2022 March 29
Over the recent couple of years, the supply chains have suffered a shock caused by the pandemic and the current geopolitical situation brings new challenges into the world’s trade, 90% of which is carried by sea. The weight of global shipping companies will not change amid new circumstances and their stock value is expected to grow, according to analysts. In view of the market complications, experts do not expect new domestic players in the Russian market but forecast the increase of the Asian partners’ share.
SonicShares has issued its Global Shipping ETF covering over 45 companies including mid-cap and big-cap ones (with at least 50% of revenues from activities in global shipping) listed on the stock exchange of developed countries. Bloomberg was the first to mark it.
According to SonicShares, container deep sea and offshore shipping accounts for over 63% of the fleet with dry bulk carriers and tankers accounting for 35%. With the economy’s continued reliance on world trade, just-in-time manufacturing and inventory management, our dependence on maritime shipping should continue, which in turn should benefit shipping company stocks, SonicShares believes.
“In many ways, what’s happening now is very similar to the pandemic in the sense that it’s creating an acute imbalance in supply and demand of input materials, commodities and some finished goods, and also on the capacity for shipping generally,” Bloomberg cites Paul Somma, the founder of SonicShares.
The ETF rose by 14.7% in February, says the agency. After a rare dip in long-term contracted ocean freight rates in December and January, container shipping costs are rising once again, with a 3.9% increase in February, Xeneta said earlier. The development, revealed in the latest Xeneta Shipping Index (XSI®) Public Indices, means rates have risen across 15 of the last 17 months. They currently stand 87.9% up year-on-year. Meanwhile, freight rates for cargo transportation from Hamburg to Saint-Petersburg have decreased by 20% for geopolitical reasons, say the Xeneta analysts.
Global shipping companies covered by SonicShares are engaged in the maritime transportation of goods and raw materials, including consumer and industrial products, vehicles, dry bulk, crude oil and liquefied natural gas. As of January 2022, the top ten holdings included OOCL (Orient Overseas), ZIM, Mitsui O.S.K. Lines, A.P. Moller - Maersk, Hapag-Lloyd, COSCO, «K» Line (Kawasaki Kisen Kaisha), SITC, Matson and Atlas.
The disruption of supply chains which started with the coronavirus pandemic aggravated due to the Suez Canal blockage, lack of containers, permanently changing restrictions, delays and overloading of terminals, says Natalya Pyryeva, an analyst with the Finam. On the other hand, consumer-led recovery contributed to the growth of the demand for transport companies’ services, hence the growth of freight rates.
“In the end of 2021, it was clear that the problems would remain throughout the year of 2022. However, large-scale sanctions imposed on Russia will even complicate the global shipping. We expect the demand to be distributed among the most reliable companies thus increasing the turnover of certain players and entailing further growth of freight rates. Nevertheless, congestion of containers in Russian and foreign ports is increasing as well as the expenses. A new round of ships shortage and delays comes and it will aggravate the situation in the global market,” says the expert.
According to Finam, potential positive effect of the situation on the shares of foreign shipping companies will not have an impact on Russian issuers’ stock prices in the industry.
Maxim Shishkov, Strategy and Development Director of FESCO Transportation Group, says that the company retains its outlook for 2022 and expects gradual decrease of rates amid slowdown of trade growth. Meanwhile, he does not rule out short-term increase of rated due to COVID-19 upsurge and the related measures to curb the virus.
Russia’s major shipping company Sovcomflot is covered by the sanctions. The company's access to international financial instruments is limited but the fleet is not covered by any restrictions hindering transportation of hydrocarbons. Nevertheless, Natalya Pyryeva says the company faces problems when signing time-charter agreements since international ports, insurance companies and other foreign partners leave Russia. Therefore, Sovcomflot shares are traded at its historical low.
In the mid-term, the expert sees no evident drivers for the growth of the company’s shares despite the long-term development strategy. Attraction of new partners, obviously Asian ones, is a new challenge business relations establishment, Natalya Pyryeva believes.
Rosatom has initiated organization of a container line between Europe and East Asia involving the Northern Sea Route. The pilot launching of the project is scheduled by Rosatom’s company Rusatom Cargo for 2024 (the first year plan is about 8-10 million tonnes).
“Taking into account the complicated market conditions we do not expect new domestic players in the Russian market but forecast the increase of the Asian partners’ share. Chinese giant COSCO can become a new partner of Russia. However, the process of establishing the relations will not be fast or easy since the majority of routes run via the transit ports of Europe where local authorities hamper the delivery. So, alteration of routes will obviously be needed in the future,” forecasts the expert.