After years of underperformance against both the reference sector and market indices, the marine shipping industry’s resurgence following COVID-19 seemed in jeopardy at the onset of the Red Sea crisis.

Contrary to expectations, however, the industry has outperformed both industrials and the market over the past 12 months.

With a positive spread exceeding 40% and 20% against the reference sector and benchmark, respectively, the question arises: can the industry maintain its lead?

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Contrasted by high dividend yields but volatile operating and net income margins, the marine shipping industry had languished for much of the decade prior to COVID-19, lagging both the market and the reference sector by over 100% on an equal weight basis.

As supply chain issues took center stage in the aftermath of the pandemic, companies in the industry benefited from a surge in freight prices driven by a shipping container shortage, health-related logistical challenges, fuel costs, and the simultaneous reopening of borders.

In 2021, the industry recorded sales growth three times higher than that of the reference sector. The delta in net income was even more dramatic, shifting from negative to double-digit positive, while the reference sector remained roughly flat.

However, as prices cooled throughout 2022 and into 2023, sales growth declined and turned negative, disproportionately impacted by the Red Sea crisis late in the year.

While the Red Sea crisis is no longer the primary issue, as governments and corporations have implemented measures (such as longer transits) to mitigate its impact on 30% of the world’s container traffic, freight prices have been surging again—a peculiar trend given falling inflation.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

The latest headwinds, including a shortage of containers and restricted vessel capacity, suggest a prolonged surge in freight rates to levels comparable to those during COVID-19.

Although sales figures show a contraction for the industry over the four quarters ending in Q1, investors seem to be anticipating short-term relative improvement in fundamentals due to the surge in freight prices, as reflected in the one-year market performance.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA