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Rising trade lifts Asian container

Rising trade lifts Asian container
Asian container shippers, which slogged through their worst-ever year in 2009, could be headed for a smoother ride after a surprise upswing in volumes and freight rates this year propelled major routes back to profitable levels.

Rising trade tide lifts Asian container shippers

Asian container shippers, which slogged through their worst-ever year in 2009, could be headed for a smoother ride after a surprise upswing in volumes and freight rates this year propelled major routes back to profitable levels. Restocking by retailers late last year as the global economy stabilised and shipping firms taking vessels out of service to help ease oversupply have fuelled freight rates.

European routes have largely returned to profit with freight rates from China to Europe rising to nearly $2,000 including fuel surcharges for a twenty foot equivalent unit last month, versus $300, the lowest for a decade, a year ago.

Optimism that the shipping market has bottomed out lifted shares of Asian liners across the board this year with Orient Overseas and South Korea's Hanjin Shipping rising about half.

The large number of new ships in the pipeline remains a major concern to the nascent rebound, although some deliveries have been delayed because of financing problems. Shippers have also slowed the speed of some vessels to absorb excess capacity and cut fuel costs, analysts said.

Exporters remain cautious on the strength of U.S. and European consumption after a leaden 2009 that saw shippers idle hundreds of vessels and agree to move cargo for free if customers paid fuel and terminal handling charges.


Boosted by China's strong exports, which jumped 46 percent last month, the China Containerised Freight Index which takes data from leading liners with operations in China, hit 1,168.31 points in February, its highest since 2007, and is now just 3.5 percent off that peak.

Asian container shipping companies are recovering after imposing several rounds of freight rate hikes, said Geoffrey Cheng, an analyst at Daiwa Capital Markets.
"The sector is in a cyclical uptrend and some freight rates have recovered to profitable levels," said Cheng. He has a 'buy' recommendation on OOIL, whose shares still trade at about book value, below the sector average.

Shares of the region's container ship operators have risen in recent months but valuations remain cheap compared with their 2007 peak, when they traded at more than twice book value.

Though share prices have risen, there is room for further gains, said Shin Ji-yoon, analyst at KTB Securities in Seoul.

"They're only at the early stage of an up-cycle," Shin said.

Japanese shippers should benefit from the recovery in the container market but as diversified players, the impact could be more muted than pure plays because of their exposure to other sectors, such as tankers and bulkers. "We reiterate our buy rating for Kawasaki Kisen which has the most exposure to container shipping followed by Mitsui OSK Lines," said Tom Kim, a regional shipping analyst at Goldman Sachs.


Some say the sector's recovery is already reflected in those recent share gains.

"Container shipping stocks are trading within a range, and overcapacity is still an issue in the market," said Terry Wong, a fund manager at Daiwa SB Investment Ltd, adding that his fund had no near-term plan to invest in the sector.

Ship orders stand at about 36 percent of the existing fleet in the world at the end of last year, according to ship broking and research firm Clarksons. Supply is expected to rise about 17.4 percent this year and 10.6 percent in 2011, if all ships are delivered on schedule.
Hopes that shippers will be able to raise transpacific rates from May in annual contract negotiations have helped lift container ship operators' shares this year.
Members of Transpacific Stabilisation Agreement , including China COSCO Holdings, Neptune Orient Lines and Hanjin are proposing a general rate increase of $800 for the U.S. west coast and $1,000 for the east coast per 40-foot equivalent unit in an attempt to build rates back up to levels prior to when prices plunged in late 2008.

"The scale of rate raises will determine the share performance, but those expectations are in play," said Song Jae-hak, an analyst at Woori Investment & Securities in Seoul.

Global leader A.P. Moller-Maersk is cautious about a recent rebound in freight volumes, saying the bounce may owe more to inventory rebuilding rather than real demand. The shipping giant does not expect its container shipping unit to regain profitability this year.
Freight rates could start coming under pressure in the second quarter after the contract negotiations and as operators take delivery of a new batch of mega container ships, many longer than three football fields, and try to fill them, said Jay JH Ryu, head of regional transport, Mirae Asset Securities.

"It's more important for them to fill up the ships," he said.


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