Japan shippers: freight rate rises leave stocks high and dry

In Japan, a country with its own deeply rooted religious traditions, Christmas is mainly a time for eating chicken and going shopping. A shortage of consumer goods could spoil some of the fun this year. Logjams at ports have contributed to the dislocation of global logistics. Shares of shipping groups, which have raced ahead like speed boats, now look as if they are coasting in Japan.

The volume of containers heading from Asia to the US hit a record in September. Container shipping rates are up about 80 per cent in the past six months, according to the Shanghai Containerized Freight Index.

Ocean Network Express, Japan’s main international container shipping company, has benefited most. Cargo backlogs in Singapore and Shanghai have pushed up demand. The operating profit of the unquoted business rose more than ten-fold from the previous year to $2.6bn in the quarter to June. Sales doubled.

That has given an earnings boost to ONE’s three owners, which are listed shipping lines. The smallest, Kawasaki Kisen, is expected to report a record pre-tax profit for the quarter to September. Its shares, which idled in the decade to 2020, have been motoring. Its stock and that of Nippon Yusen, the largest of the trio, have risen more than 300 per cent in the last year. Shares in middling Mitsui OSK have doubled.

But operating margins smack more of rusty trawlers than superyachts. They turned negative at Kawasaki Kisen and Mitsui OSK in the year to March in spite of rising freight rates. Fuel is pricier and congestion on quaysides and port approach roads have put extra pressure on profit and loss accounts that already looked lazy.

If further backlogs push freight rates higher, there could be further for shares to go. Some analysts expect price pressures to last until 2023. But shipping demand has historically fallen sharply after the Lunar New Year.

Third-quarter results for the shippers, starting with Kawasaki Kisen next week, will feature strong revenues. But investors should consider taking profits before then. This may be as good as it gets for Japan’s shipping trio.

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