2. 
While current conditions appear buoyant, we believe the sharpest YoY improvements in profitability for container carriers (and air cargo) are probably already behind us.

Our research suggests average container rates rose by 6% in September, boosted by improved Transpacific volumes. While inbound to US demand appears strong through October, estimates from the Port of LA suggest early November will see a modest YoY decline in throughput. 
Bunker (ship fuel) prices remain below year-ago levels and carrier profitability in Q3 (and early Q4) likely remains high compared to 2019. Germany's Hapag-Lloyd AG (HLAG GR) lifted full-year guidance this week, reflecting confidence in near-term market conditions. 
After almost tripling earlier in 2020 on a combination of strong demand and limited capacity, it appears air cargo pricing for key Asian carriers has moderated compared versus peak levels in Q2. 
While current conditions appear buoyant, we believe the sharpest YoY improvements in profitability for container carriers (and air cargo) are probably already behind us. 

TRACKING TRAFFIC/Containers & Air Cargo: Box Rates Firm | LA Down in Nov? | Air Cargo Pricing Eases

August numbers show a spike in container volumes on key routes, but average achieved freight rates were still just so-so (but improving compared to Q2 2020).
Forward data from the Port of Los Angeles (PoLA) shows strength in rest of September and into the October peak season. Carriers are also benefitting from relatively low fuel prices. 
Conclusions: We still have not seen the strong bump in rates reported by the mainstream financial media, but container pricing is better than in Q2 and volumes have clearly firmed and fuel prices are reasonable -- all positives for the carriers. But the biggest gains -- in both carrier profitability and share prices -- are likely already behind us.

August numbers show a spike in container volumes on key routes, but average achieved freight rates were still just so-so (but improving compared to Q2 2020).
Forward data from the Port of Los Angeles (PoLA) shows strength in rest of September and into the October peak season. Carriers are also benefitting from relatively low fuel prices. 
Conclusions: We still have not seen the strong bump in rates reported by the mainstream financial media, but container pricing is better than in Q2 and volumes have clearly firmed and fuel prices are reasonable -- all positives for the carriers. But the biggest gains -- in both carrier profitability and share prices -- are likely already behind us. 

TRACKING TRAFFIC: Containers & Air Cargo: August Volumes Jump | New PoLA Data Firm Through October

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

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July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but only compared to weak May-June numbers.
Q2 earnings results from <a href="https://www.smartkarma.com/entities/ap-moeller-maersk-a-s" target="_blank" data-smartkarma-citation="entities:22428:1" rel="noopener">AP Moeller - Maersk A/S (MAERSKB DC)</a> and <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a> showed a dramatic YoY improvement in core shipping profitability, driven almost wholly by a reduction in fuel costs. These gains are likely to moderate in H2.
Container names Maersk and Evergreen are representative of the industry and their shares have recovered 75% and 67% since the trough in March this year. Both shares have surpassed 100% of stated book value, and we now believe further significant gains will be harder to come by.


July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but only compared to weak May-June numbers.
Q2 earnings results from AP Moeller - Maersk A/S (MAERSKB DC) and Evergreen Marine Corp (2603 TT) showed a dramatic YoY improvement in core shipping profitability, driven almost wholly by a reduction in fuel costs. These gains are likely to moderate in H2.
Container names Maersk and Evergreen are representative of the industry and their shares have recovered 75% and 67% since the trough in March this year. Both shares have surpassed 100% of stated book value, and we now believe further significant gains will be harder to come by. 

TRACKING TRAFFIC/Containers & Air Cargo: July Volume & Rates Better | Q2 Profits Soar on Costs

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)

Planned ZIM IPO: Opportunistic Listing Near Cycle Peak for Minor Industry Player

ZIM is pursuing an IPO in the US as the container shipping cycle is approaching a peak. In this note we attempt to give investors context that...

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TRACKING TRAFFIC/Containers & Air Cargo: October Rates Pop | LA Volumes Strong | Box Shortage?

Container rates rose again in October, and fuel costs remain low. Although carriers likely continue to enjoy solid profitability, we believe shares...

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TRACKING TRAFFIC/Containers & Air Cargo: Box Rates Firm | LA Down in Nov? | Air Cargo Pricing Eases

Container volumes and pricing firmed in September, and fuel prices remain relatively low, but trading conditions are unlikely to improve much from...

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TRACKING TRAFFIC: Containers & Air Cargo: August Volumes Jump | New PoLA Data Firm Through October

August numbers show better volumes, rates just so-so (but improving) Forward data from P

Tracking Traffic

TRACKING TRAFFIC/Containers & Air Cargo: July Volume & Rates Better | Q2 Profits Soar on Costs

July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but...

Tracking Traffic

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