Equity analysts covering maritime companies can offer detailed analytics into individual company historical performance and future prospects, but can also provide invaluable insights on sentiment on the particular sectors, reflecting views of a broad smattering of investors they talk to.
Capital Link, a New York based investor relations firm with a focus on shipping companies, held “Setting the Stage for 2022,” a webinar featuring a group of prominent analysts covering listed companies across the sectors. Container shipping, the sector which has attracted the most attention after its off-the-charts performance in 2021, featured in the discussion- which also covered drybulk and various tanker segments.
Chris Wetherbee, transport analyst at Citigroup, who covers tonnage providers (shipowners who charter their vessels out to the actual carriers), who said that the sector “…won the pandemic…”, and said: “…our expectation is that for 2022, congestion will linger…we don’t see a material improvement until the back half of the year…” He explained that: “As a result of [congestion], you are going to have atypical patterns throughout the year, with elevated rates that will continue.” He said that “We see our capacity owners continuing to go through a re-chartering process…which will generate a significant amount of upside…from both a revenue and a profit standpoint.” He pointed to a possible doubling of EBITDA (a measure of cash flows), for companies he covers in 2022 compared to 2021, noting “the cash flow created will be pretty robust…”. “Congestion is going to be theme of 2022,” he said.
Jefferies & Co. analysts Randy Giveans, also very constructive on the container sector, reiterated Mr. Wetherbee’s views on congestion, and added that: “The [capacity providers] are chartering ships for three, four and five years a these elevated levels…so they are locking in some extensive cash flow here…” Mr. GIveans mentioned Jefferies’ coverage of one of the actual carriers, Zim, and said: “Clearly, they are just making money hand over fist…” with successively higher quarterly forecasts for company earnings.
Speaking of rate levels for 2022, Giveans suggested that even if there is a peak in early 2022, “…we think that the rates throughout 2022 are probably going to stay above anything that we saw before mid-2021.” He expressed optimism for 2022 based on underlying factors driving the trade for liner carriers, as well as the supply demand factors that auger well for shipowners who charter out to the liners.
Clarksons Platou analyst Omar Nokta, also a veteran of the sector, talked about the underlying freight agreements between the cargo owners and the carriers. He suggested, “What may be different [this time compared to previous] is that typically liners operate under a spot contract, quarterly, maybe 12 month contract…but now, they are starting to see interest for two and three year freight agreements, which really changes the game substantially because they can lock in high record rates for an extended period.”
Nokta also wondered, out loud, what might happen post February 2022- noting that some of the carriers had put in rate freezes from October 2021 to Feb 2022 (in response, perhaps, to governmental regulators starting to eye the industry more closely). He asked, out loud, “What are they going to do? Are they going to push rates higher? Clearly the spot market is indicating that they should be able to charge more. Or, will they keep a freeze in place?” He noted that the liners were stronger than at any time in their history and, having repaid significant amounts of debt, were well positioned for the future.
Some cautions did emerge, with session moderator, Capital Link’s Nicolas Bornozis, reminding listeners that deliveries of containerships (taking tremendous amounts of shipbuilding capacity presently) will accelerate in 2023.
Analyst Ben Nolan, from Stifel, said “…at this time, it’s trickly to be a transport investor,” referring to uncertainties about the duration of the present strength and the market’s possibility (always present) to over-correct, downward. Mr. Nolan put it bluntly, saying: “Rates at these levels are not sustainable…they are too high…they will draw in competition….” He was, however, quick to note, that: “If we stay here for awhile…these companies are going to make a lot of money.”
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