Shipping the Economic Recovery

It is interesting reading the web sites touting shipping profits in early 2008 before the recession hit home. Now major carriers are consolidating routes and considering rounding South America to avoid paying Panama Canal Tolls. One of the industries that will rebound when the recession lifts is shipping. Who will be there to reap the profits of a rebounding world economy?

“GE Shipping: A win-win offer for shareholders.”

“United Arab Shipping Company expects strong profit”

These were the headlines heading into 2008 and the following are from 2009 postings.

“UPDATE: Japan Shipping Cos 3Q Profits Sag; Warn FY Outlook”

“Maersk Sees No Improvement In Shipping Volumes”

As early as March of 2008 Maersk Line, the world’s largest ocean shipper, had set up a “Vessel Sharing Agreement” with its two largest competitors, Mediterranean Shipping Company and CMA-CGM on its trans-Pacific routes in order to save money.

Dry bulk shippers are complaining about the toll increases by the Panama Canal Authority for passage through the Panama Canal. These toll increases were announced a couple of years ago and are meant to help pay for the Panama Canal Expansion. However, no one seems to have put a worldwide recession into the calculation. More and more dry bulk shippers are intending to use today’s cheaper diesel fuel to round South America rather than pay the $100,000 or so for the 8 hour passage through the Panama Canal.

So, dry bulk shipping is down. Asia is closing it shipyards. All those port expansions and renovations on the US East coast will probably do well getting infrastructure stimulus money and the folks with cash and the foresight to share routes and reduce costs will survive to sail another day.

For the long term investor it is time to think of which shipping companies, as well as crane manufacturers, ship builders, shipping container manufacturers, etc. will survive the recession and be making profits in 2010 and beyond. Using the half way rule we can expect the stock prices of dry bulk and other shipping companies to go up when the recession is half way done.

Considering that delivery to West Coast ports and rail shipment into the North American interior is quicker than delivery from the East coast it may be time to look at railway stocks too.

DHL has closed it US operations leaving the field to Federal Express and UPS when the recession lightens. Which of these two giants is better equipped to rule when shipping by air freight and ground transport increases when the recovery gains momentum?

With the infrastructure development and overall increase in prosperity in Latin America which of the shippers is better equipped to prosper there, where DHL is still competing.

We can expect, as shipping goes up again, that the shippers will be offering deals to gain market share. Who will benefit from low shipping costs in a couple of years?

As always, what appears to be smart thinking is usually tedious preparation. Edison’s definition of genius as “one percent inspiration and ninety-nine percent perspiration” still applies. It is probably time to start a file on those shipping companies such as Maersk, CMA, etc. Which company has already started to see its stock rebound and which are the recovery sleepers?

May your recovery homework lead to profits.

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