U.S. imports of manufactured goods are up for the first time in two years, and container shipping companies are poised to make a profit in 2012. But will the planned rate hikes founder?
PIERS Trade Intelligence reported February 9 that U.S. containerized imports are finally on an upward trajectory again, with the fourth quarter of 2011 closing 1.9% above the same period last year.
However, PIERS economist Mario O. Moreno says the outlook for 2012 remains "cautious," and much depends on the slowly recovering housing market.
Despite the fragility of shipping volumes, container shipping companies have little choice but to raise rates. Analyst Freddie Yam of Primasia says that current Asia-to-Europe shipping rates are well below the break-even point, meaning that most shippers are moving cargo just to reduce their losses. Several liners have already announced general rate increases, but Yam is skeptical that the hikes will be effective, given persistent overcapacity and lack of discipline among the shippers.
China Cosco is a case in point. China's largest shipping line suffered losses through most of 2011 due to plunging shipping rates. In addition to raising rates, it has been idling ships to reduce capacity and overhead.
Yam says the shipping industry may be close to righting itself. Only 4% of capacity is currently idle, so it won't take much more improvement in shipping volume for the rate hikes to stick. However, Yam says there is a significant downside risk to shipping stocks if the price increases fail.
CICOY trades thinly in the United States, but investors may be interested in the Guggenheim Shipping ETF.