May 27, 2024

The international price of global freight shipping is dropping in a trend that could have ripple effects across the entire shipping industry.

By mid-July 2022, the price of shipping one 40-foot container from Shanghai to Los Angeles had dropped 24{b930f8fc61da1f29cba34a8cbe30670691f63878f9c98a2d7d5d6527da1fb8f3} year over year, according to data from the Drewry World Container Index.

However, far from stable, global freight rates continue to show highly elevated prices when compared to pre-pandemic levels.

Down, But Only From The Rooftop To The Penthouse

Up until the pandemic, global freight rates remained relatively stable. A composite of prices for the shipping of a 40-foot container between intercontinental destinations ranged between $1,000 and $2,000 from mid-2016 to April 2020.

From then on, average prices skyrocketed, peaking at $10,300 in September 2021. A freight from Shanghai to L.A. at that time ran even higher at $12,400.

From last year’s peak onwards, prices went into a downward seesaw trend. The latest Drewry data from mid-July 2022 puts the same trip from Shanghai to L.A. at $7,480. So, while the drop is substantial, today’s prices continue to be miles above the pre-pandemic normal.

Maersk Flags An Uncertain Future

On Tuesday, shipping giant A.P. Moller-Maersk (traded in the Nasdaq Nordic exchange) announced a revision to its previously announced guidance for 2022. The Danish company, which controls 17{b930f8fc61da1f29cba34a8cbe30670691f63878f9c98a2d7d5d6527da1fb8f3} of global shipping, said that EBITDA for this year is now expected to be around $37 billion.

This is up 18{b930f8fc61da1f29cba34a8cbe30670691f63878f9c98a2d7d5d6527da1fb8f3} from a previously announced guidance of $30 billion.

With supply chains disrupted all over the world, the pandemic meant good business for international freight carriers. As ports shut down or reduced their workload, freight companies were able to justify raising prices in order to secure their—increasingly costly—spot at the port.

For Maersk, this meant growing from an EBITDA of $5,712 in 2019 to $19,674 in 2021 and an even more substantial leap to what is projected for 2022.

But if Maersk is doing so well, why isn’t its whopping EBITDA projection being reflected in its valuation?

Maersk is valued at a total of $50 billion, which is only 1.4 times the new 2022 EBITDA estimate, as Reuters reported. 

Investors, apparently, are looking to an overall bearish trend for container shippers in the long term.

Maersk’s low valuation compared to its EBITDA can be explained by the fact that investors are expecting container shipping costs to continue their downward trend into a market correction as a response to a looming global recession.

Stocks To Watch

If freight rates continue to drop, other companies in the shipping industry—especially those shipping containers internationally—could experience similar fates to that of Maersk. Those companies include:

  • Eagle Bulk Shipping Inc. (NASDAQ:EGLE)
  • Diana Shipping Inc. (NYSE:DSX)
  • Euroseas Ltd. (NYSE:ESEA)
  • Genco Shipping & Trading Limited (NYSE:GNK)
  • Costamare Inc. (NYSE:CMRE)
  • Hapag-Lloyd Aktiengesellschaft (OTC:HPGLY)
  • ZIM Integrated Shipping Services Ltd. (NYSE:ZIM)
  • Matson, Inc. (NYSE:MATX)

Photo by Galen Crout on Unsplash.{b930f8fc61da1f29cba34a8cbe30670691f63878f9c98a2d7d5d6527da1fb8f3}E2{b930f8fc61da1f29cba34a8cbe30670691f63878f9c98a2d7d5d6527da1fb8f3}80{b930f8fc61da1f29cba34a8cbe30670691f63878f9c98a2d7d5d6527da1fb8f3}94-will-this-lead-to-chaos-for-shipping-companies-1031641340