The Shanghai Containerised Freight Index has exhibited relative stability since the start of the year, and this should provide a good base for upcoming generate rate increases such as those enacted under the TSA for Apr. Although there is a possibility of a supply outpacing demand, several liners have expressed confidence in the resilience of rates this year and continue to push through GRIs beyond Apr. Nonetheless, the major liners acknowledge potential threats to profitability and have reiterated the need for the industry to strike a balance between competition and sustainability. Although some liners have taken heed – such as the G6 and CKYH alliances who have cancelled their planned Asia-Europe service launches this year – there remains some routes that are particularly susceptible to rate fluctuations, and we adjusted our estimates downwards for NOL accordingly. Regardless of this adjustment, our view on NOL’s turnaround in FY13 remains intact and we maintain our BUY rating with a fair value of S$1.38.
Overall 1Q rates were okay despite jitters
Despite the constant reminders of lingering economic uncertainty, the Shanghai Containerised Freight Index has stayed within a tight band (1,073-1,246) since the start of CY2013. This relative stability should provide a good base for the upcoming rate hikes from Apr 1, where members of the Transpacific Stabilization Agreement (TSA) have applied for across-the-board general rate increases (GRI) of between US$400/FEU to US$600/FEU on all dry and refrigerated cargo.
Liners quietly confident on CY2013 rates
Although container ship capacity is estimated to increase by at least 10% this year, several liners are quietly confident of a better CY2013 showing in terms of rates. Senior executives from Maersk Line’s have signalled expectations for rates on eastbound transpacific routes to increase by 10% while Hapag-Lloyd continues to push ahead with GRI announcements beyond Apr and into May on the anaemic Asia-Europe trade routes.
Downside risks still present so industry action still needed
While we view the optimism over CY2013’s prospects positively, there is still the likelihood of supply outstripping demand, especially on certain routes such as the transpacific trade lane. That said, several senior executives from various major liners have reiterated publicly the need for a balance between competition and sustainability, and fortunately, some liners have taken heed. For instance, both the G6 and CKYH alliances have cancelled their planned Asia-Europe service launches this year.
Adjusted our estimates, but turnaround still intact
We are encouraged by these developments and maintain our view that NOL will have a turnaround year in FY13. Nonetheless, we adjust our estimates downwards as we feel the transpacific route, which is NOL’s main revenue contributor, to be especially susceptible to rate fluctuations. However, even with this adjustment, our BUY rating with a fair value of S$1.38 remains.
Despite the constant reminders of lingering economic uncertainty, the Shanghai Containerised Freight Index has stayed within a tight band (1,073-1,246) since the start of CY2013. This relative stability should provide a good base for the upcoming rate hikes from Apr 1, where members of the Transpacific Stabilization Agreement (TSA) have applied for across-the-board general rate increases (GRI) of between US$400/FEU to US$600/FEU on all dry and refrigerated cargo.
Liners quietly confident on CY2013 rates
Although container ship capacity is estimated to increase by at least 10% this year, several liners are quietly confident of a better CY2013 showing in terms of rates. Senior executives from Maersk Line’s have signalled expectations for rates on eastbound transpacific routes to increase by 10% while Hapag-Lloyd continues to push ahead with GRI announcements beyond Apr and into May on the anaemic Asia-Europe trade routes.
Downside risks still present so industry action still needed
While we view the optimism over CY2013’s prospects positively, there is still the likelihood of supply outstripping demand, especially on certain routes such as the transpacific trade lane. That said, several senior executives from various major liners have reiterated publicly the need for a balance between competition and sustainability, and fortunately, some liners have taken heed. For instance, both the G6 and CKYH alliances have cancelled their planned Asia-Europe service launches this year.
Adjusted our estimates, but turnaround still intact
We are encouraged by these developments and maintain our view that NOL will have a turnaround year in FY13. Nonetheless, we adjust our estimates downwards as we feel the transpacific route, which is NOL’s main revenue contributor, to be especially susceptible to rate fluctuations. However, even with this adjustment, our BUY rating with a fair value of S$1.38 remains.
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