Investment Conclusion: Volume recovery will likely
appear strong starting in 4Q09 owing to easy
comparisons that reflect the big hit to volume following
the onset of the financial crisis and the temporary halt to
trade financing. But we think that massive containership
supply, large order book, and latent ship supply
overhang – laid-up ships and slow steaming measures
taken to keep ships employed – will act as a solid ceiling
to freight rates, keeping them below profitable levels.
With operating fundamentals indicating losses are likely
for 2H09-2010, we think investors looking for a quick
turnaround will be disappointed. We rate NOL
Underweight due to its expensive valuation. We prefer
WHL, OOIL and CSCL for their more defensive qualities.
What’s new: In this report, we provide an in-depth
analysis of containership supply. Our key conclusions
are: 1) order cancellations, scrapping and bankruptcies
will likely have limited impact on reducing ship supply; 2)
delivery delays and return of chartered-in ships will have
some impact on reducing ship supply but should be only
a temporary solution; and 3) latent excess capacity from
slow steaming and laid-up fleet reactivated means that
effective supply could be higher, particularly when
demand picks up.
What’s next: With easy comparisons for 4Q09,
container shipping volume growth is likely to be strong
and we recommend investors consider taking profits on
any positive news. Freight rate correction post the peak
season in July through October, and weak 2H09 results
could present better opportunities to accumulate
container shipping stocks, in our view.
Key Risks: 1) stronger-than-expected recovery in the
global economy and consumer spending; and 2)
concrete efforts by container shipping companies to
focus on profitability instead of market share