Look at virtually any stock chart in any ocean shipping sector and you’ll see a similar pattern. Sometime around late February or early March, shares hit a high for the year to date, posting strong gains versus Jan. 1. Then they went south.
Shipping equities significantly outperformed the S&P 500, Dow Jones Industrial Average and Nasdaq Composite through the first two months of 2023. But since March 1, the reverse has been true.
Shipping stocks have trended well below the broader stock-market indexes over the past nine weeks. Sentiment on future trade flows has presumably weakened.
The question facing investors and traders: Is the ocean shipping equity sell-off a canary in the coal mine pointing to a bigger problem for the world economy or should they take analysts’ advice and “buy the dip”?
Container shipping stocks
The container shipping industry has by far the worst supply-demand fundamentals of any vessel segment due to a historically large orderbook that will relentlessly add new capacity through 2025.
Even so, container shipping stocks started out well in 2023. Shares of liner company Zim (NYSE: ZIM) rose 41% in the first two months of this year. Among the ship lessors — the owners that charter vessels to liners — Global Ship Lease (NYSE: GSL) rose 24% and Danaos (NYSE: DAC) 10%.
In comparison, the Dow Jones average declined 1% between Jan. 1 and March 1, the S&P 500 gained 3% and the Nasdaq Composite rose 10%.
Several container shipping indicators have actually improved since March. Spot freight rates in the trans-Pacific bounced off the bottom in mid-April and have held onto a portion of their gains. U.S. imports are at or above pre-COVID levels. Both container-ship charter rates and asset values have surprised to the upside. Demand for container ships remains more resilient than expected in the face of the newbuilding onslaught.
The Harpex Index, which measures charter rates, bottomed in early March and has risen 20% since then. Brokerage Braemar reported this week: “Asset prices continue to rise against firming periods available in the charter market.”
Nevertheless, container shipping stocks have sold off, performing worse than the stock-market indexes. The Nasdaq Composite has risen by 8% since March 1, the S&P 500 by 5% and the Dow Jones average by 3%.
Over the same period, shares of Maersk are down 29%, Zim 28%, Global Ship Lease 12% and Danaos 3%.
Dry bulk shipping stocks
Dry bulk shipping had an exceptionally terrible start of the year in terms of freight rates. The seasonal lull was much more severe than usual. The Baltic Dry Index (BDI) collapsed by over 90% between October and mid-February. The BDI had only been lower twice before in the history of the index.
Dry bulk stocks went in the opposite direction of rates as investors anticipated the usual post-low-season rate rebound.
In the first two months of 2023, shares of Eagle Bulk (NASDAQ: EGLE) increased 35%, shares of Star Bulk (NASDAQ: SBLK) and Genco Shipping & Trading (NYSE: GNK) rose 30% and Golden Ocean (NASDAQ: GOGL) gained 24% — a far better performance than the stock-market indexes.
Dry bulk market indicators have been generally positive since March 1 (at least relative to what came before). On Tuesday, spot rates for Capesizes (bulkers with capacity of around 180,000 deadweight tons or DWT) reached $20,800 per day, according to Clarksons Securities. That’s a high for the year and up 170% from March 1. Asset values of 5-year-old Capesizes are up 21% from March 1, according to Clarksons’ data. Values of 5-year-old Panamaxes (65,000-90,000 DWT) are up 10% and Supramaxes (45,000-60,000 DWT) 8%.
But dry bulk shares have headed lower. Dry bulk stock sentiment is heavily influenced by China. Concerns over the pace of China’s post-COVID recovery have intensified.
Shares of Eagle Bulk have plunged 35% since March 1. Genco is down 27%, Star Bulk 19% and Golden Ocean 15%.
The mood on tanker stocks was ecstatic in early 2023. Spot rates were well above the five-year average, particularly for midsized and smaller tankers. Asset prices were on the rise. Russian sanctions were forcing ships onto longer routes, soaking up tonnage. The orderbook was at historic lows.
During the first two months of 2023, shares of Teekay Tankers (NYSE: TNK) and Frontline (NYSE: FRO) surged by 62% and 60%, respectively. Nordic American Tankers (NYSE: NAT) rose 49%, DHT (NYSE: DHT) 27%, Ardmore Shipping (NYSE: ASC) 32%, Euronav (NYSE: EURN) 16% and Scorpio Tankers (NYSE: STNG) 14%.
Then the bad news began piling up. Spot rates started falling in early March and have declined ever since. OPEC+ announced a surprise production cut in early April. After a brief rally on the OPEC+ news, crude pricing sank even lower. Refinery margins tightened. Down came the tanker stocks.
Between March 1 and Tuesday’s close, in a period when the stock-market indexes rose by single digits, Ardmore fell 32%, DHT 28%, Scorpio Tankers 23%, Nordic American Tankers 22%, Frontline 21%, Teekay Tankers 18% and Euronav 17%.
“All told, much of this angst is misplaced,” maintained Evercore analyst Jon Chappell in a client note on Monday. Even in a worst-case scenario of a “full-blown recession,” Chappell believes a tanker market recovery “would likely be quick and meaningful” given the inherent cap on fleet growth due to the exceptionally low orderbook.
Clarksons Securities analyst Frode Mørkedal quoted the famous proverb of economist Benjamin Graham: “The intelligent investor is a realist who sells to optimists and buys from pessimists.”
“Now is the time to buy shipping equities from pessimists,” Mørkedal advised.
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