ZIM Integrated, Maersk stock slips as the container index surges

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Updated on Aug 14, 2024

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ZIM Integrated share prices pulled back recently after surging earlier this year.
The World Container Index has surged in the past few weeks.
The crisis at the Red Sea has continued escalating.

ZIM Integrated (NYSE: ZIM) stock price rally has stalled even as the crisis in the Middle East escalated and container shipping rates surged. The stock, which more than doubled and reached a high of $15.40 last week, has retreated slightly in the past two sessions as the momentum wanes.

Other shipping stocks have also retreated. Shares of Maersk, the Danish company, have retreated by over 10% from their highest level this year. Other publicly traded shipping companies like Evergreen and Top Ships have also pulled back.

This pullback happened even as shipping costs surged globally. Data compiled by Dewry shows that the World Container Index (WCI) rose to $3,777 last week, up from $1,377 in December. This is a positive thing for an industry that was facing pricing headwinds a few months ago.

World Container Index

Most analysts believe that the rising shipping costs will lead to higher revenues and profits in the coming quarters. However, the impact will depend on how long the crisis at the Middle East lasts and the cost implications.

There is a likelihood that the crisis at the Red Sea will continue for a few months now that Iran and Houthi rebels have gotten involved. Israel has also committed to continue fighting in Gaza for a while until it annihilates Hamas.

Still, unlike during the pandemic when shipping costs surged, ZIM Integrated and Maesrk will have some challenges as they use the longer Cape of Good Hope route. For example, this means spending more on fuel and workers.

For example, in a statement, a union representing seafarers with links to the US will be paid more money if they agree to transit through the Red Sea. This is an important move since the union has over 20k workers. However, it is unclear what the impact of this on earnings will be since companies like ZIM have few UK and US workers onboard.As I wrote recently, the other risk that could hit ZIM and other companies is that many ships are scheduled to come online this year. Such a move will lead to more supply and pricing pressures.