DMFR Insights

Container shipping: The container shipping sector is expected to continue with its extraordinary profitability cycle in 2022, given the current supply chain woes and
the threat of the new covid variants. We expect the normalization of supply chain bottlenecks to start later in 2H22. Traditional seasonality indicates high trade
demand in 3Q22, ensuring robust profits for the global container shipping sector. This will continue to spill over to stock investors via soaring share prices and
generous dividends.
• Port and terminal operators: Drewry port equity index continued to fall for the second consecutive quarter, due to several factors such as multi-year high-interest
rate, a downward revision of global GDP growth rate, a tightening monetary environment, the resurgence of Covid in China and lingering supply chain issues. The
index slid by 9.8% in 1Q22 after a fall of 3.3% in 4Q21. Regional terminal operators’ valuation slumped by 18.8%, whereas their more global counterparts remained
almost stable, registering a mild decline of 1.3%. Only two companies (GLPR and HHLA) – under our coverage - have assets/operations directly exposed to the
ongoing Russia-Ukraine crisis. GLPR stock crashed by 82.9% YTD (as of 8 April 2022) before the London Stock Exchange (LSE) suspended trading in the company’s
GDR (on 3 March 2022). However, HHLA’s stock price recovered swiftly after the company published an update detailing the impact of the war on its finances.
• Dry bulk shipping: Dry bulk shipping market was quite strong in 2021 and companies posted record revenue and profitability over the past 12 years despite softening in
freight rates in 4Q21 as the market remained firm in the initial 9M of the year. The slowdown continued in January 2022; however, freight rates recovered in the latter part of
the quarter, which led to an uptick in stock prices. Accordingly, Drewry dry bulk equity index surged by 39% in 1Q22 despite a decline of 5.3% in January as the stock prices
of five out of six companies comprising the index were largely on an uptrend in the latter part of the quarter. On the other hand, key market indices such as Dow
Jones Industrial Average and S&P 500 were largely on a downward trajectory due to a rise in Omicron cases in January and increased tension between Russia and
the West.
• LNG shipping: Drewry LNG shipping equity index increased by 32.4% in 1Q22, outperforming S&P 500 which declined by 4.5%. LNG stocks have mainly benefited from the
rising European LNG demand as the region switches away from Russian natural gas. The FSRU market is in strong demand with Europe seeking at least five FSRUs in order
to replace most of Russian gas imports. We view LNG shipping assets positively given the increased demand for these assets amidst European Union looking to wean away
from Russian gas import.
• LPG shipping: Stock prices of all three LPG companies under our coverage picked up in 1Q22 (Navigator Holdings up 40%, BW LPG 21% and Stealth Gas 14%) after
declining in 2021. Share prices of these companies have benefited from the sharp recovery in spot charter rates. High bunker prices, transit delays and supply disruptions on
account of the Russia-Ukraine war are driving up spot charter rates.
• Crude tanker shipping: Drewry's crude tanker equity index surged by 20.4% in 1Q22 as freight rates jumped on key routes in the Black Sea and the
Mediterranean amid the ongoing conflict between Russia and Ukraine. Initially, the direct impact of the conflict was visible only in the Aframax market in the
Black Sea, but a surge in overall Aframax earnings quickly permeated into other vessel class on major trading routes. The rise in vessel earnings supported
Drewry's crude tanker equity index, whereas key market indices such as Dow Jones Industrial Average, S&P 500 and Nasdaq Composite were on decline
mainly on account of the rising number of Covid cases in January and increased uncertainty due to the conflict in the latter part of February.
• Product tanker shipping: Drewry’s products tanker equity index surged 35.8% in 1Q22 despite a decline in January as the Russia-Ukraine conflict that began
at the end of February led to a rally in the index in the latter half of the quarter. The index has substantially outperformed key market indices such as Dow
Jones Industrial Average (-4.6%) and S&P 500 (-4.9%). Several European buyers started importing from the Middle East, India and the US to counterbalance
Russia’s share, which led to supply disruptions in the product tanker market. Spot earnings jumped in the latter half of the quarter across vessel class
supporting a rally in stock prices