2016 was the year for miners. How about the unloved shippers? Is 2017 the year for them?
Yesterday, China’s shipping companies soared. COSCO Shipping (1919.Hong Kong), for instance, rallied 11.5% in just one day, bringing this year’s gain to 22%.
Investors are latching onto Maersk Line‘s comments at its December quarter earnings call that the shipping industry has reached an inflection point in 2017. Jefferies‘ Andrew Lee noted: (see chart)
[Maersk] expects ‘improvement in excess of US$1 bn in underlying profit’ this year, which implies the container business will be profitable in 2017. Further, Maersk expects ‘gradual improvement in freight rates is expected in 2017 from 4Q16′....MORE
Despite the impact of Chinese New Year, container spot freight rates have declined only -4.3% since the YTD high on 13 January 2017. In fact, freight rates are tracking ahead of expectations given average spot rates are currently 67.2% higher y-y with YTD average spot rates 81.1% and 16.8% higher than 1Q16 and 4Q16 average spot rates. We are currently forecasting 2017 average freight rates increasing 8.6% y-y.
We upgraded the container shipping sector on 5 January 2017 as the Hanjin-receivership was a blessing in disguise as this shifted pricing attitudes - shippers willing to pay higher rates to prevent another carrier bankruptcy and container lines shifting DNA to focus on reducing losses/restore profitability....