Expect demand recovery in 2013 led by
airfreight, travel then container trade
 Long-haul airlines and probably liners
best placed to benefit; LCCs, drybulk
face capacity risks and fragmentation
 Key Overweight stocks are COSCO
Pacific, Cathay Pacific; China COSCO
and CSCL are key Underweight stocks
Signs of recovery: Air cargo has started to recover in 4Q12.
We expect this to continue in 1H13 and to be followed by
corporate travel and containerised trade. After a soft patch, we
expect mainland passenger demand to also pick up. Capacity
risks vary substantially. Better positioned is airfreight and the
most at risk are low-cost carriers (LCCs) and drybulk. The
industry structures are diverging. The economics of high fuel
prices may consolidate container shipping. In contrast, LCCs
continue to expand into each other’s markets. Higher wages,
exacerbated by currency strength, will likely increase costs.
Aviation: We expect full service airlines, especially those with
large cargo operations, to improve the most in 2013. In contrast,
off a stronger base, risks are rising for LCCs. Cathay Pacific
(OW) is our key premium airline pick and Air China (OW(V))
our key mainland carrier. The key risk is fuel.
Container shipping: We continue to argue that rates will
likely fall again after initial rate hikes in mid-December, given
record vessel deliveries and weak demand on Asia-Europe
routs. Our key Underweight is CSCL. The main upside risk is
better capacity control, especially on long-haul routes.
Drybulk: The market is too fragmented for coordinated action
on supply. The outlook remains difficult and volatile. China
Shipping Development is our key OW as it benefits from PRC
government-driven coastal route consolidation. China COSCO
is our key UW. The main upside risk is an operator exiting the
market, constraining supply and causing rates to rise.
Ports: Much of our ports coverage is focused on areas where
growth is stalling for structural reasons and competition is
rising. Our key port play is COSCO Pacific (OW(V)) as it still
offers the best combination of value and growth, in our view.
A collapse in trade and a price war are key risks.