Dynamic report of transportation industry: the conflict between Russia and Ukraine will have a positive impact on shipping stocks

The Russian naval exercise impacted the Black Sea trade, and the cargo volume is expected to decline in February

From February 13 to 19, Russian military exercises blocked a large area of the Black Sea, which had a significant negative impact on the Black Sea trade volume. 1) Oil exports in February are expected to fall 45% year-on-year, down 37% from the average of the previous five years. 2) The export volume of LPG in February is expected to decline by 27% year-on-year, 24% lower than the average value of the previous five years, the lowest since 2017-2021. 3) The export volume of dry bulk cargo showed strong performance in January. The export volume in February is expected to decline by 44% year-on-year, 15% lower than the average value in the previous five years, close to the minimum export volume in 2017-2021. 4) The number of container ship voyages is expected to decline by 22% year-on-year in February, falling below the lowest value in the previous five years.

The demand for long-distance transportation of oil transportation has increased, and the demand for LNG import in Europe has increased

The fleet capacity of major Russian shipowners is mainly concentrated in crude oil and product tankers, LNG ships and dry bulk carriers, or will be affected by sanctions. Russia’s crude oil export volume is about 5 million barrels / day, accounting for 12% of the total global trade, of which about 60% are exported to Europe. After Russia’s sanctions, European refiners will turn to Middle East countries, so VLCC ships from the Middle East to Europe will replace small oil tankers. Meanwhile, Russian crude oil supply may shift to Asia, bringing more long-distance transportation. Meanwhile, after the natural gas pipeline from Russia to Europe is cut off, the spot price of LNG in Europe may increase significantly, and the demand for LNG transportation from the United States to Europe will also increase significantly.

Rebalancing of dry bulk cargo trade may bring additional transportation costs

Russia and Ukraine are major exporters of dry bulk goods. In 2021, Russia provided 42% of the total coal imports of the EU and 16% of the global coal demand. In 2021, Ukraine exported 36.5 million tons of iron ore, more than 60% of which were shipped to China. The Middle East and North Africa also rely heavily on the food supply of the Black Sea. The escalation of the conflict between Russia and Ukraine may lead to the diversion of import and export trade to other countries, the change of average transportation distance, and the trade rebalancing state may be chaotic. From the impact of historical trade disputes, epidemic crises and other events, it often brings additional costs of commodity supply substitution, resulting in rising prices, including transportation.

The centralized transportation route may be adjusted and optimized, and the freight rate may have nonlinear mutation

The global centralized transportation supply chain is always in a tight state and has no resistance to the impact of any event. From the historical impact of Suez Canal blockage, Shenzhen Yan Tian Port Holdings Co.Ltd(000088) suspension and other events, it has led to nonlinear mutation of freight rate. In 2019, about 1 million TEUs were transported by Ukrainian seaports, with a year-on-year increase of 18%, mainly relying on the export growth of food and light industrial products, including flour, wheat, peas and textiles. The total cargo volume of Maersk, Dafei and Mediterranean Shipping ranked in the top three is about 54%, which is expected to be greatly affected by the conflict between Russia and Ukraine. In order to cope with the risk of local war, subsequent liner companies may optimize trade routes and increase alternative routes related to Piraeus port or northwest European port; At the same time, Europe may increase material hoarding, driving the overall demand of tons of nautical miles.

It is suggested to pay attention to China Merchants Energy Shipping Co.Ltd(601872) , Cosco Shipping Energy Transportation Co.Ltd(600026) , TEEKAY, teekaytanke, frontline shipping, EURONAV, Nordic and American oil tankers. It is suggested to pay attention to GOLAR shipping and flexlng for LNG transportation. It is suggested to pay attention to The Pacific Securities Co.Ltd(601099) shipping, starbulk and golden ocean group. It is suggested to pay attention to Zim and Mason and continue to maintain the “buy” rating of Cosco Shipping Holdings Co.Ltd(601919) , OOCL international and Haifeng International.

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