Container shipping equities: what is the current state of affairs?
In early November, stock markets around the world rallied after Biden’s apparent victory and the positive results of vaccines. However, they say the vaccine will be available next month. It also needs global shipping and supply for a positive impact. With the recent US election, we had a very interesting trading experience in the markets. It was mainly due to the desire for vaccines and the reduction of the post election fluctuations. This led to a massive increase in sea freight container shipping stocks. The average share price return of the 12 selected liner operators on YTD basis was more than +70%.
The Drewry liner equity index has a 16% gain from the beginning of November to November 16th. The index shows a high correlation with the global container index. While the average composite index of the WCI, assessed by Drewry (until 19 November), is $1,963 per 40ft container. It is $478 higher than the five year average of $1,485 per 40ft container. Its composite WCI index increased by 4.9% weekly and 100.7% year on year to $2,834.73 per 40ft container.
It expects port congestion and peak season surcharges to drive up freight rates. Also the trade volumes gradually return to normal. Increased container shipping at ports has put unusual pressure on terminal infrastructure. It has led to significant congestion. Shipping lines have reinstated sailings which were withdrawn in 1H20 owing to COVID-19 lock downs. Because they want to meet the requirements of the trade. Freight rates continued the upward trend for 1Q20 and 2Q20. As businesses started returning to normalcy in 3Q20, these rates reached unprecedented levels. Because of non-availability of empty containers.
The news of the second wave of the pandemic in some countries. But they are still optimistic about carrier earning in 2021. They believe that the sea freight industry should be able to earn a decent income based on some data indicators. It is about $6 bln of operating profit.
The oil prices have been under pressure recently. Because the second wave can affect demand more. But a series of news about the development of vaccines has created positive emotions. However, we will not feel the first significant impact until well in to the second half of 2021.
Crude oil and shipping stock prices are inversely related. When oil prices rises, company valuations fall and vice versa. The relationship has largely held true between Drewry liner shipping equity index and Brent crude oil.
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