HSBC: Container shipping at risk of hitting bottom in mid-2023

October 13, 2022 by No Comments

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HSBC revealed a trough scenario for container shipping, as it lowered its demand estimations for 2023, increasing its effective 2022-24e supply estimates.

This reflects the unwinding of congestion, which also sees significant downside risks for 2023 consensus profits. In the meantime, sport box rates have reduced significantly in the latest weeks with the Shanghai Containerised Freight Index (SCFI) falling 51% since the end of July, translating to a 7.5% decline per week.

As HSBC explained:

We argue weaker-than-expected demand, faster easing of congestions and price competition to get marginal cargoes led to this decline

At this level, HSBC believes that capacity discipline will meaningfully emerge, especially when rates go below cash costs. In fact, the bank expects the SCFI to trough in mid-2023e and sector profitability to bottom in 2H23e.

In addition, Parash Jain, HSBC’s head of shipping & ports & Asia transport research, noted that HSBC expects “3Q22e earnings to still remain resilient, but see downside in 4Q22 and beyond. We see risks to 2023 consensus profits where we are now 27-85% below.” 

Given HSBC’s expectation of freight rates troughing in mid-2023, share prices will likely trough by the end-1Q23.

Earlier in September, HSBC Global Research had warned container shipping will experience an unavoidable downcycle in 2023-24, with profits plummeting by 80%.

According to Mr. Jain, two years of unprecedented rises container freight rates were seen as having peaked with a downcycle in 2023 –  2024 driven by overcapacity.

Back then, HSBC expected the sector to bottom out in 2024, noting that its forecasts are well below consensus for 2023 – 24.

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