As an industry that is highly related to “cycles” and “markets,” today's shipping industry is undoubtedly being robbed.

In the first half of this year, the Red Sea crisis caused ships to detour, Europe and the US made up inventories, and the shipping market ushered in a new round of price increases.

At the end of June, the Clarkson Shipping Index closed at 28,324 US dollars/day, up 15.9% from the beginning of the year. The average value in the first half of the year reached 25,498 US dollars/day, up 5.7% year on year, making it the second highest in the same period since 2009.

However, after the boom at the beginning of the year came to an end, the shipping industry has cooled down significantly recently.

Since hitting a high of 4763.6 points on July 4, the main futures contract of the consolidated index (European line) plummeted by more than 60% in early October. Although it recently experienced another sharp rise, it still fell by more than 30% compared to the high in early July.

However, this is also true, which further reflects the instability of the shipping industry and the complex and changing market environment.

Gelonghui learned that recently, Dexiang Shipping, a **** shipping company, has passed the Hong Kong Stock Exchange listing hearing and plans to raise at least 0.1 billion US dollars.

On the 24th, Dexiang Shipping launched a global sale. The total number of shares sold globally is 0.251 billion shares, of which Hong Kong sales account for about 10% and international sales account for about 90%. The sale price will not exceed HK$4.50 per share sold. The shares are expected to be traded on the Stock Exchange at 9:00 a.m. on November 1, 2024.

Once successfully listed, Dexiang Shipping will become the first **** shipping company listed in Hong Kong.

Source: Dexiang Shipping's official website

Previously, Dexiang Shipping applied for listing three times in October 2022, April 2023, and May 2024.

Until October 14 this year, Dexiang Shipping passed the Hong Kong Stock Exchange hearing. The co-sponsors were J.P. Morgan Chase and China Merchants Securities International.

In a rapidly changing market environment, how can Dexiang Shipping, which is about to go public, stabilize its sails?

1

According to public information, Dexiang Shipping was founded in 2001 and focuses on container routes in the Asia-Pacific region. The container shipping network covers 21 countries and regions and 56 major ports around the world, and operates route services covering 16 countries and regions in the Asia-Pacific region.

Among them, Dexiang Shipping has more than 22 years of business history in China (including Hong Kong and Taiwan), Japan, South Korea and ASEAN countries, and more than 13 years of business history in Australia. As the core market of Dexiang Shipping, the Asia Pacific region will account for more than 90% of its total shipping volume in 2023.

Source: Dexiang Shipping Prospectus

According to the Drury report, the Asia-Pacific region is one of the largest and fastest growing regions in terms of shipping volume.

According to the prospectus information, the company is a rapidly developing and one of the most profitable container shipping companies focusing on the Asia-Pacific region. However, in recent years, Dexiang Shipping's performance has fluctuated quite drastically.

From January to April 2024, Dexiang Shipping's revenue was 0.318 billion US dollars, which is basically the same as the same period last year. Net profit was 9.81 million US dollars, down 45% year on year.

In the past three years from 2021 to 2023, the company's revenue was about 1.837 billion US dollars, 2.443 billion US dollars, and the net profit was about US $1.078 billion, 1.075 billion US dollars, and 0.02 billion US dollars respectively. It can be seen that Dexiang Shipping's revenue in 2023 fell sharply to 0.875 billion US dollars, and net profit was only 0.02 billion US dollars. This was mainly due to The impact of shipping costs.

In 2022, Dexiang Shipping's revenue increased by 32.4%, while the average shipping cost in the shipping market increased by 36.2% during the year.

In 2023, the company's revenue plummeted by 64.18%, while during the year, shipping volume fell 6%, and average freight rates plummeted 62.9%.

As a result, in 2023, Dexiang Shipping's gross margin directly turned negative, falling to -3.9%, and recorded a gross loss of 33.789 million yuan.

Although the company still recorded a net profit of 20.382 million yuan during the year, the prospectus information showed that this was due to profits contributed by other net income such as the sale of assets and changes in the fair value of related assets.

This is probably because, since the beginning of 2023, Dexiang Shipping has already begun to optimize its fleet to cope with unfavorable market conditions. In 2023, Dexiang Shipping signed a contract to dispose of 10 of its own ships and returned 9 chartered ships whose leases have expired, but this also reduced the company's capacity from 10,9947 TEU in 2022 to 8,9818 TEU in 2023.

As of April 30, 2024, Dexiang Shipping has a total of 46 ships, including 36 owned ships and 10 chartered ships, with a total capacity of 111011TEU. In terms of fleet size, Dexiang ranked 21st among global container shipping companies, with a market share of 0.3%.

As of the disclosure date of the prospectus, Dexiang Shipping has ordered three 7,000 TEU ships, one of which is expected to be delivered by the end of 2024, and the remaining two are expected to be delivered in 2026 and 2027, respectively. Additionally, the company has ordered two 4,300 TEU ships and three 14,000 TEU vessels, which are expected to be delivered in 2027.

For Dexiang Shipping, deploying new ships can reduce unit operating costs, thereby enhancing the company's competitive advantage in the market.

According to the Deluri report, the container shipping industry is cyclical, and the profitability of shipping companies is also mainly affected by market demand and company capacity.

When companies make a profit, they tend to invest in new ships. When most companies in the industry respond to the same market trends and build new ships, it often results in excess shipping volume, and changes in the balance of capacity and demand as a result, leading to a decline in the company's profitability. Faced with declining profitability, companies also tend to respond to market demand by reducing investment in ships.

Increased demand for shipping will also lead to increased shipping volume, utilization, and increased profitability, thus driving the next round of investment.

Therefore, the shipping industry can be said to be an industry in which supply and demand fluctuate for a long time, and also has a certain cyclical nature.

2

In September 2021, the World Container Freight Index released by Deluri once peaked at US$10,377.2 per FEU. Since then, freight rates have continued to decline.

At the end of October 2023, the world container freight index reached a low of $1341.6 per FE U, down nearly 90% from its low two years ago, and then began to rise again.

As of October 3, 2024, the world container freight index had reached US$3489.3 per FEU, yet compared to its peak in 2021, the shipping industry's bright moment is long past.

And this year, the low season for the shipping industry even came a little earlier than in previous years.

Due to the influence of the Red Sea detour, most shippers prepared goods ahead of schedule this year. As a result, shipping plans for the Christmas season were completed in August and September, leading to the traditional off-season being brought forward.

On October 18, the Shanghai Shipping Exchange released the Shanghai Export Container Composite Freight Index at 2062.15 points. The index has continued to decline in recent periods.

Source: Shanghai Shipping Exchange

Judah Levine, chief analyst at Freightos, pointed out that container prices should continue to relax during the low shipping season between the peak season and the Lunar New Year.

However, as shipping companies such as Mediterranean Shipping, Maersk, Hapag-Lloyd, and Wanhai recently adjusted rates on some routes and collectively raised freight rates, many shippers may arrange shipping plans in advance to avoid the risk of price increases, which may stimulate the market in the short term.

However, looking ahead to the next few months, ship prices will probably continue to fall.

However, for Dexiang Shipping, which greatly expanded its capacity in 2024, this undoubtedly brought some uncertainty to the company's performance.

If the ordered ships are successfully delivered, Dexiang Shipping's capacity will increase dramatically in 2027, but if shipping prices fall when the ship is launched, then capacity expansion at this time may become a “burden” that Dexiang Shipping will have to optimize in the future.

However, from an overall perspective, global container port throughput has maintained steady growth, which can still bring incremental markets to the company.

The International Monetary Fund estimated in 2023 that the global economy is expected to grow by 2.8%, 3.0%, 3.2%, 3.2%, and 3.1% in 2023, 2024, 2025, 2026 and 2027, respectively. As GDP grows, so will container port throughput.

Source: Dexiang Shipping Prospectus

In 2023, global container shipping volume reached 234.2 millionteU, with a CAGR of 1.1% since 2018. The container forecast report previously released by Deluri also shows that the world's container port throughput will grow at a compound annual growth rate of 2.8% from 2022 to 2027.

Although increased demand can still bring in some incremental markets, at the same time, global fleet capacity is also growing rapidly.

Between 2012 and 2022, global fleet capacity increased from 15.3 millionteU to 25.8 millionteU, with a CAGR of 4.8%.

The global fleet capacity is expected to reach 31.2 millionteU in 2027, with a compound annual growth rate of 3.9% from 2022 to 2027.

As a result, competition in the shipping industry will continue to be fierce in the future.

However, for Dexiang Shipping, past growth rates, revenue, and profit margins may not have reference value, and the volatility and cyclicality of the shipping industry can also easily impact the company's performance.

Facing pessimistic market sentiment and a highly uncertain market environment in the second half of the year, the drastic expansion of capacity may become a boomerang, dragging down Dexiang Shipping's performance growth.