Shipping index up 6.84%! The global concentrated transportation market is once again "hard to find a ship and a box"

November 17, the shipping sector strengthened, shipping index rose 6.84%, ranking the first in the market, zhongyuanhai, Zhongyuanhai Control, Zhongyuanhai Hair and other companies rose by the daily limit.

Industry insiders pointed out that the global concentrated transport market "one ship is difficult to find, one box is difficult to find" the situation, the mainstream shipping companies have booked space until late December, high freight rates are expected to continue until the Spring Festival around. High freight rates and high volumes will drive shipping companies to explosive growth in the fourth quarter.

The transport market is hot

Recent consolidation market prices continue to run high. On November 13, the Shanghai Shipping Exchange released the latest comprehensive Freight Rate Index (SCFI) for Export containers in Shanghai to 1857.33 points, up 11.6 percent from the previous period. The SCFI index has reached its highest level since the 2008 financial crisis.

Zhang Yongfeng, director of the International Shipping Research Institute at the Shanghai International Shipping Research Center, told China Securities Journal that the recent rebound of the epidemic in Europe and the United States has led to strong demand for imported necessities, increased volume of goods in the market, and tight container supply. As a result, the spot market freight rate has risen sharply, driving up the comprehensive freight rate index.

"The start of November is usually the traditional slow season, and this year's market has been much better than expected. At present, the concentrated transport market volume is relatively abundant, freight rate is higher, continued the previous hot trend. Zhang yongfeng said.

Data from The China Ports Association show that China's foreign trade imports and exports have been improving recently, especially the further acceleration of exports. In early November, the container throughput of eight hub ports increased 13.1% year on year, 6 percentage points higher than the previous period. The throughput of foreign trade containers in eight hub ports increased by 11.5% and domestic trade by 18.3%, both of which were significantly faster than the previous period. By region, foreign trade in the Yangtze River Delta and the Pearl River Delta is growing strongly, with growth in Shanghai, Ningbo, Guangzhou and Shenzhen exceeding 10%. Among them, Ningbo Zhoushan Port growth rate reached 33 percent.

In the context of strong demand in the centralized transport market, the international shipping freight price has continued to rise since June this year, and the shipping prices of European routes, Persian Gulf routes and South American routes have all increased significantly. At the same time, domestic export container freight index is also surging.

Han Jun, chief analyst at Citic Construction, said that most shipping companies had booked shipping space until late December. Major routes, such as Euroline, will still see tariff increases on November 22. Freight rates will remain high until the Spring Festival, according to major liner companies. During the Spring Festival next year, shipping companies will carry out the suspension plan as usual. It is highly likely that freight rates will remain high after March.

Multiple factors are driving up freight rates

For the recent consolidation of the reason for the hot market, Zhang Yongfeng believes that it is the result of the superposition of many factors. On the one hand, due to the impact of the global epidemic, demand was restrained in the first half of the year, and many businesses had the need to replenish stocks. On the other hand, a large number of epidemic prevention materials have been exported, and the demand for home shopping in overseas markets has increased. In addition, poor turnover of shipping containers has further pushed up rates.

Cimc said in a recent investor survey: "At present, our container orders have been arranged to around the Spring Festival next year. Container market demand has increased significantly recently. The reasons are as follows: first, affected by the epidemic, export containers are scattered all over the world, and reflux is not smooth; Second, foreign governments introduced fiscal stimulus such as the epidemic rescue plan, which led to the super performance of the demand side (such as living and office supplies) in the short term, and the domestic economy was booming. "The 'short box' is judged to last for at least a while, but it is not clear for the whole of next year."

Citic Construction investment research report that the root cause is the continued rapid growth of the demand side. According to the Container Trade Statistics Corporation (CTS), the growth rate of global container shipping trade was flat in July 2020, while the volume of goods accelerated in August and September, with a year-on-year growth rate of nearly 8% in September. From the year-on-year growth rate of east and west trunk lines, the demand of the two major lines continues to expand, and the American line even expands to more than 20% growth rate.

In the medium term, wholesale inventory replenishment has not yet ended and the inventory cycle will last for at least half a year, laying the foundation for a sustained improvement in demand, the report said. The RCEP agreement can significantly reduce tariff and non-tariff trade barriers, further strengthen the manufacturing center status of the Far East region, and lay the foundation for the growth of regional maritime trade volume. In addition, from the supply side, the proportion of shipbuilding hand orders is the lowest in history, and even if the impact of new shipbuilding is taken into account, the delivery date is not beyond the second half of 2023, there is no basis for large-scale release of capacity.

"It's hard to say that the shipping industry has picked up across the board. Overall, the global epidemic is a negative factor for the shipping industry. The epidemic has changed the shipment cycle, and the traditional shipping seasonality is less pronounced." Zhang yongfeng said.

Business performance was good

Affected by the continuous rise in freight prices and the increase in cargo volume, a number of shipping listed companies have delivered a good quarterly report. In the first three quarters of this year, container shipping company Zhongyuanhai Holding posted net profit of 3.86 billion yuan, up 82.4% from the same period last year.

Drewy, a leading shipping consultancy, recently raised its 2020 profit forecast for the container industry by 16 per cent to $11bn. Moody's, the rating agency, recently upgraded its rating on container shipping.

A number of shipping companies in the third quarter on the basis of substantial growth in full-year net profit is expected to increase substantially. Among them, Zhongyuanhai Energy and China Merchants South Oil forecast that the net profit will increase by a large margin in 2020, mainly due to the overall recovery of tanker transport market in 2020, and the average freight rate of major ship types of international tankers is expected to be higher than that of the same period last year. It expects net profit in 2020 to rise more than 50 per cent from a year earlier. The company said that since 2020, in the face of the double pressure brought by the global economic downturn and the epidemic on the shipping market, the company has focused on the operation of various market segments to minimize the adverse impact of the market. At the same time, the fleet is expected to achieve year-on-year growth in annual operating profit by strictly grasping lean management and controlling all costs and expenses.

Tianfeng Securities research report that the fourth quarter of high freight rates, the annual performance is expected to exceed expectations. The global epidemic situation in the fourth quarter is still not optimistic. Manufacturing capacity in Europe and the United States is still difficult to expand and may even be further tightened, while the spare capacity rate in the centralized transportation industry is already at a low level. In the future, the business strategy of shipowners may shift from being dominated by collecting goods to being stable in price. In this context, shipowners are expected to significantly increase their bargaining power in negotiations with major customers, laying a safety mat for next year's profits. If this trend is realized, the ecology of the industry is expected to improve significantly and the industry is expected to enter a medium - to long-term favorable profit cycle of freight rates.