Major Ports Are Congested. Shipping Companies Maersk and Hapag-Lloyd Are Thriving.
Global supply bottlenecks are slowing the speed of the post-Covid recovery, reviving the specter of once-forgotten inflation in most Western economies.
A worldwide shortage of semiconductors forces companies making anything from cars to mobile phones, laptops or TV sets to cut production and disappoint their customers, who are forced to wait.
Major ports, such as Los Angeles and Long Beach, Calif., are congested, and the traffic jams are likely to continue well into 2022, according to most industry players.
Welcome to the Big Supply Shock, when producers, transporters, and sellers are struggling to keep up with the strong demand from households willing to spend and businesses willing to invest.
But when the shortage of chips combines with a lack of truck drivers and insufficient container capacity worldwide, the risk is that the crunch is here to stay for a few more long months.
In this logistics chaos, it should come as no surprise that the big container shipping companies are meanwhile doing very well.
This year is likely to end as the best year on record for the sector. Global trade volumes jumped by 8% to 10% this year as the global economy started recovering from months of lockdowns and other trade restrictions.
Meanwhile, shipping rates have more than doubled between January and August, amid signs of a shortage of container transport capacity.
It cost less than $2,000 to transport a 40-foot container in December 2019. The price had jumped to $4,000 a year later. It now hovers around $10,000, boosted by congestion and lack of global capacity.
The world’s leading container shipping companies would certainly welcome less congested ports, but they also benefit from the bottlenecks that have sent rates rocketing.
If 2021 was a good year for the industry, 2022 will be “materially better” and even “a stellar year for container shipping,” writes Deutsche Bank analyst Andy Chu. He cites A.P. Moller-Maersk A/S (ticker: MAERSK.B.Denmark), the Danish shipping giant that announced last week a tripling of its third-quarter operating profit, to nearly $7 billion, from a year ago.
Chu also points to German rival Hapag-Lloyd (HLAG.Germany), which noted in September that the global supply problems will not subside anytime soon. As demand is still running faster than the industry’s capacity, the company has ordered more containers and vessels.
Both companies are also joining their industry’s push to achieve sustainability targets. In August, Maersk said it would spend $1.4 billion to accelerate plans to decarbonize its fleet by 2050—which include ordering eight ships that run on methanol. Hapag-Lloyd earlier this year said it would take a $417 million syndicated green loan to finance three new, fuel-efficient container ships.
Maersk stock is up 43% this year and is now trading at a modest 4.6 times earnings. Deutsche Bank has a Buy rating on the stock at a target price of 23,500 to 25,800 Danish crowns ($3,656 to $4,013), implying a 20% to 31% upside to the current price.
Hapag-Lloyd shares have jumped by 133% since January but Deutsche’s €265 to €324 target ($306 to $374) is still 22% to 49% above its recent price.
Container rates will have to moderate from record levels at some stage but Deutsche Bank’s Chu says a focus on fundamentals should make it clear that “significantly higher profits” are in store for those two industry players next year, not to mention a free-cash-flow generation that “should not be ignored.”