COSCO Shipping Holdings’ shares have been boosted by transpacific rates reaching a record high amid a puzzling peak-season rebound.

Listed in both Shanghai and Hong Kong, the container shipping and ports arm of state conglomerate China Cosco Shipping Corp saw its stock price increase as much as 10% on August 3.

The movements come on the heels of a 17% jump in the Shanghai Containerised Freight Index from Shanghai to the US west coast last week to $3,167 per 40 ft equivalent unit — a historical high since the index was launched in 2010.

Meanwhile, spot rates from Shanghai to the US east coast also expanded 6.9% to $3,495 per 40 ft equivalent unit.

CICC, a leading Chinese investment bank, upgraded CSH’s rating to “outperform”, expecting the company’s net profits in the second quarter this year to top Yuan800m ($115m), compared with Yuan290m in the first quarter and Yuan550m in the year-ago period.

It said the recent waves of consolidation in the container line shipping sector had led to a “better than expected” capacity discipline, which benefited leading carriers with large scale, such as Cosco.

“With the recovery in demand, the idled capacity is also coming back to the market [the percentage of idled capacity to total fleet had dropped to 8% in July to 11% in June],” the bank said. “But the freight rates remain at high levels and have even surged lately, which suggests carriers have the momentum to push up rates and reap profits in the peak season.”

Shipping lines normally witness a rising volume surge in the three-month period of July-September, during which importers in large consumer nations need to prepare for their Christmas stock.

The CICC report was upbeat about the prospects. “We believe the worst time is behind us and what can be expected next are the reopening of the economy, recovery of demand and a traditionally peak season.”

Some, however, have begged to differ.

Sea-Intelligence said it was puzzled by the robustness seen in transpacific trade while the US economy is still floundering against the coronavirus backdrop.

“[The US is] reeling from vast uncertainty, as lockdowns are being reinstated in many states, protests and riots are plaguing all major cities, and as we head into what is likely going to be the most controversial and conflicted election season,” it said in a report.

The consultancy offered some explanations: a correction to the overestimated demand contraction in the second quarter, the low basis for comparison in the year-ago period, the virus-led increase in demand for personal protective equipment, and a recovery in the domestic manufacturing sector indicated by the recently improved US Purchasing Managers Index.

That said, “even putting all of this together, it is hard to see why we should be heading into the best transpacific peak season in decade,” said Sea-Intelligence.

South-north trade fallout

The strong transpacific markets are partly a result of weak rates experienced on the south-north routes, according to a research report by SWS Securities.

The China-based brokerage noted the south-east trade had been dominated by European carriers, which will usually use the profits made there to subsidise the east-west services, where competition is fiercer.

“But the pandemic has taken a big toll on demand in South America and West Africa, which made the previous subsidy strategy become invalid,” the report said.

“To ensure the overall profitability, [the European carriers] are now forced to drop their market share-focused strategy on east-west trade, and instead opt for blank sailing to shore up freight rates.”

It remains to be seen whether the markup can be maintained after the peak season, it added.

While some shippers have called on shipping lines to reduce rates citing antitrust concerns, SWS Securities expected the likelihood of any governmental interference to be low.

It argued that rather than high rates, shippers were more upset about the poor services, such as frequent roll-overs. “Carriers should consider improving their services amid tight slot provision to create a win-win situation with their customers.”