After listing on the New York Stock Exchange at the beginning of last year, Star Shipping's stock price soared, becoming one of the best performing US IPOs in 2021. Although the market does not expect the shipping industry boom to ease in the short term, Bloomberg commented that the shipping industry has once again experienced a swarm of orders and the prospects are unpredictable.
As freight rates soared in the past two years, shipping companies' performance hit a new high. In 2021, global integrated transportation companies' operating profits reached US$150 billion, exceeding the total operating profits of Apple and Microsoft. This year, the market generally expects that the global supply chain crisis will be difficult to resolve under the epidemic, and freight rates will remain high.
While revenue soared, global shipping stock prices were also setting new records. In the past, the transportation companies that were listed in Europe or Asia were starting to raise funds in the United States. As the world's tenth largest integrated transport company, Yixing Shipping was successfully listed on the New York Stock Exchange in January last year, with an initial public offering (IPO) of 14.5 million common shares, at US$15 per share. Since its listing, Yixing Shipping's stock price has been rising all the way, and is still above $60.
The trans-Pacific route service launched by Star Shipping meets the booming consumer needs of the United States and is one of the most profitable routes, accounting for about 40% of the container volume. Many shipping companies have taken the opportunity to use large cash income to improve their financial fitness, including repaying debts, investing in carbon emission reduction, and creating value acquisitions in areas such as logistics, while also increasing dividends from shareholders.
However, the shipping industry has been notorious for the past decade. Even now, the market cannot fully trust the shipping industry even if it is profitable due to the epidemic. Bloomberg's report pointed out that under the fierce competition in the previous period, the crazy shipbuilding of the shipping industry caused freight rates to plummet, with the average operating profit margin of the shipping industry being -1.5% from 2008 to 2019.
Although the supply chain crisis has not been eased, many investors believe that the current market boom will not last until after this year. The clues can be seen from the trends of the major shareholder of Yixing Shipping. Last summer, Deutsche Bank also held 12% of Yixing Shipping's shares, but has now begun to sell and cash out.
In addition, although Star Shipping has recently started purchasing second-hand ships, most ships are still leased, which means Star Shipping will face soaring rental pressure. Starting from 2023, Star Shipping will lease 25 new low-emission ships, which will also increase net debt. Moreover, Star Shipping is not the only shipping company that actively expands its capacity. By the end of 2021, the proportion of container ship handheld orders in the existing fleet has expanded to nearly 25%.
However, Star Shipping believes that a surge in new ship orders does not necessarily lead to a large-scale overcapacity, as new environmental regulations that are about to come into force will force ships to slow down and require more ships to carry the same amount of cargo. In addition, Star Shipping believes that the congestion in U.S. ports may last for a long time.
Bloomberg pointed out that "given the poor record of the shipping industry, it is difficult to believe that the future development will be so stable." The shipping industry must be able to resist the temptation of risk expansion in order to make investors believe that it is a real change. As for what the new normal of the industry will look like after more new shipbuildings are delivered and operated in 2023, no one can accurately predict it now.
