The Future of Shipping Stocks: From Cycle Bottom to Revaluation Era

The shipping industry plays a pivotal role in the global economy, with each vessel’s voyage connecting supply chains worldwide. However, the future of shipping stocks is facing a significant turning point, contrasting past glory with current challenges. Now is the critical moment to reassess the shipping sector and understand the opportunities and risks ahead.

Market Turning Point in 2024: From Overvaluation to Rationality

After an unexpectedly strong recovery following the COVID pandemic, shipping stocks are now experiencing a deep correction. The performance of the world’s largest shipping company, Maersk, is a typical example: from its peak in early 2022, its market value has evaporated by over 60%. Similarly, German shipping giant Hapag-Lloyd AG has seen its market cap shrink by nearly 70% from its late-2022 peak.

The fundamental reason for this shift is the rapid deterioration in earnings. For example, Maersk’s quarterly revenue peaked at $22.767 billion in mid-2022 but has since declined steadily. By Q2 2023, revenue fell below $13 billion, less than 60% of its previous high. Even more striking is the collapse in profitability—net quarterly profit plummeted from $8.879 billion in mid-2022 to $1.453 billion in Q2 2023, an 83% decline.

This sharp decline in performance directly reflects in persistent downward pressure on stock prices. Whether shipping stocks can rebound depends on whether this correction can reach the true cyclical bottom.

Who Can Survive the Cycle: Divergence Among Leading Global Shipping Companies

Although all shipping companies face macroeconomic cycle impacts, their resilience varies significantly. Currently, the main publicly traded shipping companies with investment potential include:

Global Major Players: Maersk (NYSE:AMKBY) and Hapag-Lloyd AG (NYSE:HPGLY) are the world’s first and second largest shipping firms. Maersk, founded in 1904, operates in 130 countries, with an annual cargo transport value of $675 billion and 76,000 employees. Hapag-Lloyd serves over 600 ports worldwide, with a capacity of 1,801,738 TEUs. Due to their large scale, these companies can better absorb costs during industry downturns, making them relatively more resilient.

Asia-Pacific Leaders: Orient Overseas Container Line (NYSE:OROVY), established in 1947, owns over 150 vessels with a capacity exceeding 10 million tons, ranking among the world’s top seven shipping companies. Although acquired by China COSCO Shipping Corporation in 2017 for $6.3 billion, it remains independently listed, providing investors access to the Asia-Pacific shipping sector.

Taiwanese Local Experts: Evergreen (Stock Code: 2603) and Yang Ming (Stock Code: 2609) are Taiwan’s two major shipping pillars. Evergreen operates over 200 container ships with a capacity of 1,668,555 TEUs, mainly on routes connecting the Far East with the Americas, the Southern Hemisphere, Northern Europe, and the Eastern Mediterranean. Yang Ming serves over 70 countries at 170 ports worldwide, with container handling capacity of 705,614 TEUs.

As of May 2024, their market caps are approximately: Maersk $2.282 billion, Hapag-Lloyd $2.706 billion, Orient Overseas $1.016 billion, Evergreen $36.508 billion, Yang Ming $17.6 billion. Scale differences directly influence their risk resistance.

Future Drivers of Shipping Stocks: Five Key Factors

The future trend of shipping stocks is influenced by multiple forces. First is the macroeconomic recovery pace. The Federal Reserve previously raised the federal funds rate to a historic high of 5.50% to curb inflation, which suppressed US economic expansion and slowed global growth. As US inflation data gradually normalizes, the Fed’s policy shift will provide relief to the global economy, boosting trade and benefiting shipping stocks.

Second is the restructuring of global supply chains. Intensified US-China economic friction and Western efforts to decouple from China are reshaping global trade patterns. The US continues shifting supply chains from China to Mexico and nearby regions, directly impacting companies reliant on trans-Pacific routes. Evergreen and Yang Ming, mainly operating routes from the Far East to West/East US, face growth constraints; in contrast, companies like Maersk with more balanced global route networks are less affected.

Oil price fluctuations are the third critical factor. Ongoing Russia-Ukraine conflict and deteriorating Middle East tensions inject uncertainty into international oil markets. Rising oil prices increase fuel costs for shipping companies, eroding profit margins.

Environmental regulations are increasingly shaping the future of shipping stocks. IMO’s carbon emission targets demand higher investments in green fuels and eco-friendly ships. This creates a divergence: large companies with scale and financial strength can more cost-effectively green their fleets, gaining a competitive edge. Thus, Maersk and Hapag-Lloyd, with extensive fleets, may benefit from the environmental wave.

Finally, industry cyclicality remains fundamental. Historical data shows shipping stocks go through complete cycles every few years. Post-2010 global trade recovery boosted shipping stocks; overcapacity in 2015-2016 caused downturns; the COVID crisis in 2020 severely impacted the industry, followed by a strong rebound. Whether current corrections mark the bottom of a new upward cycle warrants ongoing attention.

Investment Strategies: How to Position in Shipping Sector

Given the complex interplay of these factors, investors should consider the following strategies:

Prioritize large leading companies. Firms with market caps over $10 billion have stronger cost control and financing ability, making them more resilient during downturns. Smaller firms are more vulnerable to macro fluctuations.

Focus on fleet age structure. Newer ships are more fuel-efficient and environmentally compliant, helping reduce future costs and regulatory risks.

Pay attention to route diversification. Companies heavily dependent on specific routes are more vulnerable to supply chain shifts. Balanced global route networks enhance risk resistance.

Be cautious with overexposure to Far East-America routes. In the context of geopolitical tensions and supply chain restructuring, such over-concentrated stocks face greater performance pressure.

Establish reasonable entry and exit points. As a cyclical industry, shipping stocks should be accumulated gradually near cycle bottoms and profit-taken near peaks, rather than long-term hold.

Conclusion: Wait for the Right Moment, Select Quality Stocks

The outlook for shipping stocks is closely tied to their cyclical nature. Currently, the market is transitioning from overvaluation to rational valuation, creating potential opportunities for savvy investors.

Investors should fully understand industry cycles and closely monitor global economic trends, geopolitical developments, and energy prices. The future of shipping stocks depends on whether investors can choose the right companies at the right time. Focus on leading firms with clear scale advantages, balanced route networks, and young fleets to improve investment success probability.

In this market correction, patience in waiting for cycle turning points, selecting high-quality stocks, and deploying gradually are the best strategies to navigate future uncertainties in shipping stocks.