COSCO SHIP HOLD(SH:601919)2025-11-24 01:46Summary of Container Shipping Global Primer: 2026 Outlook Industry Overview - The report focuses on the container shipping industry, analyzing seven container shipping equities, with six rated as Underweight due to challenging supply and demand dynamics [2][11]. Key Points Supply and Demand Dynamics - Capacity Adjustments: The global container supply/demand model has been updated, with demand growth for 2026/27/28 revised down by -30/-100/-200 basis points to a 3.0% run rate, aligning closely with GDP growth expectations [4][9]. - Supply Growth: Effective supply growth is projected to increase from approximately 4% to 6% for 2026-2028 due to new orders. A return to Red Sea sailings in 1H26 is anticipated, but any earlier resumption could worsen overcapacity, potentially driving effective supply growth above 10% [5][119]. - Freight Rates: Freight rates are expected to decline further, following a temporary boost from General Rate Increases (GRI) attempts by carriers [5][11]. Long-term Trends - Reshoring of Supply Chains: The report highlights a shift towards reshoring, which is expected to reduce reliance on long-distance sea freight and increase demand for road freight as supply chains shorten [10][9]. - Market Segmentation: While some segments will continue to depend on global supply chains, the overall growth rate, particularly for long-distance shipping, is expected to slow, benefiting shorter-haul modes like trucks and rail [10][9]. Financial Outlook - Equity Valuation: Despite low price-to-book (P/B) multiples averaging 0.7x across the global container equity coverage, the report warns of downside risks to freight rates and earnings. The average price targets imply a -24% downside [11][134]. - Company Ratings: Six companies are rated Underweight (Maersk, COSCO Shipping Holding, Orient Overseas, Nippon Yusen, Mitsui OSK, Kawasaki Kisen), with one rated Equal-weight (SITC) [11][134]. Market Performance - Container Trade Volumes: Year-to-date global container trade volumes have increased by 4.7%, but growth rates are moderating, with a decline observed in Asia to North America routes, down -3.1% year-over-year [58][61]. - Divergence in Trade Routes: There is a notable divergence in container flows, with volumes from Asia to North America decreasing by -7% to -11%, while volumes to Europe have increased by over 10% [61][58]. Risks and Considerations - Overcapacity: The persistent oversupply in the market is a significant concern, with supply additions expected to outpace demand growth through 2027 [115][119]. - Market Sentiment: Investor sentiment remains cautious, with many equities already consensus underweights, reflecting the challenging fundamentals of the industry [9][11]. Conclusion - The container shipping industry faces significant challenges in the coming years, with supply growth outpacing demand and freight rates under pressure. The shift towards reshoring and changing trade routes may alter the landscape, but the overall outlook remains cautious due to persistent overcapacity and economic uncertainties.