Who will benefit from Shipping Industry Consolidation?

Who will benefit from Shipping Industry Consolidation?

The shipping industry will see an improved operating environment in 2017 driven by growth in shipping demand this year and further market consolidation following the bankruptcy of Korean giant Hanjin Shipping, said market watchers.

Maersk Line, the largest operator (by deployed capacity) at the start of 2017, expects the container business will be profitable in 2017 and gradual improvement in freight rates.

Reflecting the more optimistic outlook, most Hong Kong listed shipping operators outperformed on the Hong Kong stock exchange on Monday, February 13, 2017 – including several subsidiaries of state-run ocean carrier China Cosco Shipping Corp, whose stock jumped 10.56 percent to close at a one-year high of HK$3.77. JP Morgan upgraded the stock to Buy with a price target of 4 Hong Kong dollars, implying another 20% upside.

But should portfolio managers put more weight on shipping sector?

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Except for on the back of improving fundamentals, Analysts see Cosco Shipping as one of the key beneficiaries, given its higher operating leverage, arising from higher exposure to spot rates vs. contract rates and fixed charter rates. Some investors expect a merger in the future from the Cosco’s equity relationships with other state-owned enterprises.