By Mike Wackett (The Loadstar) –
Ocean carriers and containership owners are in the midst of the richest vein for the liner sector in over a decade.
The shipping lines are confidently predicting record earnings for the first quarter, with the expectation that the current profitability purple patch will continue at least as far as Q2, underpinned by sky-high spot rates, and beyond that boosted by annual contract rate increases being reported of 75% over the year before.
Meanwhile, the shipowners that lease well over half of their ships to carriers have locked-in strong profits for at least the next two years, given the length of the fixed-term period charters being agreed.
“In the fourth quarter of 2020, we witnessed the most outstanding turnaround in the container industry for as long as I can remember,” said veteran Danaos chief executive John Coustas.
He was commenting during the Greek shipowner’s Q4 and full-year 2020 earnings presentation yesterday.
“We have concluded 27 re-charterings over the past three months, for periods of 12-24 months, at rates between two and three times the rates of the expiring charters,” said Dr Coustas.
He added that in re-fixing the ships, Danaos (NYSE:DAC) had covered over 90% of its fleet’s operating days this year and a “significant portion” of 2022 at much higher daily hire rates. The charter extensions would see its 2020 operating revenue of $462m exceeded “by at least $100m”.
Indeed, the shipowner has agreed charter extensions on just under half of its 58 vessels in the past three months, with for instance Zim extending its charter of the 4,250 teu panamax Zim Sao Paolo by two years, with the hire rate rocketing from $8,300 to $21,150 a day.
“Now everyone is focused on whether the current market strength is sustainable, and for how long,” said Dr Coustas. “Although there have been new orders placed, the current orderbook is at historically low levels. Since there is a two-year lead time for new orders to hit the water, supply growth should be moderate for the next couple of years.”
Danaos reported net income for 2020 from the charter of its fleet of ships, ranging in size from 2,200 teu to 13,100 teu, of $153.6m, up from $131.3m in the previous year, with much of the estimated extra $100m in revenue for this year going straight to the bottom line.
The shipowner said it had received $3.9m from the receivers of bankrupt Hanjin Shipping as part of its $600m claim for unpaid charter hires when the South Korean carrier collapsed in 2016.
Moreover, Danaos said it had seen its bond holdings in carriers Zim and HMM, negotiated as part of their financial restructures, increase in value in keeping with the lines’ improved profitability – its 10m shares in the Israeli carrier are now valued at $205m, after its recent successful listing on the NYSE.
Meanwhile, Danaos carrier client Hapag-Lloyd yesterday advised the market that its earnings, based on its preliminary figures, would be much higher than expected for the first quarter, with an ebitda of “at least $1.8bn” compared to $517m in Q1 20.
With January voyage results in, and February and March estimates based on firm bookings, Hapag-Lloyd is expecting to outperform its Q4 profitability by a staggering 50% in Q1 this year.
Lars Jensen, of SeaIntelligence, said the announcement provided “the first quantified view on the current market strength from a major carrier”.
The Loadstar is known at the highest levels of logistics and supply chain management as one of the best sources of influential analysis and commentary.
Sign up for our newsletter