Temperatures are cooling, fall is in the air and the big box stores and shopping malls are busy preparing for the upcoming holiday season.
But those well-laid holiday plans may have to get reshuffled because of a buildup in supply shortages hitting around the world.
The entire supply chain that ferries commodities and other goods into the hands of businesses has been upended by revolving COVID-19 shutdowns and enhanced safety protocols, as well as erratic peaks and troughs in consumer demand and labor force participation.
The result is that everything from wiring harnesses and hydraulic components to semiconductors, plastic polymers, bicycles, masks and vaccine vials have been in short supply.
And as demand picks up the closer we get to the holidays, it’s going to create even more shortages and headaches for an already overstressed shipping industry.
The world’s roughly 25 million shipping containers are in short supply, forcing many shippers into more expensive spot markets for container space, where prices have been soaring.
On Monday, the Baltic Dry Index that tracks bulk sea shipping rates for vessels hit a 12-year high at the start of a seasonally strong time of the year for the sector.
The container carrier industry is set to bring in $100 billion in net profit this year, compared to roughly $15 billion last year, a Bloomberg report found.
So, it’s not surprising that shipping volume has exploded.
The number of containers arriving at the ports in Los Angeles and Long Beach in California each month this year has been about 860,000, or 24% more than the average monthly volume for the five years prior to the pandemic. The two ports handle roughly 40% of the nation’s imports.
This buildup of ships is clogging the ports.
On Tuesday, a new record of 73 cargo ships were waiting to enter the Los Angeles and Long Beach ports, up from 60 just last week and almost double the figure a month ago. A record number of these ships have had to settle for the “drift area” where they wait outside the port in waters too deep to anchor. Before the pandemic, it was rare to have more than a single ship wait to dock.
At the ports themselves, a shortage of trucks and drivers to transport the goods is adding to the delay.
The Los Angeles and Long Beach ports recently announced they’d add night and weekend operations to help alleviate the backlog.
The average wait time for ships entering LA is now about 8.7 days, roughly 2.5 days longer than a month ago.
Shippers are now trying to reach basically any port in the U.S. they can, including less utilized East Coast ports, though doing so is more expensive and can mean goods stay in transit from Asia for additional weeks.
The Wall Street Journal reported that even the port in Savannah, Georgia has had 20 or more ships waiting to enter the port in recent weeks.
Ocean freight now takes about 71.5 days to reach consumers’ doors, up 43% from a year ago.
Many ports and industry insiders are anticipating that the bottlenecks will continue well into 2022 — and possibly persist for all of 2022.
It’s easy to understand why businesses are concerned that supplies will be constricted as demand rises during the holiday shopping season. To me, that spells opportunity.
And it’s why shipping and logistics companies that are benefitting from the supply chain crunch have been hitting my screens lately.
The Crème de la Crème of Shippers
Case in point: Danaos Corporation (DAC).
Named after the Greek mythological figure who is said to have built the very first ship, Danaos, the company was founded in 1963 by Dimitris Coustas. Coustas entered the shipping world with one ship, Amalia, which was named after his wife. Since then, though, Danaos Corporation’s fleet has expanded exponentially.
Today, Danaos Corporation operates a fleet of 65 containerships that have a total capacity of 403,793 20-foot equivalent units. The company is now one of the largest containership companies in the world, and it boasts long-term charters with leading liner companies. So, it’s not surprising that Danaos Corporation has prospered amidst the container shortage and rising container rates.
Case in point: In early August, the company reported that it topped analysts’ earnings estimates for its second quarter in fiscal year 2021. The containership operator achieved second-quarter adjusted earnings of $68.9 million, or $3.34 per share, up from $42.5 million, or $1.71 per share, in the same quarter a year ago. The consensus estimate called for adjusted earnings of $3.25 per share, so DAC posted a 2.8% earnings surprise. Second-quarter operating revenue rose 25.3% year-over-year to $146.43 million, just shy of forecasts for $146.48 million.
Over the past six months, the stock has soared over 48%, compared to the 12% gain for the S&P 500 and the 4.8% gain for the Dow over the same timeframe.
I recommended the stock to my Accelerated Profits subscribers back on March 24. The stock earns a Total Grade of “A” in my Portfolio Grader, and an “A” for its Quantitative Grade, which represents institutional buying pressure behind the stock.
Of course, Danaos Corporation is not the only way to play the global shipping crisis right now.
In fact, my Accelerated Profits Portfolio is loaded with multiple shipping companies that are rated as “Strong Buys” in my Portfolio Grader, and thus represent the crème de la crème of shipping stocks.
All of these stocks have a Total Grade of “A” or “B,” and they all earn an “A” for their Quantitative Grade, one of the key factors I use to evaluate stocks in my Portfolio Grader.
Of course, my Accelerated Profits Portfolio is also locked and loaded with fundamentally superior companies in a variety of the market’s most important growth sectors, including 5G, artificial intelligence (AI) and biotech.
We’re also in the final trading days of the third quarter, and professional money managers still need to shore up their portfolios before October. Typically, money managers make their client’s portfolios “pretty” at the end of September by loading up on companies with strong third-quarter forecasted earnings and sales, i.e., my Accelerated Profits stocks.
My Accelerated Profits stocks are currently characterized by 34.2% forecasted sales growth and 298.4% forecasted earnings growth. So, these stocks represent the crème de la crème, and I fully anticipate that they will benefit from quarter-end window dressing over the next two weeks.
P.S. The “predictive” power artificial intelligence has today is incredible.
Which is why I’ve incorporated it into my cutting-edge stock-research system called Project Mastermind.
Stocks that can go on 300% or 400% runs in the near term.
For a limited time, you can watch that presentation by going here.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Danaos Corporation (DAC)