Shipping Freight Update:Container spot rates spike as peak season kicks in

Shanghai Containerised Freight Index (SCFI) jumped 11% w-o-w as the peakseason kicked in. We saw an improvement in freight rates for all major trade lanes.Spot rates for trans-Pacific routes spiked, with Shanghai-US West Coast/East Coastup 38% and 20% respectively to their highest levels since 1Q17. Spot rates for Asia-Europe routes also posted modest gains. Shanghai-Europe/Mediterranean spot rateswent up 5% and 4%, respectively. The Shanghai-South America spot rate fell for thefourth consecutive weeks, down 5% last week and is now 12% below its recent peak.JOC expects a solid peak season ahead, with Asia-US trade growing 9.2% y-o-y in3Q17e, led by Chinese and Vietnamese exports to the US.

    OOIL’s 2Q17revenue up 24% y-o-y driven by a 16% increase in ASP. On 28July2017, OOIL reported its 2Q17operational data. Total volume increased 6.6% y-o-yon higher trans-Pacific (+25.7%) and Asia-Europe (+26.3%) volume. We attribute thestrong volume growth in these two routes partly to its market share gain after Hanjin’s(not listed) exit. Overall ASP in 2Q17increased by 16.2% y-o-y, led by Asia-Europeroute (+32.9%) despite a subdued improvement on the trans-Pacific route (+4.3%).This compares to a 28% increase in CCFI during the same period.

    BDI dropped 5% w-o-w as freight rates for larger vessels came under pressure.After a 24% gain in the previous week, capesize (BCI) dropped 1%. Meanwhile,panamax (BPI) slid 12% after running up 7% in the previous week. On the otherhand, freight rates for smaller vessels were more stable with handymax (BSI) down3% last week while handysize (BHSI) remained flat. While summer is a weak seasonfor dry bulk, in particular for iron ore and coal, the BDI has held up reasonably wellrecently, rebounding 14% from its recent low in early June.

    Maersk and SITC are our Buy rated stocks. We have Buy ratings on Maersk andSITC, while we remain bearish on Hapag-Lloyd and Yang Ming. While we expectprospects for the dry bulk sector to improve, the upside is limited by latent overcapacity.We have a Hold rating on Pacific Basin.