09/17/2020

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Shipping Stocks Navigate Rough Waters Surprisingly Well



Avoiding the Worst-Case Scenario

Container-shipping companies are having a surprisingly successful year despite changes in the industry resulting from the COVID-19 pandemic. These companies are a crucial part of the global economy, shipping everything from food to electronics around the world.

At the onset of the pandemic, shipping companies expected the impact on their industry to be catastrophic, but for most, their worst-case predictions have not come to fruition. The World Trade Organization expects that global shipping volumes will drop by 13% this year—which is still significant, but better than some predictions that they would tumble by one third.

Ecommerce and Adaptability

When the pandemic started, shipping companies were able to be nimble. They adapted quickly when demand for their services fell, docking boats and canceling trips to avoid a drop in the price of their services. When demand came back, they were quick to ramp up capacity.

Additionally, the ecommerce boom combined with government financial assistance for households helped buoy demand for shipping. Some consumers had extra money from their stimulus checks and spent a notable portion of it on online retail since they could not spend it on movie tickets, travel, or other activities.

The Impact on the Stock Market

The shipping industry has also seen several takeovers and partnerships in recent years. Five major companies control 64% of ships in the world. In 2008 these companies only controlled 47% of ships. This concentration has made it easier for companies to quickly adjust capacity to respond to changes in demand.

On the stock market, shipping companies have seen mixed results. Cosco Shipping Holdings Co. (1919:HK), which is listed in Hong Kong, and Taiwan-based Evergreen Marine Corp. (2603:TT) have seen their shares rise 23% and 32% this year after coming back from selloffs early on during the pandemic. On the other hand, Hapag-Lloyd AG (HLAG.GR), based in Germany, and Japan-based Mitsui O.S.K. Lines (9104.JP) have both fallen by about 35% for the year.

The year has been unpredictable for the shipping industry, but companies have generally been able to adapt and weather the storm.


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