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Why are shipping stocks up in Asia?

Steve Henn Nov 18, 2009

Why are shipping stocks up in Asia?

Steve Henn Nov 18, 2009


Kai Ryssdal: You know how we look at things like UPS and railroad freight loads when we’re trying to get a handle on the economy? The more stuff that’s being moved, the better, right? Same principles apply worldwide.

One of the telling indicators there is, container-ship usage. A global recession means demand for those ships has been stuck in the doldrums. Not enough cargo to fill ’em. Yet over in Asia some big publicly traded shipping companies are enjoying a boom in their stock prices. We asked Steve Henn to unravel this post-bust paradox for us.

STEVE HENN: When millions of Americans suddenly stop shopping, thousands of container ships around the globe are rendered useless. But those ships are still out there, bobbing off shore somewhere waiting for trade to come back.

DOUG MAVRINAC: Maybe 700-plus ships sitting idle off the coast of Singapore right now.

Doug Mavrinac is a shipping analyst at Jefferies and Company. He says there are few industries in the world that have been hit harder by this recession than shipping. Before the bust, the industry went on a ship-building binge. Then trade collapsed and now most container ships are operating at a loss.

MAVRINAC: You have such excess tonnage available that it’s preventing rates from really rising appreciably, and it should until those 700-plus ships are no longer there.

Mavrinac believes the industry is probably years away from any real recovery. So it’s odd that a couple big east Asian shipping companies are experiencing a bit of a boom in their stock price.

Fred Doll is an industry consultant.

FRED DOLL: Vessels, for example, that were averaging say $34,000 a day in 2007, are right now being chartered for around $6,500 a day.

With prices that low, Doll says most firms can’t cover costs. And he’s expecting a wave of bankruptcies.

DOLL: People are going to be in some difficulties financially — that’s clear.

But low interest rates have set off an investment boom in Asia. In Hong Kong, asset prices are soaring on everything from real estate to shares of stock in struggling firms in an industry still adrift at sea.

I’m Steve Henn for Marketplace.

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