The Zhitong Finance App learned that CICC released a research report saying that freight rates have continued to rise recently due to continued Red Sea detours, increased demand for US routes, shipping companies' capacity control, and pre-May 1st shipments. According to Alphaliner data, the capacity of US and European routes was -0.6%/-5.7% month-on-month in April. As of April 26, SCFI US-West and European freight rates were +13.4%/+16.7% month-on-week, and +147.9%/+161.1% year-on-week. At the same time, several shipping companies recently announced freight rate increases. Affected by detours, freight rates may remain high in the short term, increasing the certainty of profits and dividends for shipping companies this year. I am optimistic about COSCO Marine Holdings (01919), which have a lower valuation, Haifeng International (01308), and Zhonggu Logistics (603565.SH), which have a high dividend ratio. It is recommended to focus on Oriental Overseas (00316).

The main views of CICC are as follows:

US import demand is relatively good, supporting the recent continuous rise in freight rates

According to Descartes data, US container imports in March 2024 increased 0.4% from February, up 15.7% year on year. According to the Federal Reserve Bank, US retailer sales volume in March is expected to be +3.9%/+0.7% year over month, and US consumer and import demand is strong. CICC said that the actual inventory removal phase in the US may continue until the middle of the second quarter, but retailers have already begun to replenish stocks in categories such as furniture and appliances related to the real estate cycle.

Continued detours in the Red Sea help digest supply pressure

The Red Sea detour continues. Container ship traffic on the Suez Canal dropped 73% year on year in the past 7 days. According to our previous estimates, if a liner company were to bypass the Red Sea or absorb 6% of the current capacity throughout the year. According to Clarksons, the 1H24/3Q24/4Q24 delivery capacity accounted for 5.8%/2.6%/2.5% of the capacity at the beginning of the year. Before capacity delivery was completed in the first half of the year, there was still a capacity gap around the Red Sea, compounded by an improvement in regional demand. CICC believes that there will still be a mismatch between supply and demand in the short term, and freight rates may remain at the current high level, and the probability of successful price increases during the peak season is increasing. Looking at the whole year, according to Clarksons data, the 2024/2025 supply growth rate was +9%/+4.9%, box-mile demand growth rate was +9.2%/-2.4%. Supply and demand were basically balanced in 2024, and there is still some pressure on supply in 2025.

It suggests that when freight rates continue to rise, there is an opportunity for shipping companies to bottom profit and a definite rise, and the valuation center to move upward

Since the SCFI index continued to rise again in late March, COSCO Offshore Holdings A/H shares have risen 9.0%/12.6%. CICC believes that freight rates and valuations are still expected to increase further due to the short-term mismatch between supply and demand. However, with the gradual delivery of capacity in the second half of the year, additional capacity may require continued strong demand from Europe and the US before it can be absorbed, and this also depends on European and American consumption and stock replenishment demand and interest rate cuts.

risks

Global economic growth is declining, and geopolitics are changing.