Rising Freight Rates and Strong Industry Outlook... Shipping Stocks Cutting Through the Waves

Global Ocean Freight Rates Maintain Steady Trend
"Expecting Shipping Companies' Profit Turnaround"

The shipping industry has recently been showing strength. Industry experts suggest that the prolonged Middle East conflict has led to a rebound in maritime freight rates, and environmental regulations aimed at reducing carbon emissions could shrink shipping supply, raising expectations for a stronger-than-anticipated market.

According to the Korea Exchange on the 14th, the stock price of HMM, a domestic shipping company operating container ships and bulk carriers, rose 17.1% so far this month as of the closing price on the 13th. Additionally, Korea Line and Pan Ocean increased by 19.41% and 12.53%, respectively, indicating overall strength in the shipping sector.

The strength in shipping stocks is attributed to the recent rebound in global maritime freight rates, such as the Shanghai Containerized Freight Index (SCFI) and the Baltic Dry Index (BDI). According to the shipping industry, as of the 10th, the SCFI was recorded at 2305.79. This is the first time in 20 months since September 2022 that the SCFI has surpassed the 2300 mark. The Baltic Dry Index (BDI), which reflects bulk cargo freight rates, also rose to 2203 last week, up about 68% from the low of 1308 in January this year.

Initially, the industry forecasted a weak phase in maritime freight rates this year due to increased supply. However, since December last year, the Houthi rebels in Yemen have attacked Western vessels, causing shipping companies to reroute from the Suez Canal to alternative paths, leading to a sharp rise in freight rates. Yang Ji-hwan, a researcher at Daishin Securities, said, "Route changes caused by the Middle East situation are acting as a positive factor for the shipping market," adding, "By specific ship types, we expect improvement in the order of Pure Car Carriers (PCC), bulk, and container ships." He also analyzed, "Due to the International Maritime Organization (IMO) environmental regulations, a stronger market than expected may unfold because if customers avoid ships with low Carbon Intensity Indicator (CII) ratings, supply could be reduced."

Kang Jin-hyuk, a researcher at Shinhan Investment Corp., mentioned that shipping stocks are among the sectors that have risen strongly in the domestic stock market this month. Kang explained, "With the recent upward revision of container cargo volume forecasts and strong freight rates for large vessels, earnings expectations have expanded," adding, "Also, since transportation fees are received in dollars, the current strong dollar environment is a positive factor for shipping stocks." He further noted, "Ahead of the third-quarter shipping peak season, there are concerns about ship shortages due to geopolitical issues."

Shin Seung-jin, a researcher at Samsung Securities, also pointed out, "The rebound in the SCFI is spreading expectations that the Chinese economy has passed its bottom," noting, "The revenue estimates for global container shipping companies such as Maersk and Evergreen have also risen, leading to strong stock prices." He evaluated, "Domestically, HMM is expected to see a profit turnaround due to the rise in maritime freight rates."