Peter Boockvar routinely updates the shipping costs being imposed on the world by behaviors of certain bad actors like Putin in Russia and like the Houthis in Yemen. Here’s a recent update, from June 20th. We thank Peter for giving us permission to share the following excerpt from his Substack column with our readers. My comments will follow the charts.
Update on shipping costs
Peter Boockvar | Boock Report Substack
Jun 20, 2024
Let’s update shipping costs, reminding everyone that almost every single thing that gets produced in this world ends up on a ship at some point. The World Container Index Shanghai to Rotterdam route for a 40 foot container jumped for the 9th straight week by another $690 to $6,867, more than doubling over this 9 week time frame and about 4x where it started the year. The price for a trip to LA rose by $416 to $6,441. Understand too that we are just months away before holiday stuff hitting the seas. And, air cargo freight rates are spiking too as I’ve mentioned previously. Inflation is not dead, inflation volatility is here to stay…
WCI Shanghai to Rotterdam
WCI Shanghai to LA
Note to readers: That price reference is per container on a large container ship. Let’s try to translate this to the investment world and economic outlook. It’s not an easy task to do.
I suggest readers look at the price action of a little-known ETF. The symbol is SEA. The price is up about 18% year-to-date (June 19th). Cumberland doesn’t own it because of its small size and limited trading liquidity. The ETF sponsors are trying to change that to reach a critical size needed for larger investors. I wish them well. Our point is that this is a “purer” play designed to catch the change in global seaborne shipping, and the stocks within the ETF represent those companies. Those companies are benefiting from the higher pricing and increased demand caused by Putin and the Houthis’ disruption in shipping. Here are the largest companies in the ETF:
SEA (https://usglobaletfs.com/fund/u-s-global-sea-to-sky-cargo-etf/)
Five largest holdings:
5.20% COSCO SHIPPING Holdings Co Ltd
5.12% SITC International Holdings Co Ltd
4.92% Hafnia Ltd
4.88% BW LPG Ltd
4.87% TORM PLC
Readers can compare this small and limited ETF with IYT, the transportation group within the S&P 500 Index. Its price is down about 3% year-to-date. This large US-centric ETF is designed to capture the Dow Jones Transportation Average, which represents a whole lot more than the seaborne shipping industry. It is dominated by large companies in rail, air transport, trucking, etc. IYT has a market cap about 40 times larger than SEA’s.
For details about these ETFs and about the Cumberland ETF strategies, please reach out to Matt McAleer.
My point is that the change in the shipping rates caused by the Houthis and Putin has not carried over to the broad group of transportation, yet. If it had, markets would look different and we might speculate that the inflation rate increase due to the Houthis and Putin would be much higher. One wonders if the American policy response would be less tolerant of the Houthis’ misbehavior if that were the case.
Here’s the latest about a Houthi attack sinking a Greek freighter. Please remember that the Houthis don’t manufacture the drones and missiles. They are supplied by Iran, and some of that weaponry has its origins in Russia and, maybe, North Korea.
“Houthis believed to have sunk second ship in the Red Sea, UKMTO says,” https://www.reuters.com/world/middle-east/houthis-believed-have-sunk-second-ship-red-sea-ukmto-says-2024-06-18.
