The Zacks Transportation - Shipping industry has performed well in 2024 despite headwinds like lingering supply-chain disruptions, increased operational costs and geopolitical woes. The industry has benefited from an improvement in demand for goods and commodities from pandemic lows.

The prevalent tensions in the Red Sea and the resultant limited container availability caused a surge in freight costs. The re-opening of the Chinese economy came as good news for the industry participants. The strong outlook for the Capesize market also bodes well for shipping stocks. In 2024, the supply/demand balance has improved and the year is expected to end on stronger note than 2023 on this front.

The Zacks Transportation - Shipping industry has gained in double digits so far this year and the tailwinds are expected to continue next year. Given this backdrop, investors interested in the industry would do well to bet on stocks like ZIM Integrated Shipping Services Limited ZIM, Euroseas Limited ESEA and Viking Holdings Limited VIK for handsome returns. Let’s take a more detailed look into the factors that impacted the industry’s fortunes in 2024.

Challenges Faced by Shipping Stocks

Although economic activities have picked up from the pandemic gloom, supply-chain disruptions continue to dent shipping stocks. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply-chain troubles.

Environmental woes are also hurting these stocks. The International Maritime Organization or IMO aims to reduce greenhouse gas emissions from ships by at least 20% by 2030 . The industry's aim to reduce carbon emissions may suffer a setback as the current Red Sea crisis compels it to use more vessels and take longer routes to ensure the smooth sailing of global maritime trade.

The longer travel times are increasing total emissions from the fleet for the same amount of cargo. The disruption has naturally raised doubts about the industry's ability to meet the IMO's above mandate.  Geopolitical tensions between major trading nations are disrupting trade routes, bringing down goods transportation, and, in turn, hurting the industry players.

Factors Favoring Shipping Stocks

Despite the abovementioned challenges, the industry demonstrates resilience, especially in the case of companies prioritizing growth and operational efficiency. The floating LNG or liquefied natural gas market is growing due to its economic viability and is expected to display significant capacity growth, particularly in Africa and North America.

The global FLNG market, valued at $27.27 billion in 2023, is projected to reach $53.54 billion by 2032, at a CAGR of 10.8% in the 2024-2032 timeframe. Factors like low unit costs, standardized designs and improving demand for quick-to-market LNG supply are driving growth.

Factors like a build-up of iron ore inventories in China have resulted in higher Capesize freight rates. In fact, with the reopening of the Chinese economy, the entire shipping industry heaved a sigh of relief. Ocean shipping is hugely dependent on China. This is because China is not only a key manufacturing hub but also sees significant high demand for goods and services, courtesy of the country’s large population. The favorable conditions in the dry bulk sector also bode well.

Heightened freight rates due to the Red Sea Shipping crisis are also supporting growth. Rates are likely to remain high for quite some time, which may translate into further upside potential for shipping stocks. The cooling inflation-related scenario is also a positive.

3 Shipping Stocks to Buy for Year-End Investors

Due to the abovementioned tailwinds, investing in shipping stocks seems to be a prudent idea at present. We have shortlisted three shipping stocks using the Zacks Stock Screener. These have performed very well so far this year and are likely to end 2024 on a strong note despite headwinds. Additionally, the Zacks Consensus Estimate for 2025 earnings has also been revised favorably, highlighting their likely strong performance next year as well. All three stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

YTD Price Performance

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ZIM Integrated Shipping, based in Israel, provides service to the East Mediterranean and Israeli ports. Continued fleet expansion initiatives are driving the company’s performance. ZIM’s shareholder-friendly approach is also praiseworthy.

ZIM’s asset-light model, which means that the focus is more on leasing rather than owning vessels, allows it to adjust capacity rapidly in response to market changes. This practice helps it boost profits during high demand. The Zacks Consensus Estimate for 2024 and 2025 earnings has been revised 35.7% and 521.3% higher, respectively, over the past 60 days.

Euroseas is an owner and operator of container carrier vessels and a provider of seaborne transportation for containerized cargoes. The company has been benefiting from profitable contracts and maintains a time charter equivalent rate or TCE of more than $30,000 per day.

ESEA’s shareholder-friendly approach is also praiseworthy. ESEA, based in Greece, has seen the Zacks Consensus Estimate for 2024 and 2025 earnings being revised 1.7% and 28.7% respectively, upward over the past 60 days.

Viking, which went public earlier this year, is being well-served by efforts to expand its fleet size. To this end, the company recently added a new ocean ship Viking Vela to its fleet. The vessel is set to sail in the Mediterranean and Northern Europe for its inaugural season.

The Zacks Consensus Estimate for VIK’s 2024 and 2025 earnings has been revised 5.5% and 9.1% upward, respectively, over the past 60 days. The stock has a  Growth Score of B at present.

 

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