Shipping stocks advance as Red Sea attacks seen squeezing supply
SHIPPING stocks rose across the globe on Monday (Dec 18) as disruption to Red Sea routes due to militant attacks was expected to drive up the prices they charge for moving goods in ocean containers.
The world’s largest shipping group, AP Moller-Maersk, jumped as much as 4.7 per cent in Copenhagen, while Germany’s Hapag-Lloyd gained 5.5 per cent and US-listed ZIM Integrated Shipping Services traded 8 per cent higher in the New York premarket. The stocks were extending rallies from Friday, when Maersk and Hapag announced they would halt journeys in the area.
About 30 per cent of global container trade passes through the Suez Canal – which connects the Red Sea to the Mediterranean – according to UBS Group analysts. Given that a lot of shipping contracts tend to be negotiated between December and March, firms may be able to lock in higher-than-expected rates if disruption persists, the analysts said.
Shipping stocks were also lifted in Asia, with a gauge of Japan’s shippers rising as much as 5.8 per cent. South Korea’s Korea Line and China’s Ningbo Ocean Shipping both gained as much as 10 per cent.
Sending ships between Asia and Europe around South Africa’s Cape of Good Hope instead of through the Suez would extend journey times by up to two weeks, according to Citigroup analysts. If all trades headed for the Suez were re-routed, there would be about a 6 per cent effective container supply reduction on an annualised basis, the analysts wrote in a note.
Shares of companies that move fuel by sea also rose on Monday, including BP, which announced that it would pause Red Sea transits. Oil tanker firm Frontline jumped as much as 11 per cent in Oslo.
The recent gains for shipping shares have provided some relief for investors after a year of underperformance for the sector. Freight rates declined post-pandemic as a surge in demand for physical goods faded and Covid-related supply snags eased. The jump in global interest rates has also hurt the sector, and Maersk last month announced thousands of job cuts.
Analysts at Barclays are cautious on the benefit to firms from the Red Sea disruption, saying they don’t anticipate passage through the Suez stopping completely, as it did when the Ever Given ship was stuck there for a week in 2021.
“We do not expect the potential re-routing of vessels via South Africa to materially absorb the excess supply the industry is currently exposed to,” Barclays analysts said. “We view the market reaction as overly optimistic.” BLOOMBERG
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