Shipping stocks rise, biggest gainers in Europe at start of 2024

dAmico International Shipping SA

05/01/2024 14:11

By Samuel Indyk
       LONDON, Jan 5 (Reuters) - Shipping companies have been
the best performing stocks in Europe since the start of 2024,
and were set for their biggest weekly jump in years, as the
re-routing of vessels following attacks in the Red Sea boosted
freight rates.
    Shippers have avoided the region as a result of attacks on
commercial vessels in the Red Sea since mid-November and
analysts at Jefferies say liners controlling more than 85% of
global fleet capacity have diverted services utilising the Red
Sea mostly around Africa.  
    Danish shipper Maersk,  MAERSKb.CO  which controls about
one-sixth of global container trade, said on Friday its vessels
would continue to avoid the Red Sea which gives access to the
Suez Canal, a shortcut between Asia and Europe that avoids
circumnavigating the southern tip of Africa.

    Sailing around Africa adds at least 10 days of travel time
and that has already shown up in freight rates - Asia to Europe
prices have nearly doubled since mid-December to more than
$4,000 per forty-foot equivalent unit (FEU), Freightos data
showed as of Jan. 3.
    This is good news for shipping stocks. 
    Maersk shares are up over 17% this week alone, their biggest
weekly jump since April 2009, making them the biggest gainer in
Europe's STOXX 600 benchmark. 
    They are up around 40% since the middle of December, rising
from around a three-and-a-half year low. 
    Rivals Hapag Lloyd  HLAG.DE  shares have jumped 23% this
week, their biggest weekly rise since March 2022. Frontline
 FRO.OL  shares are up over 8% - the STOXX 600's third biggest
gainer - and Italy's D'Amico  B7C.MI  is up 3.5%. 
    "Shipping companies have high operating leverage and any
move in revenues quickly falls to the bottom line," said Tom
Gilbey, equity research analyst at Quilter Cheviot. 
    "Given around 30% of volumes are typically at spot rates,
this will drop down quickly into profit as there is limited
incremental cost to these revenues."
    To be sure, the sustainability of the rally depends on what
happens on the water. 
    "If freight rates stay where they are - I think they are
likely to in the short-term - then that does underpin the share
prices. If we see any easing of the situation then they will
probably fall quite a lot," Dan Boardman-Weston, CEO and CIO at
BRI Wealth Management, who is nervous about the sector's
cyclical nature. 
    
    THE RIGHT TIME 
    Rising freight rates come at a good time for the shipping
companies after a disappointing 2023, when profits fell as
disruptions around ports eased and global demand worsened -  bad
news for firms which had invested heavily in new container ships
during and after the pandemic to meet strong demand. 
    In November, Maersk, said it was cutting 10,000 jobs
following a steep drop in third-quarter profit in the face of
over capacity. Hapag Lloyd, at its November results, announced a
77% drop in net profit for the first nine months of the year.
    "If you saw this (Red Sea disruption) happen in normal
times, the share price might go up a little but because the
overcapacity situation is so bad, markets are latching onto
this," said Michael Field, European market strategist at
Morningstar. 
    "It's come at a good time for the shipping companies." 

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Vessels re-routing    https://tmsnrt.rs/3NVTcCz
Shipping companies    https://tmsnrt.rs/3vj6B0K
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 (Reporting by Samuel Indyk, editing by Alun John and)
 ((Samuel.Indyk@thomsonreuters.com;))