Moderate

Shipping & Ports

A rebound in exports from China combined with historically high prices and pent-up demand have driven healthy profits in the sector.

Sector trends & challenges

  • Container rates

    Prices are at historic highs as COVID-19 impacts supply and demand for shipping capacity. Healthier balance sheets and new global manufacturing networks are likely to drive a change in shipping patterns and increase deal flow.

  • Passenger transport demand

    COVID-19 is still placing pressure on businesses to shorten their supply chains to become more robust. Reduced demand for passenger transport and cruise holidays may ignite economic profitability reviews and restructuring.

  • Environmental regulation

    IMO regulations are resulting in a transition to low sulphur fuels increasing fuel costs, capex and risk of fleet obsolescence. Those who make successful key strategic decisions ahead of time will prosper over the long run.

Sector rating profile

Shipping & Ports

The impact of the COVID-19 pandemic has driven a raft of changes across the Shipping & Ports sector, both positive and negative. It is an exciting time for the industry as profits rise and opportunities to grow develop so long as future challenges are planned for ahead of time.

For shipping lines, container rates have increased to historic highs in recent months as supply was constricted and demand rebounded. By contrast, demand for cruise holidays remains depressed which continues to have a sizeable impact on operators and passenger ports. However, passenger transport and footfall should revert to the mean once vaccination programs have been fully rolled out. In the meantime, market consolidation is possible and economic profitability reviews could become more widespread, especially at ports where systems are often outdated.

COVID-19 has encouraged businesses to review their supply chains, shortening them in places in order to improve both resilience and oversight which may have a longer-term impact on shipping growth. Both corporate and operational restructuring will be needed to ensure the dynamic nature of the sector is capitalised on in full.

Political changes in the UK and US are likely to have an impact on trade routes, with political tensions and protectionism limiting growth in intercontinental trade volumes. New global manufacturing networks are likely to emerge driving a change in shipping patterns, which in turn would drive M&A activity. In the UK, Brexit, which is currently impacting port users more than port operators, has the potential to cause changes to both trade routes and volumes over the medium-term.

The proposal for the establishment of free ports in the UK, could provide a boost to UK ports over the long-term. Changes in global trade relationships emanating from post-Brexit trade deals may support international shipping and provide long-term sustainable growth opportunities for investors.

Environmental pressures are likely to continue impacting costs in the form of capex and regulatory adherence. Recent changes to IMO regulations are demanding a rapid transition to low sulphur fuels, increasing fuel costs or requiring costly fleet modifications. Higher capex is now required for emission ‘scrubbers’ and there is an increased risk of fleet obsolescence. Divestment in the sector by large banks in recent years has reduced financing options for smaller vessel owners and operators, which makes navigating this difficult period even tougher. Consequently, larger businesses with cash-rich balance sheets may look to identify acquisition opportunities and increase market share.

Find Your Expert

David Pike is Interpath Lead for the Transport & Logistics sector, which includes Shipping & Ports as one of four core segments. James Bennett leads our approach to this sector nationally. For a full list of our senior people with experience in the sector use the button below.

Our senior team