Samudera Shipping (SGX: S56) shares fell 20% in Singapore this morning completing the reversal of their recent rise. We'd not want to say “We told you so” but we did in fact tell you that the recent rise looked more than a little hopeful. Possibly even overdone. No, really, we said this about Samudera.
“Samudera Shipping (SGX: S56) rose 12.5% in Singapore this morning. Which can be taken as a little odd for it's clear that the massive container shipping boom of the last few years is over. We can check that with the Freightos container shipping index, which is down from well over $10,000 to $1,400 or so for a container China to Europe/US (it's a composite index). As with AP Moeller Maersk this threw off vast quantities of cash while the boom lasted. The question now is what happens next? And yes this is entirely different from the recent action in Sembcorp Marine, driven as that was by historic corruption problems in Brazil.
The shipping business is very much a boom and bust one. For generations there's been a cycle of low investment leading to higher freight rates, that creates a boom of ship building, rates crash, investment stops and so the whole cycle starts all over again. It's always possible to hope that the cycle will be better managed next time but the costs of entry into the business are low enough that as far as we can tell the cycle is going to continue.”
Samudera Shipping share price from SGX
We made that warning when Samudera was at about $1.45 (having risen 12% that day, April 12) and that pretty much was the most recent peak.
We do not claim presence, we do not know the future. But we've been around long enough to recognise certain signs of what is likely - please note likely - to happen. There just are certain businesses that are highly cyclical in nature. Shipping is one of them. It's cheap enough to get into the shipping business. A few millions of $ will enable some old hulk to enter the market and capture high current shipping rates. So, supply expands massively when shipping prices are high. This - near always - then leads to oversupply and crashing prices. At which point those old hulks get driven out of the market, supply contracts and the cycle starts off again.
Recent results at Samudera have been good, excellent in fact. We'd suggest that the fall back in the share price is a realisation that here we go around the shipping price cycle again.