Freight rates continue to decline? We believe freight rates are set to decline with annual transpacific rates to be concluded more than 10% y-y lower. Further, a return of the global laid-up and idle capacity will likely place further pressure on Asia-Europe and Intra-Asia freight rates.
Leading to quarterly losses to continue: Even before the potential rate decline, we estimate that int'l routes are experiencing losses. Despite NOL's attempts to reduce costs, we believe the company is likely to continue reporting quarterly losses with volumes still significantly lower (although volumes would still improve sequentially this year).
We maintain our REDUCE rating on NOL, as we believe it is too early to call for a trough in container freight rates. In fact, we believe freight rates are under pressure and could decline in the near term, from conclusions of annual transpacific freight rate negotiations (some contract negotiations are still ongoing) and our expectation that shipping lines are unable to impose any peak season surcharges. We expect NOL and other container lines to continue to report quarterly losses as international routes continue to experience losses.
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