CITIC Securities: The traditional shipping cycle framework urgently needs to be revised to focus on the three major factors of marginal catalysis

The Zhitong Finance App learned that CITIC Securities released a research report saying that the traditional shipping cycle supply and demand analysis paradigm needs to be optimized and adjusted accordingly according to trends. “Supply chain stability and safety” replaced “efficiency and cost priority” in the era of globalization as the primary core element, and pricing power was clearly transferred to capacity controllers. As far as shipping is concerned, terminal congestion, blockage of key waterways, and fragmentation of trade flows are a continuous flashpoint. Capacity allocation is more flexible, high-frequency and high-density services bind high-quality customers, and regional container shipowners with outstanding long-term cost and efficiency advantages may be the first to benefit.

The bank pointed out that VLCC's quarterly profit during the year is expected to maintain a circular increase. The Strait of Hormuz has been freed from a dualistic state. Detours and Gulf STS continued to consume effective capacity. Supply replacement and extended transportation distances were particularly evident in August, when the US-Iran conflict further intensified. The month-on-month increase in profit during the year is expected to slow down the traditional game of highest freight rates during the peak season. The shift in refined oil transportation capacity to the west has exacerbated supply constraints, and concerns are on the recovery of domestic exports and seasonal drivers. At the same time, pay attention to marginal price changes during the peak express delivery season and the opening of Xiongshang to traffic.

CITIC Securities's main views are as follows:

Transportation: The traditional cycle framework is in urgent need of revision, focusing on marginal catalysis of the three major factors.

“Supply chain stability and security” replaced “efficiency and cost priority” in the era of globalization as the primary core element, and terminal congestion, blockage of key waterways, and fragmentation of trade flows continue to be a flashpoint for influencing factors. Take terminal congestion as an example. At the end of August, global parking capacity accounted for about 12.6%, only slightly lower than 15.7% of the same period in 2022. Limited supply of new terminals and the El Niño effect combined with high utilization rates of berths made it difficult to fundamentally resolve the loss of effective capacity. Key waterways such as the Panama Canal were also affected by this. Changes in many-to-many and fragmented trade flows combined with the operation mechanism of the new alliance objectively increase the demand for regional container transportation. In the medium term, marginal changes in any one or more factors are expected to form a pulse-upward trend in demand, which in turn will be transmitted to the freight rate and valuation side. Capacity allocation is more flexible, high-frequency and high-density services bind high-quality customers, and regional container shipowners with outstanding long-term cost and efficiency advantages may be the first to benefit.

Oil transportation: VLCC's quarterly profit increased, and refined oil products reached an inflection point.

The Strait of Hormuz has been freed from a dualistic state. Bypass and Gulf STS continue to consume effective capacity. Supplies from the Middle East have steadily flowed out. The effects of blocking key waterways and damage to energy infrastructure in some regions are still the core factors in disrupting crude oil trade flows in the second half of the year. The release of Russia's shadow fleet and US strategic oil reserves lengthened the average transit distance. Supply substitution and lengthening transportation distances were particularly evident in August, when the US-Iran conflict further intensified. China's crude oil imports have reached an inflection point. The average freight rate indices for the VLCC composite, TD22 (US Bay - China), and TD34 (Oman - China) routes increased 17%/8%/13% month-on-month in the first week of September to 259,000 US dollars/day, 184,000 US dollars/day, and 265.7 points, respectively. The quarterly month-on-month growth trend of VLCC freight rates is expected to continue in the second half of the year, and the month-on-month growth in quarterly profits of leading companies is expected to slow down the traditional game of highest freight rates during peak seasons. At the same time, refined oil products are at an inflection point, and the shift in transportation capacity to the west has intensified supply constraints, and attention is being paid to the recovery of domestic exports and seasonal drivers.

Express delivery: Pay attention to marginal changes in domestic express delivery prices during the peak season.

In September, anti-domestic policies in grain-producing regions became stricter, and the minimum market price standard was strictly enforced. Attention was paid to loosening prices in Guangzhou, Guanshen, and Chaoshan. At the same time, competition in the kilogram segment above the reserve price became more marketable. Top2 is expected to achieve year-on-year strengthening of the ability to reduce price differences with better network capabilities, and continue to promote the transmission of cost differentiation to the profit and share side.

Aviation & high-speed rail: A high AI growth rate can be expected during the peak air cargo season. Focus on the performance catalyst brought about by the opening of the Xiongshang High Speed Rail.

High oil prices suppressed airline profits from both supply and demand, and compounded cuts weakened fixed cost dilution, and pushed the industry from general profits in the first quarter to losses in the second quarter; in the historical aviation cycle, oil price disturbances affected the pace of short-term profit fulfillment, and improvements in the supply and demand structure became the core foundation for profit inflection points. Currently, oil price disturbances are fully reflected on the valuation side. At present, positive factors are beginning to regroup, and an improvement trend is beginning to emerge. We expect the oil price correction to resonate flexibly with ticket prices during a certain peak season in the future. The aviation sector is expected to return from short-term cost disturbances to the medium-term logic of demand recovery and ticket price elasticity, focusing on the left-hand layout.

Risk factors: Consumer confidence fell short of expectations; domestic demand recovery progressed slower than expected; the impact of geological events exceeded expectations; oil price and exchange rate disturbances exceeded expectations; express delivery price competition exceeded expectations