Date: Thursday, April 13, 2023
Source: Splash 24/7
Shipping analysts at HSBC have called the bottom of the cycle for container shipping.
The latest freight market report from the banking giant makes the case that the sector, in decline since last summer, is now on the way back up.
The spot Shanghai Containerised Freight Index (SCFI) climbed 3.6% week-on-week last Friday, its strongest weekly gain since May 2022. The China Containerised Freight Index declined 0.6% week-on-week, tapering from 1.9% the week prior.
HSBC argued that spot rates have likely troughed and a sequential recovery is on the cards.
Looking at the potential for labour disruption on the US west coast, HSBC said this will likely further encourage beneficial cargo owners to sign contracts above spot rates and secure capacity in order to ensure service reliability during a potential recovery in demand.
The National Retail Federation in the US is forecasting Q2 container import volumes to grow, to the point where they will be 7% above the Q2 2019 level.
Also turning positive on container prospects are analysts at Jefferies who in a note yesterday discussed the confluence of several factors driving a revival in container fortunes including disruption risk brought on by dockworker strikes at the Ports of Los Angeles and Long Beach, along with major liners seeking to boost transpacific general rate increases (GRIs) by $500 to $600 per feu and the overall stability seen in spot freight rates recently.
“It remains to be seen how the strikes will play out and also whether the GRIs will stick, but for now there appears to have been a bottom set in the market and opportunity for improved earnings in the near-term,” Jefferies suggested.
The latest weekly report from consultancy Linerlytica also stated: “Market sentiment continues to turn positive,” going on to note how capacity utilisation on the US west coast routes have risen in the last two weeks with supply still limited by blanked sailings, which would provide support for the GRI push that will mark the first significant rate rebound since July 2022.
“Charter rates have continued to rise, along with durations with carriers willing to commit to longer term fixtures of 12 months and longer, reflecting the improved market conditions,” Linerlytica pointed out.
Charter rates rising markedly for all sizes of ships is reflected in the Alphaliner Charter Index, which is now, for the first time since June 2022, on a modest but visible rising trend.
The bottom of the market for boxship valuations also looks to have passed with online portal VesselsValue reporting at the end of March how container values had found a floor and are now beginning to stabilise.
After a tough Q1, liner executives will be relieved that the predicted doom and gloom conditions appear to have lifted.
Indeed, earlier this month a usually reliable source of container financial forecasts made a call on 2023 fortunes for the liner industry, suggesting this year could be the third-best combined annual results in the history of the sector.
John McCown, who runs Blue Alpha Capital, has forecast liner shipping will make a combined net income this year of $43.2bn on revenues of $327.bn. While this would mark an 80% drop over last year’s record profits, it would still prove to be another sensational year of earnings, helping to explain carriers’ continued amassing of tonnage in the first three months of 2023.