China's Cosco Shipping Expects Profit Surge as Industry Flourishes

By Joanne Chiu 

A bullish profit forecast from China's largest container-shipping company sent its stock soaring and offered fresh evidence of how the industry is thriving thanks to robust global trade flows.

Freight rates have surged over the past year, with shipping groups reaping the benefits of earlier capacity cuts combined with stronger-than-expected demand. And while the recent Suez Canal blockage has created huge logistical headaches, it hasn't spoiled that positive picture. If anything, port backlogs and other snarls have provided further support to freight rates.

Late Tuesday, Cosco Shipping Holdings Co. said it expected this year's first-quarter net profit to total 15.41 billion yuan, or the equivalent of $2.3 billion. That compares with $44 million for the first three months of 2020.

Shipping rates rose nearly 54% compared with the fourth quarter, Cosco Shipping said, citing the widely tracked China Containerized Freight Index. The company controls the world's third-largest container carrier by capacity.

The company's Hong Kong shares jumped 29% on Wednesday to their highest since August 2008. Its Shanghai-traded stock halted trading after it rose by the daily trading limit of 10%.

Chen Shuai, deputy managing director at Cosco Shipping said at a briefing Wednesday that inventory levels at U.S. retailers remain low. The $1.9 trillion relief plan recently signed by President Biden will trigger restocking, boosting imports, he said.

Global trade has rebounded rapidly from the early stage of the pandemic, with China and other Asian manufacturing countries grabbing a bigger slice of exports including masks and bicycles--market share they are expected to keep after the public-health crisis fades.

That has helped buoy shares in container-shipping groups such as Denmark's A.P. Moeller-Maersk, South Korea's HMM Co., Taiwan's Evergreen Marine Corp. and Yang Ming Marine Transport Corp., and Cosco Shipping.

"It will be another strong year for the container-shipping industry after a robust 2020," said Maggie Wang, a transportation analyst at Bocom International, the investment banking arm of Bank of Communications Co.

Ms. Wang said that among other things, the industry had benefited from tight shipping supply and healthy demand for goods underpinned by huge government spending.

This year, she said, e-commerce would remain strong, as social distancing and travel restrictions dents demand for vacations, movies and dining out. Meanwhile, tight shipping capacity and issues such as container-box shortages and port congestion would continue to support freight rates, she said.

"It will take weeks to clear the backlogs left by hundreds of once-trapped container ships which are now moving through the Suez Canal to their destinations," she said.

The Evergreen-operated container ship that got stuck in the canal left hundreds of ships stranded and delayed sailing schedules for goods such as furniture, electronic appliances and automobile parts.

Much of what operators transport is typically covered by annual contracts. In a note to clients, Jefferies analyst Andrew Lee said Cosco Shipping had secured better-than-expected increases for its trans-Pacific annual contracts. The bank had expected these rates to rise 25%.

Write to Joanne Chiu at [e-mail]

(END) Dow Jones Newswires

April 07, 2021 06:38 ET (10:38 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.