The Zhitong Finance App learned that Changjiang Securities released a research report saying that after experiencing a continuous decline in freight rates after the Spring Festival and the failure of shipping companies to implement price increases in April, shipping companies have raised freight rates several times in a row since the end of April. As of the week of May 17, the average value of the Shanghai Container Freight Index SCFI from the beginning of the year to date was 2008, doubling year-on-year, up 148% from 2019. Looking forward to the future, the shipping company announced a price increase letter on June 1, continuing to increase by 500 US dollars/teu, and once again, there is a shortage of cabins and fewer containers in the market. Looking at the international environment, if the Red Sea incident is prolonged, 2024 will turn into an upward cycle, but there will be no serious shortage of containers around 2021. In terms of investment, it is recommended to pay attention to COSCO Marine Control (601919.SH), a leading global liner company with abundant cash flow and a stable dividend policy.

The main views of Changjiang Securities are as follows:

Supply side: Red Sea bypass and capacity allocation have led to a shortage of space and cabinets

1) The capacity gap for orbiting the Red Sea is mainly filled by new ships and transferred large US line ships, but nominal capacity declined sequentially. The shipping company orbited the Cape of Good Hope, and the range of routes between Asia and Europe increased by about 32%. In order to maintain the frequency of weekly flights, the shipping company deployed about 474 ships on the Asian-European route in the first quarter of 2024 (16% increase over the previous month), and the ship capacity was about 6 million teu (15% increase over the previous month). The capacity mainly comes from new ships delivered in the first quarter and the deployment of large US line ships. Due to ship transfers, the nominal capacity for outbound flights to the US decreased by 2% month-on-month, while the European route still declined by 3% month-on-month.

2) Deviation causes container turnover to slow, and the return of empty containers is slow, compounded by increased demand, resulting in a shortage of containers. Large-scale orbiting began in January of this year (the monthly traffic volume of the Suez Canal was only 20% of the 2023 average). According to the normal three-month sailing time, in theory, containers returning to Asia in April were in short supply due to slower orbiting.

3) Strong demand for some routes, and there is a structural shortage of capacity due to shipping companies' deployment of ships. For example, cargo volume surged in Latin America this year, and there was an explosion of cabins, and shipping companies' deployment of West African capacity has also caused capacity shortages on West African routes.

Demand side: short-term export grabbing resonates with overseas inventory replenishment

1) Short-term export grabbing and stocking requirements caused by factors such as tariffs. In November of last year, Brazil announced a series of increases in automobile import tariffs this year; the European Union also began countervailing investigations against Chinese new energy vehicles in October last year (the preliminary ruling is expected to be announced in June-July of this year); the 301 review report recently released by the US imposes tariffs on China's electric vehicles, batteries, steel, aluminum, etc. These factors contributed to the short-term export rush. In the first four months of this year, China's automobile exports increased 33% year on year. Among them, exports of new energy vehicles increased 21% year on year; steel and aluminum exports increased 27% and 8.8% year on year, respectively.

2) Some products from European and American countries are showing signs of being restocked. The year-on-year growth rate of new home sales in the US continued to rise in the first quarter, and real estate chain product stocks were clearly replenished. Related commodities all recorded double-digit growth in the first 4 months, and most were faster than the growth rate of total US imports (+15%). The major customers represented by these products usually sign long-term cooperation agreements with shipping operators to transport goods, thereby squeezing the spot market capacity and supporting the basis for price increases in the spot market.

Looking forward to the future, short-term freight rates are supported. Focus on the pace of new ship delivery and the sustainability of European and American inventory replenishment during the year

1) In the short term, spot market demand, which is being squeezed by Changxie Cargo, and export grabbing demand due to tariff factors still have some support for shipping companies' price increases in early June.

2) However, from within the year, more attention should be paid to the pace of delivery of new ships. On the one hand, June-August will usher in a centralized delivery period for new ships (about 873 thousand teu in total), or effectively ease capacity constraints caused by current detours and capacity allocation; on the other hand, there has been no large-scale congestion in global ports that prevent the return flow of boxes. More importantly, the return flow slows down due to the increase in flight range. As new boxes are delivered, the shortage problem is or mitigated.

3) The demand side focuses on the continuity of European and American inventory replenishment. In the US, for example, the retailers' inventory ratio is still high, but inventory growth has stabilized at the bottom, partly benefiting from real estate-related demand, product inventory growth has rebounded at the bottom.

Risk warning: The Red Sea crisis is progressing.