Shipping inventory that could benefit from global supply chain disruptions

Aerial view of shipping containers stacked at the Shenzhen Yantian Port in Shenzhen, China’s Guangdong Province on Feb.27, 2021.

Xie Feng | Getty Images

The skyrocketing shipping prices, exacerbated by the limited supply of ships, could bode well for some of the ship stocks preferred by analysts.

Global supply chains have been seriously disrupted by a number of issues this year as trade resurrected and strong demand for raw materials resulted in more goods moving.

In April one of the largest container ships in the world wedged itself in the Suez Canal and stopped traffic for almost a week. The waterway is one of the busiest in the world, carrying about 12% of all trade.

The giant cargo ship dominated the headlines, but there were several other disruptions in world trade. In a recent report, JPMorgan analysts pointed to persistent bottlenecks such as port congestion and a shortage of containers and ships.

“In particular, the incident in the port of Yantian (Shenzhen) could potentially develop into a Suez Canal Incident 2.0, leading to shipping delays, longer container turnaround times and problems with container shortages / repositioning,” the bank wrote.

Yantian Port in Shenzhen, China is one of the busiest in the world. The region was hit by a spike in Covid cases in June, causing massive port delays and driving up shipping prices.

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As parts of the world recovered from the pandemic, a spate of spending resulted in a shortage of containers. This drove up prices and led to massive delays in shipping goods from Asia abroad. JPMorgan said demand for goods continues to be supported by an improving global economic outlook.

Research firm TS Lombard found that commodities rose as Chinese demand rebounded. Demand for commodities from oil to lumber to corn has soared this year as economies reopened and vaccination rates rose – although prices have fluctuated recently.

“Ship owners benefit from the booming raw material trade. Ship profits in 2021 were at their highest level in a decade … China’s ore and coal reserves, “the company said.

It is also said that 72% of the world’s iron ore is shipped to China, which boosts the shipping sector.

The value of the ships will increase

Port congestion means ships are temporarily held up, which limits ship supplies, said TS Lombard.

And that may not be resolved that quickly. According to JPMorgan analysts, new ship orders will not be shipped until 2023, “at the earliest possible time.”

High demand and scarce supply increase the value of the ships. Ships are considered assets for a shipping company because they generate cash flow.

The rise in the value of ships will therefore drive up the net asset value of companies, which is the value of assets minus liabilities. This in turn will drive share prices higher, according to TS Lombard.

Here are both companies’ stock picks in the reports released in June:

Here are JPMorgan’s stock picks:

  • Chinese container shipping company Cosco Shipping
  • Orient Overseas, based in Hong Kong, is the parent company of the container shipping company Orient Overseas Container Line

Here are TS Lombard’s stock picks:

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