Clarkson: the global shipping forecast is good, becoming moderate

This has been a year like no other for the shipping industry. Rates have soared amid bottlenecks, port closures, container shortages and surging demand for capital goods. Profits have duly piled up at industry barometer Clarkson. The London-based shipbroker on Monday said they were likely to be at least 45 per cent higher than last year’s result and 16 per cent above analyst expectations.

Shares, which jumped 5 per cent, trade on a forward price-to-earnings ratio of 26. This beats the 10-year average by almost a third. At first sight, that looks excessive for a cyclical industry. A splurge in container ship orders has raised fears of oversupply in a sector that has a history of boom and bust.

Moreover, the broker is exposed to falling rates. Although the emergence of Omicron has created renewed uncertainty, the Baltic Exchange Dry and Drewry’s composite World Container indices have fallen since October.

Yet the outlook is not so turbulent as it might appear. The surge of container ship orders might not tip the sector into oversupply. Barclays calculates that structural capacity will grow 22 per cent between 2019 and 2025, compared with an expected 18 per cent pick-up in market demand. But excess capacity could be absorbed by the need for slow steaming to reduce carbon emissions. The closure of two-thirds of shipyards since 2007 offers another constraint.

Different drivers influence the performance of varied segments of the shipping market. Last year’s boom in the oil tanker market turned to bust this year, offsetting the impact of higher container rates. The oil tanker market should stabilise next year

Moreover, long-term contracts have a smoothing effect on profits. That explains why Clarkson’s earnings rose far less than average shipping rates this year. Conversely. it should help the broker’s earnings to hold up next year, even though — to the relief of its customers — rates are widely expected to decline from this year’s supernormal highs.