NOL sees its biggest gain in five weeks

Boosted by China's PMI.

According to OCBC, China’s first manufacturing activity expansion in 13 months provided a short-lived boost for Neptune Orient Lines (NOL) last week, which saw its biggest gain in five weeks taper off subsequently.

Here's more from OCBC:

Nonetheless, recent data and developments remain encouraging and supportive for our BUY call on the counter.

Overall shipping rates holding up well despite weakness
According to the Shanghai Containerized Freight Index (SCFI), average overall 4QCY12 rates have fallen QoQ on the back of spot freight rate declines on the two regions most affected by the slump in global trade: China-Europe and China-USA (OIR estimated -21.5% and -7.8% QoQ respectively in terms of USD/TEU).

While this is not unexpected given the seasonally weaker 4QCY12, rates on the other main routes – China-South America and Intra-Asia – have held up well on a QoQ basis and were mostly stable.

In addition, rates across the board remained higher on a YoY basis. Average 4QCY12 bunker fuel prices have also fallen ~3.1% QoQ so far.

General rate increases in the works
Some wavering notwithstanding, a few of the major container shipping lines are planning general rate increases (GRI) to help soften the hurt from continued overcapacity issues ahead of the Lunar New Year period next year.

For example, the Mediterranean Shipping Co. (MSC) plans to implement a US$600/TEU rate increase for the AsiaMediterranean and Black Sea trade routes from 15 Dec. Similarly, the Transpacific Stabilization Agreement liners have also scheduled rate hikes on transpacific routes from 15 Dec.

Collective industry efforts encouraging
The collective effort by liners to coordinate rate increases sends a positive message that the industry is unwilling to tolerate further cuts to their profitability in order to maximize capacity utilization.

While this is contingent on individual liners reining in market share ambitions, we remain optimistic for a tacit agreement and follow through.