Source: Zhitong Finance

Recently, the shipping market has once again experienced the phenomenon of “one cabin is hard to find”, and the sharp rise in shipping costs has once again become the focus of the market. On Monday, the main contract of the shipping index (European line) soared sharply, rising more than 14%, setting a new record high in history. In the face of soaring freight prices, the global shipping sector has also risen to a high level. Moreover, analysts pointed out that with the arrival of the peak season, global shipping rates are expected to continue to rise.

The global shipping industry has recently been hit by shocks. Geographically, negotiations between Palestine and Israel are once again in crisis due to Israel's approval of the expansion of military operations in Rafah. On the demand side, in the context of price increases for existing two-wheel liner companies in May, Maersk recently announced that it will start raising prices in June. Market analysts pointed out that currently there is limited idle capacity in the market, especially in the context of Red Sea detours. The current capacity appears to be relatively insufficient, and the detour effect is becoming more and more obvious. Notably, Maersk previously warned that the Red Sea crisis could reduce capacity by 20% in the second quarter.

There is an imbalance between supply and demand, and shipping prices have soared recently

Container shipping prices from China to Europe will rise sharply in June 2024. Since October of last year, these prices have soared by almost 400%. Over the past two weeks, the Red Sea crisis and unexpectedly high demand have caught many freight forwarders in Asia and Europe by surprise. As a result, the spot freight price index began to reflect changes in industry rumors this week.

Last week, the Drury World Container Index (WCI) recorded a 20% weekly increase on the Shanghai-Rotterdam route, reaching $3,709 per 40-foot container, close to the weekly increase of Xeneta XSI, which also reported a 15% increase to $3,716.

On Monday, the shipping index (European line) closed up nearly 15% during the day and reached a new high. The Shanghai Container Freight Index (Shanghai Container Freight Index), which calculates freight rates at major ports in China, reached its highest level since this year. It has risen 31% so far this year, and has risen 72% since mid-December last year. Since May, the Baltic Sea dry bulk freight index has also been rising. On May 8, it surged nearly 6%, reaching its highest level since March 21.

The Baltic Dry Index (BDI) is an important index for studying the future performance and investment value of shipping stocks. It is also one of the leading indicators for international trade and the international economy. It focuses on global demand for commodities such as minerals, food, coal, and cement.

Zheshang Securities released a research report saying that recently, shipping companies' price increases have been supported by many factors: supply chains are tight due to prolonged conflict in the Red Sea. On the one hand, ship detours have increased transportation distance, effectively increasing the demand for capacity in nautical miles and absorbing existing capacity; on the other hand, the decline in ship turnover efficiency has led to tight container turnover in ports, further exacerbating supply chain tension. The demand side is marginally improving. On the one hand, macroeconomic data in Europe and the US improved marginally. On the other hand, due to longer transit times due to detours, compounded expectations of rising freight rates during the peak season, shippers prepared goods ahead of schedule. Furthermore, the US line has entered a critical period of signing the Changxie contract, and shipping companies are motivated to increase prices.

As spot rates continue to soar, available capacity to sail out of Asia is becoming increasingly tight. According to shippers and freight forwarders involved in the trade, this scarcity allows carriers to prioritize higher-paying shipside delivery (FAK) goods over contract goods. Loadstar reported last week that from May 11, Maersk will levy a peak season surcharge (PSS) of 1,500 US dollars/40 foot container for routes between Asia and Northern Europe. However, Loadstar said there are signs that new peak season pricing may have already been implemented.

Analyst: Freight prices are expected to continue to rise

The upcoming traditional peak season for shipping will also further catalyze the rise in market expectations for shipping demand. Jefferies analysts led by Omar Nokta said, “Freight rates on major trade routes have soared after a short period of calm, and this trend is spreading to non-mainline routes. In the face of a marked increase in trade volume, the diversion of the Red Sea route continues to limit supply.” It is estimated that 90 per cent of normal Red Sea capacity is being transferred near South Africa. Jefferies said the peak season usually lasts from June to September, but as shippers compete for capacity, this may support shipping costs when “entering the second quarter.”

Guoxin Securities also said that the impact of the current Red Sea conflict continues. Retail inventory replenishment in Europe and the US is driving up demand. Some European ports will begin to block ports this week. Once major routes begin to be delayed, it will siphon the capacity of other routes. If congestion cannot be resolved, freight rates are expected to once again exceed expectations.

Similarly, Shen Wan Hongyuan also pointed out that considering that shipping prices have recently exceeded expectations, judging from subsequent cargo volumes, the agency believes that the traditional peak season in July-September has not yet begun, and it is highly certain that prices will continue to rise in May-August based on current levels. Echoing this, UBS analysts Christian Nedelcu and Amy Yi said: “While demand remains strong during the peak months, this may mean that freight rates will face further upward pressure — this will support maritime carriers.”

The shipping sector followed suit, with some shipping stocks rising as much as 50%

Thanks to rising shipping prices, the shipping sector also soared. On Monday, ZIM.US closed up 7.3%, hitting a new high in more than 52 weeks, continuing the recent upward trend in container shipping company stocks. And analysts believe this momentum is unlikely to end anytime soon. Meanwhile, shares of global shipping giant Maersk rose more than 7% in the Copenhagen stock market on Monday. On the same day, Hong Kong shipping stocks rose collectively. Orient Overseas International (00316), COSCO Hainan (01138), COSCO Marine Control (01919), and COSCO Haifa (02866) all rose more than 5%, while Haifeng International (01308) and Sinotrans (00598) rose more than 3%.

The US shipping sector has started a “boom” model since April, and SonicShare Global Shipping ETF (BOAT.US), a sector fund dominated by shipping stocks, has accumulated a cumulative increase of more than 20%. Among them, Oriental Overseas International, the largest holding stock, increased by more than 25% during the year. Other heavy stock companies have performed particularly well since this year, with COSCO Marine Holdings and Haifeng International rising by more than 50% during the year. Frontline (FRO.US) also increased by about 35% during the year. Furthermore, the most notable increase in Star Shipping during the year was as high as 91%.