Image: Danaos Corporation
By Gavin van Marle,
There have been few sectors of the liner shipping business that have done well over the past few years, but businesses leasing both containerships and containers themselves have continued to return healthy profits, while in contrast, their customers – the carriers – have continually teetered on the edge of bankruptcy.
Last week, Canadian containership owner Seaspan reported its third-quarter results, which – coming into the public domain at the same time as some of its major clients were recording deep losses – served to underline the stability of its business.
It reported an adjusted EBITDA of $131.4m, up 1.1% on the same period last year, and saw some 98.5% of its fleet utilised, most of which under long-term charters. Indeed, the secret of its success is the way it has exploited the scarcity of finance for shipping lines, and used that to develop its own fleet.
COSCO, one of its most important clients, reported a net loss of $171m for the same period.
It is hardly surprising that few banks, or investors of other types, have any appetite for lending to carriers, given the state of their balance sheets. But Seaspan is a different proposition altogether. It is able to mine various sources of financing – debt, private equity and so on – to place newbuilding orders that are effectively securitised against long-term charters with carriers keen to acquire more fuel-efficient and larger vessels. This gives them the economies of scale they feel they need to remain competitive.
Similarly, Greek containership owner Danaos expanded its fleet from 42 vessels, in the depths of the recession in 2009, to 64 vessels by the end of last year.
Chief executive John Coustas, reporting the company’s third-quarter results, described the past three months as “uneventful.” From the perspective of those directly involved in the container trades, this may seem a remarkable statement, given the wild swings in freight rates and the slightly frenzied atmosphere in which much business has been – and is still being – conducted.
Interestingly, one part of the ship-owning segment has been hit hard by the recession: German KG funds – typically one-vessel companies – where there has been a multitude of bankruptcies, indicating that the non-operating containership owner segment is becoming increasingly consolidated, with larger owners able to withstand parts of their fleets being unemployed.
Crucially, Seaspan and Danaos have been able to lock in carriers to long-term charter arrangements that are oblivious to the ups and downs of the spot charter market, as a cursory glance at Seaspan’s fleet attests to. KG-funded vessels, on the other hand, typically have a year, with additional three-month options, as the upper ceiling in terms of charter length. As a result, earnings of KG-funded vessels declined dramatically, to the point where lenders and shareholders felt they had no alternative but to sell the vessels as distressed assets.
Concurrently, there has been a re-emergence of container lessors, which has taken place under the same dynamics. Carriers simply have not had the cash to invest in their own container fleets, and leasing companies have filled the space.
With the working life of a container limited to about 15 years, there is a constant need for renewal, but the only players able to finance this have been the leasing companies that have easier access to capital funds.
A quick perusal of the books of lessors such as TAL, Textainer or CAI – all of which are listed in New York – will show just how well they have done out of the recession.
The growth of container- and ship-leasing firms implies that behind the freight markets there is polarisation of the container shipping business under way. It has been a common refrain over the past few years that non-asset freight players, such as forwarders, have been a great deal more financially sound than their asset-owning transport providers.
Ironically, it is now also clear that the pure asset players, such as lessors, have also strengthened their position, while the carrier segment has become weaker.
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