The International Longshoremen’s Association (ILA) has followed through with its threat of a strike if a new six-year contract with the United States Maritime Alliance (USMX) was not reached. Neither side backed down, and now the major ports along the Gulf of Mexico and the East Coast are shut down. For how long remains an unknown.
Oggonomics has already moved to look at what the strike may cost you personally. This situation was already projected to have a multi-billion per day negative impact against Gross Domestic Product. It will end up creating supply shortages and may rekindle inflation just as the inflation beast was being tamed enough to allow the Federal Reserve to finally begin lowering short-term interest rates.
There seems to be a financial angle for investors at almost every turn in the international economic scales. One direct angle of what might be at risk for the large shipping and container giants which actually move all these goods from port to port around the world. Both imports and exports are impacted (outside of military and cruise liners). Many of these large shipping companies pay their investors a dividend yield that is currently above 10%. That seems incredibly high during periods of uncertainty.
If a shipping company’s ships are stuck in port and cannot unload and reload their ships, it will likely have a business expense around that. Will these expenses be able to be made back up in the weeks and months ahead? Some of this depends on how long the strike actually lasts. There are also many other variables to consider — insurance, delays versus write-offs, force majeure, rerouting, and so on.
In an effort to avoid commingling the West Coast and Asian ports in this news, Oggonomics has looked at the European and Western Hemisphere-based shippers with the highest dividends. Another focal point was to focus on the 10% dividend yield screens and also those with a market cap of $1 billion or more. US-listed shares were also the main focal companies as well.
Be advised that none of the shipping companies mentioned here are assured to have problems. And Oggonomics is not predicting they will have problems, and the data herein is not meant to be interpreted as a recommendation to buy or sell any securities mentioned herein. Some of the companies may even be completely unaffected.
As of this time, none of the major shipping and container companies have yet issued formal statements to investors about how they will be affected nor about what they can or cannot do as a remedy if they are affected.
WALL STREET VIEWS
Here are four different large brokerage firm commentaries about what to brace for around this strike:
BofA Securities maintains that over 80% of the volume of international trade in goods is carried by sea. And that is even higher for most of the world’s developing countries.
JPMorgan has estimated a daily economic cost of $3.8 billion to $4.5 billion per day. While some of the impact can be made up once operations return to normal, agriculture exports and other perishable goods could be facing a total loss.
UBS has spoken with global transportation contacts with a view that the strikes look very likely. It noted that some companies will be able to navigate port closures better than others.
Jefferies has already opined that shipping and container players like ZIM Integrated Shipping Services Ltd. (NYSE: ZIM), and also overseas-traded shipping giants like A.P. Moeller-Maersk and Hapag-Lloyd AG are among the best levered for a tighter shipping market.
EXTERNAL VIEWS
Other organizations have also weighed on current and/or past events:
The National Retail Federation warns of a significant impact on the economy just when inflation is on a downward trend. Referring back to the 2002 West Coast port lockout, the NRF noted that an 11-day closure of the Western ports likely cost the economy about $1 billion per day. It also warned that it took about six months for everything to recover.
The Association for Supply Chain Management polled its LinkedIn community and found that 73% of supply chain professionals believe the strike is “extremely or very likely to have a negative impact on their operations.” Only 8% of the professionals said the effects would not disrupt their networks.
CNBC reported that critical drug shortages may be temporarily seen until supplies are sent via air-freight or by other means. This covers the likes of Wegovy, Ozempic, Mounjaro and others.
WHICH ARE THE 10% YIELDS?
Star Bulk Carriers Corp. (NASDAQ: SBLK) yields 11.8% on a screen, but its quarterly dividends already vary greatly. On September 4, 2024, Deutsche Bank issued a new Buy rating and gave it a $26 price target. This is its dividend history:
Aug 27, 2024 $0.70 Dividend
Jun 06, 2024 $0.75 Dividend
Mar 11, 2024 $0.45 Dividend
Dec 04, 2023 $0.22 Dividend
Aug 21, 2023 $0.40 Dividend
Jun 06, 2023 $0.35 Dividend
Feb 27, 2023 $0.60 Dividend
Nov 29, 2022 $1.20 Dividend
Aug 24, 2022 $1.65 Dividend
Jun 02, 2022 $1.65 Dividend
Mar 01, 2022 $2.00 Dividend
It was also noted that Star Bulk Carriers Corp. (NASDAQ: SBLK) shares were up 0.7%, and Golden Ocean Group Ltd. (NASDAQ: GOGL) were up 0.9% on Monday before the strike was officially on. Star Bulk was down 0.4% and Golden Ocean shares sold off by 1.6% on Tuesday as the markets started dealing with the real news and impact that a strike was underway.
Back in late August, Golden Ocean shares were maintained with a Hold rating and the price target was cut to $14.50 from $15.50 (versus $12.61 ahead of the call, not adjusted for the dividend). Here is a list of the dividend payments per share made by Golden Ocean Group for the last two and a half years:
Sep 11, 2024 $0.30 Dividend
Jun 07, 2024 $0.30 Dividend
Mar 12, 2024 $0.30 Dividend
Dec 05, 2023 $0.10 Dividend
Sep 08, 2023 $0.10 Dividend
May 25, 2023 $0.10 Dividend
Feb 27, 2023 $0.20 Dividend
Nov 25, 2022 $0.35 Dividend
Sep 06, 2022 $0.60 Dividend
May 31, 2022 $0.50 Dividend
Mar 02, 2022 $0.90 Dividend
Zim Integrated Shipping Services Ltd. (NYSE: ZIM) is Israel-based so it may be experiencing higher freight rates due to the attacks and risks unique to the area. Zim recently updated its tax ruling from the Israeli Taxing Authority that showed certain shareholders may be eligible to a reduced Israeli withholding tax rate. The only recent analyst call seen was JPMorgan resuming coverage as Underweight with a $10.50 price target on September 10. Zin has a rather different dividend history than others:
Aug 29, 2024 $0.93 Dividend
Jun 04, 2024 $0.23 Dividend
Apr 04, 2023 $6.40 Dividend
Nov 28, 2022 $2.95 Dividend
Aug 26, 2022 $4.75 Dividend
May 27, 2022 $2.85 Dividend
Mar 22, 2022 $17.00 Dividend
Diana Shipping Inc. (NYSE: DSX) has a small market cap of $315 million and a low share price of $2.52. Its dividend screens out as well above 10%, but this payout has varied over time:
Aug 15, 2024 $0.075 Dividend
Jun 12, 2024 $0.075 Dividend
Mar 04, 2024 $0.075 Dividend
Aug 11, 2023 $0.150 Dividend
Jun 09, 2023 $0.150 Dividend
Mar 10, 2023 $0.150 Dividend
Nov 25, 2022 $0.175 Dividend
Aug 05, 2022 $0.275 Dividend
Jun 03, 2022 $0.250 Dividend
DISCLAIMERS & WARNINGS
Until the individual companies come out showing exactly what their individual finances look like, there are too many variables this early in a strike to project. There was industrywide talk of pull-forward in shipping of goods in the weeks (or even months) ahead of this strike. Others have diverted shipping ahead of time. And many ships will remain trapped either in port or outside of each port. And whether the shipping and container companies or their customers are more affected in each individual case remains to be seen.
The one impact that may be felt for sure is that “force majeure” is likely to play a role if this strike lasts for weeks or longer. This is the clause included in contracts which removes liability for unforeseeable and unavoidable catastrophes (or external events) when one or more parties involved in the contract will not be able to fulfill their obligations.
