SIMIC

CONTAINER shipping equities have shown signs of recovery after facing significant declines in the second quarter of 2023, reports Hellenic Shipping News Worldwide.

This revival is in anticipation of an increase in demand as the peak season approaches, although it's expected to be delayed compared to historical norms.



The Drewry Container Equity Index rose 10.4 per cent in July (as of 21 July 2023).



However, due to a steep 24 per cent decline in the second quarter, the index is down 6.7 per cent year-to-date.



In contrast, the S&P 500 posted a growth of 13.6 per cent during the same period.



The Drewry Container Equity Index currently trades at a price-to-book (P/B) ratio of 0.6x, representing a substantial 38.7 per cent discount to its pre-pandemic average (2013-18).



The container shipping industry is facing challenges with plunging spot rates, which are likely to result in weaker earnings in the second half of 2023, despite the anticipation of higher volumes compared to the first half.



The Drewry World Container Index (WCI) also reflects the overcapacity issue, as it stood at US$1536.90 per day per FEU as of July 20, showing a YTD decline of 28 per cent and nearly half of its 10-year average.



With effective capacity predicted to increase 26.2 per cent in 2023, supply is expected to outpace demand significantly.



Examining the liquidity of the container shipping industry, it's observed that the operating cash flow for the industry decreased 75.7 per cent YoY to $11 billion in the first quarter of 2023, primarily due to the substantial 80.9 per cent YoY decline in net income to $4.8 billion.



In the first quarter of 2023, the operating cash flow declined 52.7 per cent QoQ (compared to the fourth quarter of 2022, which had a decline of 32.5 per cent).



During the downturn, carriers reduced their capital expenditures (capex) in the first quarter of 2023 62.8 per cent YoY to $1.3 billion.



The cash and cash equivalents for the industry grew 0.1 per cent YoY, as well as QoQ, totaling $108.6 billion.



The industry's gross debt reduced 3.2 per cent QoQ at the end of the first quarter of 2023, amounting to $51.3 billion.