"Container Freight Rates Remain Strong... Time to Expand Investment in Shipping Industry"

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] As the global shipping market booms and container shipping companies become busier, there are calls to increase investment in the shipping industry. According to the financial investment sector on the 13th, the SCFI (Shanghai Containerized Freight Index) recorded 2825.75 as of the 10th. Although it is lower than the previous week (2884.61), the upward trend is expected to continue. This index is calculated by aggregating spot (non-regular short-term transport contracts) freight rates on 15 routes.

Generally, a container off-season occurs around the Chinese Lunar New Year, causing freight rates to undergo significant adjustments. However, this year, the freight rate strength continues due to a sharp increase in cargo volume following economic recovery. On the supply side, container shipping companies are expanding vessel charters due to limits on available ships. Currently, short-term charter rates for container ships have risen by more than 10% on average compared to the beginning of the year. Shipping companies that had decided to reduce operations anticipating a decrease in cargo volume are expanding vessel deployment again, but supply is unable to keep up with demand.

Jeong Yeonseung, a researcher at NH Investment & Securities, said, “The factors that drove last year’s freight rate increase are still in effect,” adding, “The continued supply increase limits such as port logistics congestion also played a role.” The ports of Long Beach and Los Angeles in the U.S. saw cargo volumes surge by more than 20% year-on-year, but port congestion increased due to workforce restrictions caused by COVID-19. As of the 1st, 41 container ships were waiting at the two ports, an increase of 11 ships from 30 ships the previous month.

Researcher Jeong added, “The strong container freight rate trend is expected to continue in the first half of the year,” explaining that as container shipping companies’ profit resilience improves and their financial structures greatly improve, the companies’ overall strength will also increase.

In the securities industry, HMM is expected to directly benefit among container shipping companies. Earlier, HMM recorded its highest-ever operating performance in the fourth quarter of last year. Sales increased by 17% from the previous quarter to 2 trillion won, and operating profit surged 105% to 560.7 billion won. Operating profit exceeded market expectations (consensus) by 27%. While the average operating loss for the previous five quarters was 500 billion won, last year it successfully turned to a 980 billion won surplus in one go. The sharply rising freight rates appear to have been reflected in the performance. Although specific business units or route-by-route results were not disclosed, it is judged that the spot freight rates, which began rising after summer, were reflected with a time lag, and profit leverage has been fully activated.

Choi Go-woon, a researcher at Korea Investment & Securities, said, “The performance was possible because HMM internally supported structural changes through the introduction of ultra-large vessels, alliance changes, and cost structure improvements,” and predicted, “If HMM additionally introduces eight 16K vessels this year and increases profits, it will greatly exceed the annual operating profit forecast of 1.6 trillion won.” Researcher Choi added, “Since it has been confirmed that the container shipping boom is solid, it is time to invest with a long-term view on HMM’s profit momentum for the year,” adding, “The price-to-earnings ratio (PER) of HMM in the container shipping and transportation sectors is the cheapest at 3 to 4 times.”

This content was produced with the assistance of AI translation services.