As war drags on, shipping stocks may sink, not swim

For global shipping lines that have spent the last year feasting on an insatiable demand for their services, the party has to end sooner or later. The Russian-Ukrainian war is putting pressure on shipping companies with delivery disruptions and the re-routing of goods. But the big story remains the normalization of US demand as the stimulus fades and the waning Omicron wave pushes global consumption back towards services, which already appears to be weighing on some shipping rates.

And if the war continues and starts hurting global growth, rates could start falling much faster. Shipping actions like Cosco Shipping, AP Moeller-Maersk,

Evergreen Marine and Hapag-Lloyd HER

could face increasing headwinds by late 2022 or early 2023.

Of course, the conflict in Ukraine also has an immediate impact, especially for raw materials. The Baltic Dry Index, which measures the cost of transporting major bulk commodities by sea, has risen by around 50% since late January, although that still leaves it well below the high highs of late 2021.

But when it comes to the container shipping trade – which has seen a record boom in profits over the past year and is dominated by much larger and more profitable companies like AP Moeller-Maersk and Evergreen Marine – Ukraine and Russia are minnows. Russia accounted for just 0.64% of global container trade in 2020, while Ukraine accounted for 0.14%, according to United Nations data.

And despite some disruption to individual routes and ports, the main impact of the war could end up lowering container shipping rates.

The Global Container Index compiled by London-based Drewry Shipping Consultants has fallen since the dispute began, with the biggest drop on the Shanghai-Rotterdam route, where rates fell 5% in the week se ending March 3. An analysis of Clarksons Research data by Jan Hoffmann, head of trade logistics at the United Nations Conference on Trade and Development, also shows spot rates on many key routes falling. Hoffmann notes that the dispute is putting contradictory pressures on shipping rates: upward pressure from cancellations and other supply issues, but downward pressure from a more pessimistic economic outlook. Large orders for new ships placed in 2021 could also start to weigh on rates by the end of the year.

The voracious demand for goods in the United States and the intense port congestion that characterized 2021 also appear to be fading. In a March 3 report, Citi noted that the number of ships waiting to dock in Los Angeles and Long Beach fell to 60, the lowest level in three months, and down from 109 as recently as January 9. North Asia to the United States has also slowed recently according to S&P Global Commodity Insights, partly due to high inventories in the United States.

A protracted – or expanded – conflict in Eastern Europe has the potential to introduce much more volatility and uncertainty into the global shipping industry.

But for now, the most important story is still the revival of the ebb and the reopening of trade. Shippers have had a great year and look cheap – Maersk, for example, is trading around three times expected earnings for the next 12 months according to FactSet. But with the surge in US demand set to peak and ship supply set to increase, that could be about as good as it gets.

As Ukraine comes under military assault from Russian forces, analysts warn that the world’s wheat supply could be seriously threatened. WSJ’s Shelby Holliday explains. Photo: Valentin Ogirenko/Reuters

Write to Megha Mandavia at [email protected]

Corrections & Amplifications
Jan Hoffmann is Trade Logistics Manager at the United Nations Conference on Trade and Development. An earlier version of this article misspelled his last name as Hoffman. (Corrected March 7)

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Appeared in the March 8, 2022 print edition as “Shipping Stocks Might Sink—Not Swim—During Conflict”.