HMM Soars 990% in One Year, Freight Rate Uptrend Continues

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] As export goods pile up but there is a shortage of ships to transport them, the shipping freight index is rising sharply. With ship demand expected to increase due to the economic recovery trend, it is forecasted that freight rates and shipping companies' stock prices will continue to rise.

As of 9:45 a.m. on the 29th, container shipping company HMM is trading at 30,940 KRW, up 0.38% from the previous trading day. HMM has risen 137% this year, recording the highest increase among shipping companies. Its one-year price-earnings ratio approaches 990%. Bulk shipping companies Pan Ocean and Korea Line have risen 44% and 13%, respectively, this year.

The rise in shipping stocks is due to the upward trend in shipping freight rates. The Shanghai Containerized Freight Index (SCFI), compiled every Friday, recorded 2,979.76 as of the 23rd, up 5% (146.34 points) from the previous week, marking an all-time high since the index began. Additionally, the Bulk Dry Index (BDI), which tracks freight rates for bulk carriers transporting iron ore, coal, and grains, recorded 2,889.00 as of that day, showing a sharp 111% increase this year.

The improvement in the shipping industry is largely due to the easing of oversupply caused by a lack of new orders rather than a temporary supply-demand imbalance from COVID-19. The SCFI, which aggregates freight rates across 15 container shipping routes, continues an upward trend reflecting shipping companies' base rate increases and strong cargo volumes. The BDI's rise is driven by strong iron ore cargo volumes boosting Cape-size vessel freight rates. Cape-size vessels' daily freight rates have risen to $24,500, significantly exceeding last year's level of $11,000.

Among shipping companies, HMM has drawn particular attention from the securities industry because the speed at which freight rate changes affect earnings varies. HMM is expected to see the largest increase in earnings. Its first-quarter operating profit is forecasted at 965 billion KRW, a significant improvement from last year's operating loss of 2 billion KRW. Pan Ocean and Korea Line are expected to adjust earnings after the second quarter. Their first-quarter operating profits are projected at 57 billion KRW and 34 billion KRW, respectively, representing increases of 50% and 1% compared to the same period last year. Researcher Cho Gyo-woon of Korea Investment & Securities explained, "Pan Ocean and Korea Line have fixed long-term contract proportions of 50% and 90%, respectively, despite freight rate fluctuations. HMM has a smaller proportion of long-term transport contracts, allowing it to quickly reflect market changes."

The stock rally of shipping companies centered on HMM is expected to continue. Although shipping demand greatly exceeds supply and shipping companies are significantly increasing new ship orders, it is predicted that this will not affect the short-term freight rate rise. Considering shipbuilders' order backlogs and shipbuilding periods, ship supply is not expected to increase significantly for at least two years.