Shipping stocks ‘unable to escape the torrent’

Bulk cargo shipping inventories continued to rise in May even as the broader market fell, providing shelter from the storm. This is not the case in June. With few exceptions, dry bulk and tanker stocks that were holding up before are collapsing. The decline in shipping container inventories accelerated.

Shipping stocks were “unable to escape the torrent,” wrote Clarksons Platou Securities analyst Frode Morkedal. “The destruction of demand is a major cause for concern.”

Ben Nolan, shipping analyst at Stifel, said: “The stocks of a number of shipping sectors are extremely sensitive to developments in the broader market.”

In the past week alone, shipping inventory sentiment has been hit by a World Bank warning of stagflation; a FreightWaves report claiming import demand is “falling off a cliff”; the announcement of an 8.6% inflation gain for May, the strongest rise since 1981; and the resurgence of COVID restrictions in Shanghai and Beijing.

The Dow Jones Industrial Average (DJIA), S&P 500 and NASDAQ Composite all hit new 52-week lows on Monday. Shipping stocks fell across the board.

Shipping stock movements since June 1

The container and dry bulk names were the biggest losers this month.

As of Monday’s close, shares of line companies Zim (NYSE: ZIM) and Matson (NYSE: MATX) were down 25% and 15%, respectively, from their June 1 open. Container ship lessor Danaos (NYSE: CAD) was down 21%, while Costamare (NYSE: CMRE) – which leases container ships and owns dry bulk carriers – was down 18%.

Among dry bulk owners, Star Bulk (NASDAQ: SBLK) was down 24% since the start of the month, Eagle Bulk (NASDAQ: CHURCH) 22% and Genco Shipping & Trading (NYSE: GNK) 18%.

Change of the closing on Monday compared to the opening on June 1st. Graphic: American Shipper

Container and dry bulk stocks fell faster than the DJIA, S&P 500 and NASDAQ Composite, while tanker stocks lost less ground than indices. “Energy-related shipping stocks were more isolated,” Nolan noted.

DHT (NYSE: DHT), which operates very large crude carriers (VLCCs; tankers that transport 2 million barrels of crude), fell just 6% this month, despite VLCCs still mired in their worst slump below the break-even point in three decades.

Petroleum product inventories were the best performer in June.

Ardmore Shipping (NYSE: CSA) and Scorpio Tankers (NYSE: TNG) are actually still up 2% for the month, despite falling with the rest of the shipping names on Monday.

Product carrier spot rates remain well above the five-year average, between $40,000 and $50,000 per day, according to Clarksons. Rates are supported by trade upheavals due to the war between Ukraine and Russia and the global run on scarce diesel and gasoline.

Product Carrier Spot Rates. Chart: Clarksons Platou Securities. Data sources: Clarksons Platou Securities, Clarkson Research

Drop from 52-week highs

Shares of different shipping segments hit their 52-week highs at different times.

Container shipping shares generally peaked around the end of March. The turning point coincided with a slump in domestic shipping stocks on fears of an impending freight slump, initially fueled by reports from FreightWaves.

Container shipping shares are also falling due to a drop in spot rates from their highs, despite spot rates remaining exceptionally high, contract rates are much higher this year and liners expect to earn even more in 2022 than last year.

Unlike container stocks, most dry bulk and tanker stocks hit 52-week highs in late May. Dry bulk inventories have fallen much faster than tanker inventories since then. As a result, shipping container inventories and dry bulk inventories saw larger declines from 52-week highs than tanker inventories.

Chart: US Shipper

The exception is Nordic American Tankers (NYSE: NAT), which owns Suezmax (tankers that transport 1 million barrels of crude). NAT shares are down 46% from a 52-week high reached a year ago.

Performance of shipping inventory during the pandemic

Looking further, different shipping segments have seen very different inventory behavior during the pandemic era.

Both dry bulk and container shares fell sharply in the first half of 2020 at the onset of COVID. Container stocks rebounded first, in H2 2020. Dry bulk stocks started their ascent in early 2021.

Dry bulk and container stocks significantly outperformed broader stock indices. Since January 1, 2020, Danaos is up 607%, despite the recent pullback. Zim went public on January 27, 2021, at $15 per share. Even with its recent drop, it is still up 222% from the IPO price.

Among dry bulk names, Safe Bulkers (NYSE: SB) is up 138% since pre-COVID, Golden Ocean (NASDAQ; GOGL) 121% and Star Bulk 116%. Container ship lessor Global Ship Lease (NYSE: GSL) is up 114%.

Tanker stocks followed a totally different path. Prior to COVID, tanker prices and stock prices were high, driven by Middle East tensions and US sanctions.

In the pandemic era, tanker inventories first rose as ships filled with floating storage cargo in the second quarter of 2020, then fell thereafter as bloated inventories reduced demand for transport . Tanker stocks have recently been supported by the war between Ukraine and Russia and by the feeling of increased demand for air and ground transport fuel.

Since tanker rates and sentiment were high before COVID, most tanker stocks are now trading lower than they were on January 1, 2020.

Change in Monday close from January 2, 2020 open (except for Zim, relative to IPO price). Chart: US Shipper

NAT down 61%, DHT down 34%, Frontline (NYSE: FRO) 32% and International Seaways (NYSE: INSW) 24%. Unlike container and dry bulk stocks, tanker stocks — including commodity tanker names like Scorpio — have underperformed the DJIA, S&P 500 and NASDAQ Composite through the COVID era.

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