I’ve been keeping an eye on the shipping stocks sector lately, and honestly, the volatility over the past few years has been quite significant. I’ve put together some observations and would like to share them with anyone who’s interested.

Why are shipping stocks worth paying attention to? Put simply, they’re a barometer of global trade. As long as international trade is active and the flow of goods is smooth, these shipping companies have business. But the problem is that both the financial performance and the stock prices of shipping companies tend to swing dramatically—making them especially sensitive to macroeconomic conditions.

Let’s take a look at what has happened in recent years. When the pandemic hit in 2020, shipping companies were once threatened with bankruptcy. But as countries loosened regulations and the economy recovered, shipping stocks saw a strong rebound. Then after 2022, the situation quickly turned for the worse. For example, with Maersk: after its stock price peaked in early 2022, its market value had already fallen by 60%. Germany’s largest shipping company, Hapag-Lloyd, also saw its market value retreat by nearly 70% compared with the end of 2022.

Why did this happen? In fact, you can see the clues from their financial results. Maersk’s quarterly revenue declined from a peak of $22.767 billion in 2022 all the way down to less than $13 billion in the second quarter of 2023. Even more striking is the profit data: quarterly profit plunged from $8.879 billion in mid-2022 to $1.453 billion in Q2 2023, a decline of as much as 83%. This is the real dilemma facing shipping stocks.

So, which shipping stock targets are worth looking at? Among the globally leading companies, many are private and therefore not accessible to ordinary investors. But there are still quite a few listed options in the U.S. stock market and the Taiwan stock market. Maersk trades on the U.S. OTC market under the ticker AMKBY, with a market cap of about $2.282 billion. Hapag-Lloyd also trades via the OTC market under the ticker HPGLY, with a market cap of about $2.706 billion. Orient Overseas, which is listed in Hong Kong, can also be bought through the U.S. OTC market under the ticker OROVY, with a market cap of about $1.016 billion. In Taiwan, Evergreen (2603) and Yang Ming (2609) are local shipping leaders, with market caps of approximately $36.5082 billion and $17.6 billion, respectively.

Personally, I’m more inclined toward large shipping stock targets. The reason is simple: during downturns in the industry, large shipping companies have stronger scale advantages. They can better spread operational costs and have a clearly stronger ability to withstand macroeconomic risks. In contrast, shipping stocks with smaller and mid market caps are often more easily eliminated during this kind of cyclical volatility.

As for the future outlook, I think several factors are worth closely watching. First is the Federal Reserve’s interest-rate policy. Currently, the federal funds rate is at a high of 5.50%, which puts pressure on global economic growth. If inflation gradually eases and the Federal Reserve begins cutting rates, bringing the global economy back onto a growth track, that would be a clear positive for shipping stocks.

Second is geopolitical changes in supply chains. In recent years, the West has been pushing for supply-chain localization and “de-China-ization.” This will create an impact for companies that primarily operate routes from East Asia to the Americas and Europe (for example, Evergreen and Yang Ming). However, for companies with more comprehensive route coverage, such as Maersk, the impact is relatively smaller.

Another factor that cannot be ignored is environmental concerns. In the future, requirements for carbon emissions will become stricter, which will raise operating costs. However, this could actually be favorable for large companies. Because of their scale advantages, they may be able to “green” their fleets at lower costs, thereby gaining a more obvious competitive edge over smaller companies.

Based on these analyses, my recommendation is: first consider large shipping stocks with market caps of more than $10 billion, because these companies have stronger risk-resistance capabilities. At the same time, you should avoid companies that rely too heavily on East Asia–Europe/Americas routes, because supply-chain adjustments will hit them harder. In addition, choosing companies with relatively newer fleets is also important, as it can reduce future costs and risks related to environmental compliance.

My investment strategy is to buy shipping stocks in batches near the bottom of the long-cycle period, then hold them long-term, gradually selling near the top of the cycle. After all, shipping stocks’ performance is heavily affected by the macroeconomic cycle, so being well prepared long-term and making judgments about the cycle is key. If you’re also optimistic about this sector, it’s worthwhile to pay more attention to these companies’ quarterly earnings performance and global trade data—these are important references for assessing the shipping stocks’ prospects.