The attacks on shipping in the Red Sea have sharply driven up rates as vessels divert by the Cape of Good Hope attracting the interest of stock investors in listed container lines, although the situation remains extremely fluid.
“Container market balance tightened seemingly overnight,” wrote Omar Nokta and his team of analysts at investment bank Jefferies, in a just-released report to investors.
Ships under attack
The dangerous situation in the Red Sea, where commercial ships have come under attack from insurgents in Yemen continues to attract attention from both within and outside the maritime business. In the latter category, we can add investors in the shares of shipping companies- notably in the container trades, who are keenly aware of the recent surge in rates for vessels that would have transited through Suez (via the Red Sea), particularly between Asia and Europe.
The Freightos Baltic Exchange Global Freight Rate Index (FBX) saw a doubling from late December 2023 when it stood around $1,300, a small uptick from its levels throughout 2023, to up above $2,500 in early January.
Future contracts
While cargo interests can simply grin and bear it, or hedge through futures contracts, investors in shipping equities are now presented with an opportunity to invest in companies that will benefit from the sudden tautness on the vessel supply side.
Jefferies analyst Omar Nokta, in a newly released report, has written: “Freight rates have surged over the past three weeks, setting up a strong start to what had been viewed previously as a difficult year ahead. Despite heavy newbuilding deliveries, Red Sea disruptions are leading to a much tighter market balance.”
The Jefferies team, who look at infuse inputs from Shanghai Shipping Exchange and FBX, but also, Drewry and Xeneta, put the early January 2024 notional price on forty-foot box moves from Asia to Europe at around $3,000, roughly double the levels in effect during 2023, and moves from Asia to the States (USEC) up to $3,500, compared to $2,500 during 2023.
Jefferies opined that “We favour Maersk given its upside relative to our target, its exposure to the Asia-Europe market and its discounted valuation at just 0.6x net book value. We upgrade Maersk from Hold to Buy and maintain our Hold ratings for HLAG and ZIM.” Maersk and Hapag-Lloyd trade in the European over-the-counter markets while ZIM trades on the NYSE.
As far as market conditions, the Jefferies analysts were looking for “Disruptions to persist for some time,” and for “Current squeeze likely to abate, but rates should see higher floor”.
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Source : Sea trade
