Shipping Stocks Soar On Suez Risk
One of the primary indices of the price of shipping stocks has soared recently. The Solactive Global Shipping Index has risen from $157 on December 13 to $178 today. According to Bloomberg, this has added $22 billion to the aggregate value of the dozens of stocks that comprise the index.
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The rise is because more and more vessels are avoiding the Suez Canal due to the chance of attacks by Houthi rebels. This adds days to the length of transit between ports for many of these ships. Presumably, what the shipping companies can charge will rise.
This is not the only time this has happened recently. A log jam at the Suez Canal in March 2021 also took shipping costs higher.
Container ship stocks are notoriously volatile, affected by inflation, the cost of oil, the economy, and traffic interruptions. Maersk, one of the largest shipping companies in the world, has a market cap of $30 billion. Until very recently, the stock was down sharply for the year. Even with the recent run-up, it has been off 28% since the start of the year. Last year, however, its market cap rose 363%.
Will these stocks stay higher? According to Reuters, the answer is “No’. “Higher prices for containers used by merchant ships caused by attacks on Red Sea shipping are likely to fall back in three to nine months to levels seen in early December due to market overcapacity, the head of an online container logistics platform said.”
Any forecast about the value of shipping stocks is a wild guess because the problems with the Suez Canal and the Panama Canal charge rapidly and unpredictably.
Finally, no matter what happens shipping costs will be minor compared to the overall effect the closure or partial closure of the two canals could cause. How much could inflation rise? There is no telling, but the CPI effects of the COVID-19 pandemic supply chain challenge are a valuable comparison, particularly for fuel prices. In March 2022, the CPI rose 8.5% year over year. Energy commodities rose 48.3%. The India Express reported: “Prior to December, the Suez Canal and the Red Sea accounted for around 10 per cent of global crude oil flows and 14 per cent of petroleum product flows, as per Kpler data.” Will the current situation move energy prices in the US by a rate well into the double digits? It is too early to tell.
The shipping industry may be benefitting from the present canal problems. Almost no one else is.
