SCFI Freight Index Drops 3.6% WoW; Morgan Stanley Maintains Underweight Rating on COSCO Shipping Holdings
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SCFI Freight Index Drops 3.6% WoW; Morgan Stanley Maintains Underweight Rating on COSCO Shipping Holdings
The Shanghai Containerized Freight Index (SCFI) fell this week after two consecutive weeks of volatility, with freight rates on major routes weakening broadly. The institution believes this exerts negative pressure on COSCO Shipping Holdings' share price performance and maintains its Underweight rating.
- For the week ended November 7, the SCFI index fell 3.6% WoW, reversing the previous week's 10.5% gain.
- Freight rates on the US West Coast, US East Coast, and South America routes fell sharply, by 16.4%, 17.2%, and 15.4% respectively.
- European route freight rates edged down 1.6%, while Mediterranean route rates rose 2.3% and Southeast Asia route rates rose 6.4%.
- The report views SCFI as a leading indicator of actual freight rates and highly correlated with COSCO Shipping Holdings' share price performance; this decline is seen as a negative signal.
- Maintains Underweight rating on COSCO Shipping Holdings (1919.HK/601919.SS), based on an unfavorable supply-demand outlook.
Report interpretation
Overview
This report was released by Morgan Stanley and mainly tracks the latest changes in the Shanghai Containerized Freight Index (SCFI) and their impact on COSCO Shipping Holdings (CSH). The core conclusion is that the latest week's SCFI index fell 3.6% WoW, and freight rates on multiple key routes declined significantly. The institution views this as a negative signal and accordingly maintains its Underweight rating on COSCO Shipping Holdings. The report emphasizes that SCFI, as a leading indicator of actual freight rates, is closely correlated with the company's revenue, profits, and share price performance.
Core views
Freight index retreats from highs, short-term momentum weakens. For the week ended November 7, the Shanghai Containerized Freight Index (SCFI) fell 3.6% WoW, compared with a rise of 10.5% in the previous week. This reversal suggests that spot freight rate momentum may be fading. By route, trans-Pacific and South America routes saw significant declines. US West Coast route rates fell 16.4% WoW, US East Coast route rates fell 17.2%, and South America route rates fell 15.4%. European route rates slipped 1.6%, while Mediterranean and Southeast Asia routes rose 2.3% and 6.4% respectively. Overall, weakness in major long-haul routes dragged on the composite index. The impact on COSCO Shipping Holdings is negative. The report notes that SCFI is a leading indicator of COSCO Shipping Holdings' revenue and profits, and historical data show that SCFI trends are correlated with the company's share price performance. Given the current downward trend in the freight index, especially the price correction in high-weight routes, the institution believes this puts pressure on the company's short-term fundamentals and share price, and therefore maintains a negative view.
Analysis framework
The institution adopts a logic chain of 'high-frequency data tracking → financial transmission analysis → valuation validation'. First, it captures marginal changes in industry prosperity by monitoring weekly SCFI index releases and changes in sub-route freight rates. Second, it establishes a mapping between freight rates and company performance, noting that SCFI, as a leading indicator, directly affects revenue and profit expectations for COSCO Shipping Holdings. Finally, it combines supply-demand fundamentals (such as global trade outlook and supply chain disruptions) with probability-weighted valuation, giving a relatively low price-to-book (P/B) multiple in the base case to reflect the current unfavorable supply-demand outlook.
Methodology notes
Analyzing industry prosperity by tracking changes in the SCFI composite index and sub-route freight rates
The report decomposes the composite index into specific routes such as Europe, Americas, and Southeast Asia, identifying the sharp declines in US routes and Atlantic/South America routes as the core factors dragging down the overall index, thereby more precisely judging the impact on specific liner companies.
Scenario-based price-to-book (P/B) valuation method
Due to the strong cyclicality of the shipping industry and large earnings volatility, the report uses price-to-book (P/B) as the core valuation anchor, setting bull, base, and bear scenarios and their probabilities (15%/70%/15%), and determines target multiples based on the standard deviation from historical averages.
Judging industry direction based on supply-demand balance outlook
The report explicitly points out that it currently faces an 'unfavorable supply-demand outlook', which is the main logic supporting the bearish rating, implying that pressure from excess supply or insufficient demand outweighs the supply disruption premium brought by geopolitics.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- COSCO Shipping Holdings (1919.HK / 601919.SS)Direct beneficiary/affected entity: SCFI directly reflects pricing levels for its core business, and freight rate declines directly hurt its revenue and profit expectations.
- Weaknesses
- Faces an unfavorable supply-demand outlook, significant freight rate corrections on major routes, and uncertainty in the macro trade environment.
- Risks
- Global trade downturn, significant fuel price increases, loss of freight rate discipline due to intensified competition, and cost inflation from potential US Section 301 investigations.
Key data
- SCFI Index WoW Change-3.6%For the week ended November 7, previous week was +10.5%
- US West Coast Route Freight Rate WoW-16.4%Sharp decline
- US East Coast Route Freight Rate WoW-17.2%Sharp decline
- Europe Route Freight Rate WoW-1.6%Slight decline
- Mediterranean Route Freight Rate WoW+2.3%Slight increase
- Southeast Asia Route Freight Rate WoW+6.4%Increase
- South America Route Freight Rate WoW-15.4%Sharp decline
- COSCO Shipping Holdings (H-share) Base Target P/B0.5xCorresponds to 0.9 standard deviations below historical mean
- COSCO Shipping Holdings (A-share) Base Target P/B0.7xBased on A/H premium scenario
Impact & implications
The report believes that the pullback in the freight index confirms the previous judgment that 'momentum from spot price hikes on trans-Pacific routes may be ending'. For investors, this means the likelihood of near-term earnings upside surprises for COSCO Shipping Holdings has diminished. Against the backdrop of current macro headwinds and potential tariff escalation, concerns about global trade volumes combined with falling freight rates reduce sector attractiveness. Unless there is a reversal in the spot market, the Red Sea crisis lasts longer than expected, or the company conducts aggressive share buybacks, the share price may remain under pressure.
Risks
- Global trade declines amid macro headwinds and potential US tariff increases
- Fuel prices rise significantly
- Intensified competition in sub-segments leads to loss of freight rate discipline
- Cost inflation if US Section 301 investigations are implemented
What to watch
- Whether there are signs of reversal in the spot market
- Whether Red Sea crisis disruptions last longer than expected
- Whether the company delivers unexpectedly high profit distributions or aggressive share buybacks
- Whether the SCFI index can stabilize in the coming weeks