November 4, 2020: Strong spot rates are expected to extend into the fourth quarter, and may push up the contract rates next year, as a result of steady growth in consumer demand and continued tightness of slot availability, according to bank and securities analysts.
ANALYSTS are upbeat about Cosco Shipping Holdings’ prospects after the containership and port company enjoyed an exuberant third quarter of the year. But a resurgence of the coronavirus pandemic and the US presidential election have increased uncertainties.
Benefiting from surging peak-season rates, the Shanghai- and Hong Kong-listed company saw net profits soar 210% in the period from July-September to Yuan2.7bn ($404m).
Liftings of its boxship fleet, the world’s third-largest, increased 9.2% and 4.9% year on year on transpacific and Asia-Europe trades, respectively, where vessel revenue also jumped 19% in both lanes.
Chinese investment bank CICC said that the results have met its anticipation, and forecast continued robust performance in the fourth quarter.
Contrary to earlier concerns that freight rates would fall back in October, transpacific rates have been hovering at high levels since September, while rates on other routes have also rebounded quickly, according to a research report of the bank.
“The mark-up on Friday (the Shanghai Containerised Freight Index rose 4.1% week on week) has exceeded expectations of us and the markets. In the short term, cargo demand will remain strong backed by growing consumer spending and restocking overseas.”
CICC expected CSH’s net profits to reach Yuan2.5bn in the last three months of 2020, up from the previous forecast of Yuan500m-1bn.
Shanghai-based SWS Securities noted the shortage of container equipment as another main driver behind the recent rate increase.
“While vessel deployment has been substantially reinstated since September, the imbalance between exports and imports has resulted in a serious shortage of container equipment,” said the broker. “The cause of the tightening slot availability has been shifted to the lack of containers rather than vessels.”
It added such “tightness” will continue until the Christmas period owing to the time needed for box replenishment.
CICC further reckoned that the strong momentum in the spot market might even extend to the contract rates to be negotiated between carriers and large cargo owners and freight forwarders.
“We expect big [shipper] clients to be more tolerant to mark-ups [by carriers] during their contract negotiations in the first quarter next year. The increase could be substantial,” said the bank.
The current contract rates “are not high”, said Sea-Intelligence in a Sunday report, having reviewed price developments over the past 22 years.
The weak rates in recent years were an “aberration” owing to the severe vessel glut resulting from the last global financial crisis, said the consultancy, adding that shippers should start planning for a correction.
However, it also warned of huge uncertainties lying ahead as the coronavirus becomes rampant again in the Western economies, where lockdown measures are being reintroduced.
“Will we see the European consumers once more pull back due to the new lockdown?” asked Sea-Intelligence.
It added on the US side, the candidate who loses the presidential election — regardless of whether it is Donald Trump or Joe Biden — would likely choose to dispute the results. That may lead to a temporarily dysfunctional federal government and rapid spread of the virus in the country.
“The ramifications are unknown but hardly positive to the economy as a whole, nor to the current US consumer boom.”
Source: Lloyd’s List
