- APMøller-Maersk A/S – WKN: 861837 – ISIN: DK0010244508 – Price: €1,901.000 (XETRA)
- Hapag-Lloyd AG – WKN: HLAG47 – ISIN: DE000HLAG475 – Price: €165.900 (XETRA)
This indicates a noticeable relaxation in the supply chains. Freight rates between China and the rest of the world have been declining again at an accelerated rate since August. After a golden age, shipping company shares are likely to face more difficult waters again.
What do the declining freight rates mean?
First of all, the declining freight rates mean relaxation. The high freight costs were an important reason why many companies had to revise their forecasts. FedEx has already shown with its profit warning that less is being transported. Sharply falling transport costs are an important indicator of future inflation. Supply chains are relaxing and demand is falling.
First of all, that’s good. Supply chains should soon be back in line with demand. The question that follows is: How bad will it get then? Companies are now feeling the slump in demand everywhere.
In winter, many consumer items that are currently sailing across the ocean may even remain on the shelves. This is particularly critical for articles such as fashion and electronics. These quickly lose their value and can then only be sold at high discounts. Trends that are clearly deflationary, but will certainly bring us numerous profit warnings.
Shipping companies are likely to remain underperformers for years to come
Numerous new container ships have been ordered in recent years. Now the demand is falling. We are still a long way from a price war, but there are indications that there will probably be no flower pot to be won with shipping company shares in the next few years. Thanks to multi-year contracts, the decline will be slower than it was during the 2008/2009 financial crisis, but cash flows will gradually collapse and payouts will fall. The stock market has long anticipated this and also I pointed this out early on.
In the short term, positive implications can be drawn from the falling freight rates. In the medium term, however, these point to further problems. Is a recession or inflation the lesser evil? I think we can say with great certainty that inflation is far more dangerous. We know how central banks can combat recessions effectively. It remains to be seen whether they will also manage to keep up with inflation. But at least we can say that many of the drivers of inflation have reversed themselves in recent weeks. Be it falling raw material, real estate or stock prices and now also freight rates.
The central banks will soon be able to report successes in fighting inflation. After that, attention will just as quickly shift to fighting the recession. The great art will be to combat this in such a way that it does not fuel inflation again. Investors who want to keep tabs on freight rates can do so too do at this link.
