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Global supply chains have been severely disrupted this year by a host of problems as a recovery in trade and strong demand for commodities necessitated the transport of more goods.
In April, one of the world’s largest container ships got stuck in the Suez Canal, halting traffic for almost a week. The waterway is one of the busiest in the world, with around 12% of trade passing through it.
The huge cargo ship made headlines, but there have been several other disruptions in global trade. In a recent report, JPMorgan analysts highlighted persistent bottlenecks such as port congestion as well as a shortage of containers and ships.
“In particular, the Yantian Port (Shenzhen) incident could potentially evolve into the Suez Canal 2.0 incident, resulting in shipping delays, longer container processing times, and shortage / repositioning issues. containers, ”the bank wrote.
Yantian Port in Shenzhen, China is one of the busiest in the world. The region was hit by a slight increase in Covid cases in June, which caused massive delays at the port, pushing up shipping prices.
Research firm TS Lombard noted that commodities had jumped as demand from China recovered. Demand for basic commodities, from oil to timber to corn, has exploded this year as economies reopen and vaccination rates rise, although prices have been volatile recently.
“Shipowners are profiting from the boom in commodity trade. Ship revenues hit their highest level in a decade so far in 2021… China’s ore and coal inventories, ”the company said.
He also said that up to 72% of the world’s iron ore is transported to China, boosting the shipping industry.
The value of ships will increase
And that might not be resolved anytime soon. According to analysts at JPMorgan, new orders for ships will not be delivered until 2023, “at the earliest”.
High demand and tight supply will increase the value of ships. Ships are considered assets for a shipping company because they generate cash flow.
The increase in the value of ships will therefore increase the net asset value of companies, i.e. the value of assets less liabilities. This in turn should push up stock prices, according to TS Lombard.
Here are the stock picks from both companies, in reports released in June:
Here are JPMorgan’s stock picks:
- Chinese container shipping company Cosco Shipping
- Orient Overseas, based in Hong Kong, parent company of the container shipping company Orient Overseas Container Line
Here are TS Lombard’s stock picks: