Quick capacity adjustments and surprisingly robust demand have sent freight rates surging

As the coronavirus pandemic unfolded, investors and analysts say, shippers were quick to idle vessels... — As the coronavirus pandemic unfolded, investors and analysts say, shippers were quick to idle vessels and cancel sailings, buoying freight rates and lifting profits. Photo: saeed khan/Agence France-Presse/Getty Images

By Aug. 31, 2020 6:00 am ET

Investors in container-shipping companies are having an unexpectedly good year as freight rates surge despite the pandemic, thanks to quick capacity adjustments and surprisingly robust demand.

Shares in several major operators have rebounded sharply. A.P. Moeller-Maersk AMKBY 0.13% A/S’s nonvoting stock, which at its low point in March was down by almost half for the year, is now roughly flat. The Danish company owns Maersk Line, the world’s biggest ocean carrier.

Hong Kong-listed Cosco Shipping Holdings Co., which controls the world’s third-largest container carrier by capacity, and Taiwan’s Evergreen Marine Corp. 2603 6.42% are up about 23% and 32% for the year, respectively, after also recovering from steep selloffs. BuoyantYearly earnings before interest and tax for theglobal container-shipping industrySource: Drewry Maritime

“Ocean carriers got out ahead of the pandemic,” said Simon Heaney, senior manager for container research at Drewry Shipping Consultants Ltd. “It’s a good year for carriers in terms of profits.”

Drewry now expects the global industry to earn around $9 billion before interest and taxes this year, up 41% from 2019. It had earlier forecast a $3.7 billion loss. If shipping rates say high, Mr. Heaney said, he might lift his forecast further.

Container-shipping companies play a vital role in global trade by moving clothes, food, furniture, electronics and much else around the world.

As the coronavirus pandemic unfolded, investors and analysts say, shippers were quick to idle vessels and cancel sailings, buoying freight rates and lifting profits. When demand proved more resilient than expected, they were equally quick to add back capacity—without crossing the line into oversupply.

The overall picture for trade is tough, but improving. The Geneva-based World Trade Organization now forecasts global volumes will fall 13% this year, after previously warning they could crash by a third.

Many shipping companies and their corporate clients expected a much steeper drop-off in demand than actually occurred, said Dave Perrett, co-head of Asian investment at M&G Investments: “They thought it would be absolutely catastrophic, and it wasn’t.” M&G funds hold stakes in shipping companies including A.P. Moeller-Maersk, FactSet data shows.

In the U.S., retail sales topped prepandemic levels in July. Andrian Dacy, head of the global transportation group at J.P. Morgan Asset Management, said retail spending in the U.S. and Europe had been buoyed by government financial assistance to households.

Plus there is the e-commerce boom, he said: Many people stayed home and spent money they would otherwise have used on movies, travel or meals. “They’re online, they’re ordering things, and those things are being delivered and moved to the supply chain,” he said. Trade in medical supplies also surged, Mr. Dacy added.

In the week ending Aug. 28, the spot rate to ship a 40-foot container from Shanghai to the U.S. West Coast hit $3,639, the highest in over a decade, according to the Shanghai Shipping Exchange. A Drewry composite index of rates for eight east-west routes hit $2,251 in the week to Aug. 27, up 60% from a year earlier.

Not all shippers’ share prices have benefited. Germany’s Hapag-Lloyd AG HLAG -1.01% , the world’s fifth-largest container shipper by capacity, spiked to a record in May but is now down 35% for the year. Japan’s Mitsui O.S.K. Lines 9104 1.19% is down by a similar amount. Reversing CourseStock-price performances this yearSource: FactSet%Evergreen MarineCosco ShippingA.P. Moeller-Maersk (B shares)Jan. 2020Aug.-60-40-200204060

The industry is partly reaping the benefit of its distress over the past decade, when low profits spurred takeovers, partnerships and investment in bigger, more-efficient ships. Five players control 64% of the global fleet now, versus 47% in 2008, according to Parash Jain, global head of shipping and ports equity research at HSBC. Greater concentration makes cutting capacity easier, investors and analysts said.

And there is little risk that new ships will flood the market, pressuring freight rates. Outstanding orders stand at about 9% of existing fleet capacity, versus more than 50% during the global financial crisis, Mr. Jain said.

M&G’s Mr. Perrett said tighter environmental regulations would also damp demand for new vessels. Overall, he said, the industry would avoid a return to its earlier, damaging focus on growth.

“There’s no need for one player to be disruptive,” he said. “The focus here would be more about profitability as opposed to market share.”

https://www.wsj.com/articles/shipping-stocks-weather-the-pandemic-storm-11598868003?mod=e2tw&tesla=y

August 28, 2020

Hurricane Laura Assessment

Hurricane Laura may cause up to $12bn in losses – analytical firm

Author: Al Greenwood

2020/08/28

HOUSTON (ICIS)–Hurricane Laura likely caused $8bn-12bn in insurable losses to property in Louisiana and Texas, a real-estate information provider said on Friday.

Out of the damages, 1/3 could be residential and 2/3 could be commercial, said David Smith, senior leader of science and analytics at CoreLogic. He made his comments during a presentation held by the company.

This split accounts for the office buildings, casinos and petrochemical plants in and around Lake Charles, Louisiana, which is about 50 miles (80 km) from where Hurricane Laura made landfall, Smith said.

Louisiana suffered most of the damage, he said.

CoreLogic is still developing models for any damage to offshore oil and gas platforms, Smith said. So far, it does not expect any significant damage. Because Laura strengthened so rapidly, it did not have time to form large waves that could cause a lot of damage to platforms.

Insured storm-surge losses contributed less than $500m of the total, CoreLogic said.

Meanwhile, more than 626,000 homes were exposed to tropical-force winds or higher, CoreLogic said.

Construction is an important end market for several chemicals and polymers.

The white pigment titanium dioxide (TiO2) is used in paints.

Solvents used in paints and coatings include butyl acetate (butac), butyl acrylate (butyl-A), ethyl acetate (etac), glycol ethers, methyl ethyl ketone (MEK) and isopropnaol (IPA).

Blends of aliphatic and aromatic solvents are also used to make paints and coatings.

For polymers, expandable polystyrene (EPS) and polyurethane (PUR) foam are used in insulation.

Polyurethanes are made of methylene diphenyl diisocycanate (MDI), toluene diisocyanate (TDI) and polyols.

High density polyethylene (HDPE) is used in pipe. Polyvinyl chloride (PVC) is used to make cladding, window frames, wires and cables, flooring and roofing membranes.

Unsaturated polyester resins (UPR) are used to make coatings and composites.

Vinyl acetate monomer (VAM) is used to make paints and adhesives.

For VAM, while the do-it-yourself (DIY) segment for home construction has kept domestic demand up for end-use paints and coatings, prolonged lockdowns in the western hemisphere due to the coronavirus impeded a more substantial growth for the material’s many end uses.

As more countries come out of lockdown, demand for the product is seen slowly returning.

Hurricane Laura made landfall early on Thursday in Louisiana near the border with Texas. It was a category 4 storm with maximum sustained wind speeds of 150 miles/hour (240 km/hour).

Laura has since weakened into a tropical depression, with maximum sustained wind speeds of 30 miles/hour (45 km/hour), the National Hurricane Center said in its last update on the storm. As of 400 hours Central time (900 hours GMT) on Friday, Laura was 95 miles (155 km) west-northwest of Memphis, Tennessee.

A few tornadoes could form later in the day, the centre said. On Saturday, the storm should produce 1-2 inches (2.5-5 cm) of rain.

Now that the storm has passed, several chemical plants have begun to restart operations.

COMPARISON WITH RITA
Laura followed a similar path as Hurricane Rita, which made landfall in 2005, said Smith of CoreLogic. Laura was slightly east, so that affected which areas suffered the most damage.

Rita was a category 3 storm with maximum sustained winds of 115 miles/hour, Smith said.

At the time, Rita was a $6.4bn insured loss, he said. If it happened today, the total would be $13bn.

Additional reporting by Anna Matherne

https://www.icis.com/explore/resources/news/2020/08/28/10546590/hurricane-laura-may-cause-up-to-12bn-in-losses-analytical-firm