KUCHING: The crisis in the Suez Canal, Egypt is expected to cause delays in shipping with the authorities estimating that the move to refloat the Ever Given ship could take days or even weeks.
While the closure of the canal is expected to further exacerbate the already strained global supply chain, Public Investment Bank Bhd (PublicInvest Research) believe that it will not have a material impact on earnings for the consumer companies under its coverage.
The Suez Canal is a human-made waterway and is one of the most heavily used shipping lanes in the world. It acts as a gateway for goods movement between Europe and Asia, accounting for circa 12 per cent of world trade by volume.
The Ever Given, a 224,000-tonne vessel ran aground since March 23 due to poor visibility as it was caught in heavy winds and sandstorm. Rescue efforts to refloat the ships have been underway but poor weather conditions and size of the vessel is making the rescue operations difficult.
“Should the canal remain closed for two weeks, we estimate that the earnings impact to be at an average of circa one per cent to our financial year 2021 (FY21) earnings forecast,” PublicInvest Research estimated in a special note yesterday.
“As we are expecting a recovery in global economic activities supported by the vaccine rollout and stimulus packages which will likely boost consumer confidence, we upgrade our consumer sector view from neutral to overweight.”
Given the importance of Suez Canal to global trade, the research firm said the blockage will cause further disruption to the already strained global supply chain.
“However, we are of the view that it will not have a substantial impact on earnings for companies under our coverage. Having said that, we believe that the blockage will likely lead to a delay in revenue recognition of approximately 2 weeks as some vessels might reroute via Cape of Good Hope.
“We are expecting better outlook for the consumer sector ahead, supported by the containment of Covid-19 cases following the vaccine rollout globally, which will likely lead to a return in retail footfall.
“In addition, we believe that the stimulus packages announced by governments worldwide should provide a boost to the consumer sentiment and spending. As we believe that the worse is over and expect a gradual recovery moving forward, we upgrade our view on the consumer sector to Overweight.”
In a separate note on rubber gloves, PublicInvest Research was slightly more concerned on the canal block’s impact as the European market accounts for 30 to 40 per cent of the sales volume for glove makers under its coverage.
“Although the vessel shortage situation has eased slightly in early-2021, it has yet to return to normal and we are of the view that this recent waterway blockage in Egypt will further exacerbate the situation,” it explained.
Glove makers typically recognise revenue when goods are delivered to the ports. However, they are expected to secure a vessel booking prior to transporting the goods to the port.
Thus, the vessel shortage situation might result in a revenue recognition delay.
“Based on our preliminary estimates, an extended disruption of two weeks would have minimal impact of one per cent to the glove players’ FY21 earnings,” it estimated.
“The blockage will also likely lead to higher freight charges, but this should not erode the margins of glove players as shipping charges are typically borne by the buyers.”
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