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January 3, 2013 12:53 pm
Will it ever end? Investing in container shipping has been akin to a nightmarish long-haul voyage of dashed hopes, delays and unexpected costs. The horizon may be brighter, but the industry’s journey through boom and bust is likely to remain choppy at best.
Container shipping lines’ shares have rallied about a tenth in the past two months. Optimists have some reason for hope: the US and European economies are expected to improve this year (or in Europe’s case, at least decline more slowly), boosting demand on the two biggest routes from Asia. New orders from Asian manufacturers, net of inventories, are already rising according to HSBC’s purchasing managers’ indices. And average oil prices, among the most intractable costs, are expected to be more stable this year.
But if this macro environment is to buoy investor confidence, the industry must get many more things right. Supply discipline is key: shipping lines made it through 2012 by limiting capacity growth – ending charters, scrapping older vessels, steaming more slowly and delaying new ship orders. Any temptation to grab market share while others hold back could end that detente. And it will not be easy. Another 1.7m teu (20-foot equivalent units) of capacity is due to come into service this year – two-thirds as much again as all the capacity that has been taken out over the past four years, according to Alphaliner, an industry consultancy. With all these competing forces, then, it is little wonder that volatility in average freight rates reached record levels last year and charter rates suffered their second-worst year on record.
Any clear signs of an upturn will take a while to appear, if they do. The first quarter is always slow, given the Chinese New Year, but could potentially mark a bottom for earnings. But over the past two months shipping lines’ share gains are at least twice those of the S&P 500 and the Eurofirst 300. If investors are wary about the general outlook, there is little reason for them to be much more hopeful shipping’s painful journey really is ending.
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