Shares in Mitsui OSK Lines (MOL) and NYK Line have been boosted after a top Japanese investment bank predicted that healthy container rates would continue well beyond the Covid-19 pandemic.
Containership rates are likely to remain higher than prior to the pandemic as lifestyle changes, such as spending more time at home, ensure consistently strong demand for consumer durables, said Nomura.
“Although we expect supply-demand conditions to ease gradually, as growth in demand runs its course in 2022 and container space rises 5.1% year-on-year on the completion of more ships in 2023, we nevertheless think that containership rates will remain higher than prior to the pandemic," said Nomura transport analyst Masaharu Hirokane.
"Orders for new ships have not been large enough to cause rates to collapse and the consolidation of the global container service industry into three alliances should enable them to manage supply-demand in an appropriate fashion, for example by cutting sailings,”
The Tokyo-based bank has raised its target prices for NYK Line from ¥6,750 ($61.2) to ¥10,500 and from ¥7,500 to ¥10,000 for MOL, and from ¥3,600 to ¥5,300 for K Line.
The bank said it made the largest upward revision for NYK Line because it has the highest stake in Ocean Network Express (ONE) at 38%, and because it has also raised its forecasts for its air cargo transportation segment.
“The Shanghai Containerized Freight Index has continued to rise in August, and conditions now look even more favorable than companies assumed when they revised their guidance at the same time as releasing their first-quarter results,” said Hirokane.
“Our forecasts now assume that strong consumer spending on goods in the US will enable containership rates to remain higher than we previously envisioned even after the summer peak season for cargo transportation has passed.”
ONE, which is jointly owned by the three companies, generated net profits of $2.5bn in the first quarter of 2021.
Hirokane expects the Singapore-based liner operator will now generate net profits of $3.6bn in the second quarter, $2.8bn in the third quarter and $2.4bn in the fourth quarter for total annual profits of $11.35bn against Nomura’s previous forecast of just $6.4bn.
“We then expect shipping rates to settle down gradually and forecast net profits of $7bn in 2023 versus our previous forecast of $3bn and $3.4bn in 2024 against our earlier forecast of $2bn,” said Hirokane.
“We expect rates to soften from the second quarter of 2022 as growth in spending on goods in the US settles down and containers are returned to Asian manufacturing locations, thereby resolving transportation bottlenecks caused by shortages of containers.”
Nomura has also changed its dry bulker rate assumptions with its forecast of the annual average for the Baltic Dry Index raised from 1,630 to 2,530 for 2021, from 1,540 to 2,230 for 2022, and from 1,540 to 2,010 for 2023.
“We have factored in increased resource imports in China, which has caused supply-demand conditions to tighten. However, we expect rates to fall modestly from 2022 onwards as growth in demand eases,” said Hirokane.
