Shipping Stocks: Matson Says This Has Peaked, Danaos Sees These Hiccups Ahead

Seaborne freight carrier Matson (MATX) and ship lessor Danaos (DAC) on Monday called out signs of some loosening in the container-shipping market, as demand for imported goods wobbles following a pandemic-era boom.

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Both companies made the remarks in their second-quarter earnings reports. Matson’s results were mixed. But it said freight rates “have likely peaked for now,” echoing remarks from last month, potentially offering relief for businesses squeezed by higher shipping costs after last year’s supply-chain crunch backed up ports and warehouses.

Meanwhile, Danaos, whose earnings beat, said it expected an economic slowdown. But it also said environmental regulations and plenty of inefficiencies could still keep shipping prices elevated from pre-pandemic norms.

The results arrive as concerns of a recession dominate markets after a rise in prices for basics like food and fuel, and as investors try to process mixed signals coming out of the economy.

Shipping stocks have largely faded from the highs reached earlier this year. Ocean freight rates have eased. But they’re still higher than 2019 levels.

Matson Earnings

Matson earned $9.49 during the quarter. That was better than the $8.81 per share forecast by FactSet, as well as Matson’s own forecasts for a range of $9.31 to $9.42.

Total operating revenue came in at $1.261 billion. That was just below estimates for $1.268 billion.

Matson stock was unchanged after-hours on Monday. Shares edged up 0.2% to 91.82 during the regular session, testing support at its 200-day line. The stock has a 94 Composite Rating. Its EPS Rating is 99.

Based in Honolulu, Matson’s container ships, barges and other vessels run between the West Coast, Asia and Alaska. The company has an expedited service that runs from China to Long Beach.

Matson, in a statement on Monday, said “our China service continued to see significant demand for its expedited ocean services as volume for e-commerce, garments and other goods remained elevated.”

But with rates peaking, it said it expected “an orderly marketplace for the remainder of the year.” But it also said it expected capacity on its ships to remain tight, and that it expected to keep running its express service between China and California through October’s peak season. That service was launched last year, amid 2021’s supply-chain chaos.

Matson also said “we are seeing solid demand for our China service as China’s factory production continues to recover from the Covid-19-related supply-chain challenges. However, in recent weeks we have seen a gradual decline in the Transpacific freight rate environment off the highs experienced earlier this year.”

The company’s remarks were similar to those it made when it announced some preliminary results last month.

Both Matson and Danaos report after supply-chain bottlenecks last year launched profits for container-liners to record highs. A pullback in business activity in 2020, as Covid restrictions blanketed the world, left suppliers unprepared for the wave of demand that followed, as many people stuck at home bought things online.

More recently, concerns of a downturn have grown. The U.S. economy shrank in the second quarter, after shrinking during the prior quarter as well.

Retailers like Target (TGT) and Walmart (WMT) have noted shifts away from spending on items like TVs and clothing, as food prices rise. The shipping-container backup at the ports of Los Angeles and Long Beach — the most visible representation of the world’s supply-chain snags last year — has eased.

However, 21 container ships were still parked on the water outside those ports on Friday, and traffic has built up at East Coast ports. Rail yards remain backed up. The longer-term impact on shipping from China’s reopening, following Covid lockdowns, is unclear.

Danaos Earnings

Danaos earned $7.59 per share. That was well above estimates for $5.68 per share. Revenue was $250.9 million, above forecasts for $206 million.

The company declared a dividend of 75 cents per share for the second quarter.

“A confluence of factors, including high energy prices, inflation, and the effects of the war in Ukraine, will likely result in slowing economic growth and negatively impact trade volumes” CEO John Coustas said in a statement.

“On the other hand, persistent inefficiencies on the shore side of the supply chain and Covid resurgence in China are keeping the vessel utilization high with increased waiting times in port,” he continued.

He also said he expected rising fuel costs would likely prompt liner companies to cut sailing speeds — an effort to waste less fuel and get more distance out of a gallon. But he said that might not happen until next year. And he said environmental regulations on carbon emissions would also lead to lower shipping speeds.

“These mitigating factors point to a weakening, rather than a collapse, of the market that we expect will result in rates much higher than pre-pandemic levels,” he said.

Danaos stock rose 2.5% to 75.97 after hours in the stock market today. The stock reclaimed its 50-day line last week but is well below its 200-day.

Shares were up around about 2% so far this year, after soaring in early 2022 and then plunging until early July. Danaos’ Composite Rating stood at 81, with an EPS Rating of 84. The company, based in Greece, runs a fleet of 71 container ships.

Shipping Stocks: ‘More Conservative’ Attitude

In May, Danaos’ management said it was unlikely that supply chains would loosen. But it noted that “market participants have adopted a more conservative short-term attitude.”

Among other shipping stocks, container-liner ZIM Integrated Shipping (ZIM) was little changed. Shares were close to regaining support at their 200-day line.

Star Bulk Carriers (SBLK), which ships commodities like iron ore and grain, rose 0.5% after hours on Monday. Shares rose 4.3% during the day, reclaiming their 50-day line. Star Bulk reports second-quarter earnings on Thursday.

Eagle Bulk Shipping (EGLE), another commodities shipping stock, was unchanged after the close. The stock added 2.5% during the day. Eagle Bulk also reports on Thursday.

Wall Street had been a bit easier on commodities shipping stocks earlier this year. Russia’s invasion of Ukraine disrupted trade flows for raw materials, prompting some nations to bring in product from farther away, keeping demand for shipping services elevated. Broader infrastructure spending outside the U.S. also propped up demand for imports.

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