Despite billions in canceled orders, container imports stay near peak

U.S. imports accelerated in July, with inbound cargo from China reaching a year-to-date high, according to Descartes.

Walmart said Tuesday that it had “canceled billions of dollars in orders to help align inventory levels with expected demand.” Target disclosed the following day that it had canceled over $1.5 billion in orders, and revealed that it had shipped in much of its back-to-school goods early.

Nevertheless, U.S. import activity keeps chugging along near all-time highs.

Unprecedented throughput at the nation’s terminals has not been enough to clear queues of waiting ships. As of Thursday morning, there were still 130 container vessels waiting off North American ports.

According to newly released numbers from Descartes, U.S. imports totaled 2.53 million twenty-foot equivalent units in July. That’s up 3% year on year and 15% from July 2019, pre-pandemic. It was the best July on record, with volumes up 2% sequentially from June. This July marked the fifth-highest monthly volume ever recorded by Descartes.

chart showing data on imports
(Chart: Descartes. Data source: Descartes Datamyne)

U.S. imports from China rebounded last month, according to Descartes. It said volumes from China totaled 994,927 TEUs, up 6.3% year on year and 6.9% from June. More containerized cargo was imported from China in July than in any other month this year, with Chinese goods accounting for 75% of the year-on-year TEU increase.

“A number of factors — such as a slowing economy, inflation and high fuel costs — have not had the anticipated impact [of] slowing down U.S. container imports,” said Descartes.

The McCown Report analyzes volumes at the top 10 U.S. ports. McCown found that July imports at these ports were up 0.7% year on year. Imports at the leading East Coast and Gulf Coast ports rose 6.6% and imports at West Coast ports fell 4.9%.

August imports look strong

Import volumes continue to look strong midway through August. Month-to-date U.S. Customs data shows little letup in imports versus July, although some ports might see a small pullback. “Imports will begin to ease somewhat” in Los Angeles in August, predicted the port’s executive director, Gene Seroka.

Ports with large ship queues — New York/New Jersey; Savannah, Georgia; and Houston — are guaranteed to have strong import volumes through at least this month, simply because of cargo backlogs offshore.

chart showing data on imports
(Chart: FreightWaves SONAR)

And despite all the excess inventories held by retailers like Walmart (NYSE: WMT) and Target (NYSE: TGT), U.S. consumer demand remains strong. July retail sales — adjusted for inflation and seasonality and excluding motor vehicles and auto parts — were up 0.5% from June and 0.3% year on year.

Adjusted July retail sales were up 17.5% from the same month in 2019, pre-pandemic.

Sales inflation-adjusted to 2019 dollars (Chart: American Shipper based on data from U.S. Census)

National port capacity maxing out?

With consumption levels and imports still well above pre-COVID-era levels, the U.S. port system continues to operate at around maximum throughput. Monthly import volumes appear to be bouncing around near a capacity ceiling.

Descartes has previously stated: “Port congestion became a significant issue when the U.S. consistently exceeded import volumes of 2.4 million TEUs per month starting in March 2021. As long as monthly U.S. container import volumes are above 2.4 million TEUs, port congestion will continue until infrastructure changes are made.”

According to John McCown, author of The McCown Report: “Many ports and terminals are operating at or near capacity. The present U.S. port system is not in the position to accommodate the geometric growth in container volume that is on the foreseeable horizon. 

“To handle that growth, something more than just marginal improvements to capacity is needed. Among other things, new container terminals and even entirely new container ports will be needed to efficiently handle container volume over the ensuing decade. 

“This will require significant infrastructure investment, but that funding requirement needs to be balanced against the disruption that occurred recently. Without meaningful steps taken, such disruption will be more episodic in the future as volume grows over time,” warned McCown.

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Turning point? Port of LA boss sees imports ‘easing’ lower in August

With East Coast ship queues high, port executive Gene Seroka says: “For cargo owners looking to rechart their course, come to Los Angeles.”

photo of container port of Los Angeles

Los Angeles, America’s largest container port, saw no letup in imports in July. But the numbers could finally start to pull back this month, according to Gene Seroka, executive director of the Port of Los Angeles.

Seroka reported Wednesday that Los Angeles handled 935,345 twenty-foot equivalent units last month, making it the port’s best July on record. Volumes were up 5% year on year.

Imports totaled 485,472 TEUs, up 3% year on year and up 9% compared to June.

(Chart: American Shipper based on data from Port of Los Angeles)

“Imports will begin easing somewhat,” said Seroka. “I expect to see that reflected in our August cargo numbers. China factory orders are slowing and some retailers continue to have elevated inventories. You’ll start to see a tapering of some imports, specifically the commodities that won’t be repeatedly purchased every year: appliances, fixtures, furniture, sporting goods.

“But I still like our chances for a strong back half of the year. The cargo that’s coming in the months and weeks ahead will look different than the inventory that’s already on the ground: more seasonal products and the all-important year-end holiday products.”

Blue line: 2022 U.S. imports; 7-day moving average; green line: 2021 (Chart: FreightWaves SONAR)

Landside issues easing — except for rail

Terminal fluidity continues to improve in Los Angeles.

According to Seroka, “Even with today’s rail challenges, our container terminals are in pretty good shape. We’re down to about 2,000 containers waiting nine-plus days for trucks versus more than 32,000 units last October. Dwell time for truck-bound containers is now at four days, close to more traditional times and a significant decline from the high of 11 days.”

On the more problematic rail side, he said, “Inland rail terminals look just like the port did last year — stacks of cargo, folks not picking it up quick enough, and importers who are allowing containers to dwell for a longer time than they normally would. With that, we struggle to load the next train and move it out of Los Angeles.

“We’ve now got more than 33,700 cargo containers designated for rail sitting on Port of Los Angeles docks. In more normal times, that number should be about 9,000. And of those 33,000-plus boxes, more than 20,000 have been sitting nine days or longer. We never used to see that much cargo sitting for nine days. We’ve got to continue to encourage the importers to pick up their cargo [from inland rail terminals] faster so we can get the next trains in.”

Southern California ship queue down

Meanwhile, the queue of container ships waiting offshore has fallen to very low levels. According to the Marine Exchange of Southern California, there were 15 container ships in the Los Angeles/Long Beach queue as of Wednesday, down from 109 in January. The count hit a low of nine ships on Aug. 10.

Cargo volumes were rerouted to the East and Gulf coasts starting in the second quarter due to concerns about Los Angeles/Long Beach peak season congestion, as well as the threat of work slowdowns after the West Coast port labor contract expired July 1.

Now, the tables have turned. MarineTraffic ship-position data shows queues are higher on the East and Gulf coasts than on the West Coast. As of Wednesday afternoon, there were 33 container vessels off Savannah, Georgia, 23 off Houston and 19 off New York/New Jersey.

Seroka made a sales pitch to shippers and suggested they reconsider their decision to avert the West Coast.

“At many other ports around the country, ships are waiting for space, yet here our terminals have capacity. So, for cargo owners looking to rechart their course, come to Los Angeles. We’re ready to help.”

Long Beach volumes also still high

The adjacent Port of Long Beach reported its July numbers on Aug. 9. Long Beach handled total throughput of 785,845 TEUs last month, making it the port’s best July on record.

Long Beach posted its third-highest tally on record for imports in July. Imports came in at 376,175 TEUs, down 1.5% year on year.

The import decline versus the preceding two months was steeper. Long Beach imports hit a year-to-date high of 436,977 TEUs in May. July’s total was 14% lower.

(Chart: American Shipper based on data from Port of Long Beach)

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Container line Zim hit by exposure to falling spot rates

Trans-Pacific spot container shipping rates continue to head lower. Zim appears more at risk than some of its rivals.

a photo of a zim container ship

Niche ocean carrier Zim has been one of the great success stories of the container shipping boom. It expanded its fleet faster than larger rivals off a smaller base, focused only on the highest-paying lanes — like the trans-Pacific — and kept spot exposure high at 50%. As earnings skyrocketed, it became the largest U.S.-listed shipping company by market cap.

Freight rates for the second quarter of 2022 disclosed by Zim (NYSE: ZIM) on Wednesday show that it’s still outperforming larger carriers on rates. Yet the numbers reveal a rising risk: Zim is more exposed to weakening spot rates than liner giants like Maersk and Hapag-Lloyd. And those spot rates are continuing to fall.

Zim reported net income of $1.3 billion for Q2 2022, up 50% from the year before but down 22% from net income of $1.7 billion Q1 2022. Adjusted earnings per share of $11.07 fell short of the consensus forecast for $13.37. Zim’s stock price decline 6% Wednesday despite a dividend boost.

Adjusted earnings before interest, taxes, depreciation and amortization of $2.1 billion came in 15% below analyst consensus and down 17% from the first quarter.

Hapag-Lloyd raised its full-year guidance on July 28. Maersk followed suit on Aug. 2. On Wednesday, Zim kept its guidance unchanged, for full-year EBITDA of $7.8 billion-$8.2 billion.

The good news: This is up 18-24% from Zim’s record year of 2021. The bad news: It implies Zim’s second-half EBITDA will decline 32-36% versus the first half.

Spot rate exposure

In contrast to Zim, Maersk expects its second-half EBITDA to fall 9% versus the first half. Hapag-Lloyd anticipates a drop of 3-21%.

Ocean carrier earnings are highly leveraged to average freight rates. Maersk’s spot exposure is down to 29%, while Hapag-Lloyd boasts a much more diversified service footprint than Zim. 

Despite spot rates falling double digits between the first and second quarters, Maersk’s average rate (including both spot and contract) actually increased 9.4% to $2,492 per twenty-foot equivalent unit in Q2 2022. Hapag-Lloyd’s average rate increased 5.8%, to $2,935 per TEU.

Not so with Zim. Its average Q2 2022 rate was $3,596 per TEU, much higher than Maersk’s or Hapag-Lloyd’s, but unlike those carriers, Zim’s second-quarter average decreased 6.5% from the first quarter.

(Chart: American Shipper based on data from Maersk, Hapag-Lloyd, Zim)

Zim had previously stated that rates on its annual trans-Pacific contracts that began in Q2 had more than doubled year on year. The fact that its average rate still fell compared to Q1, even with the higher contract rates included, underscores Zim’s exposure to trans-Pacific spot rates.

Spot rates continue to decline

Indexes measuring Asia-U.S. spot rates have shown a continued decline throughout this year.

The Freightos Baltic Daily Index (FBX) assessment for the China-West Coast route is down 57% year to date. The FBX China-East Coast assessment is down 44%.

Blue line: China-West Coast, green line: China-East Coast (Chart: FreightWaves SONAR)

The FBX incorporates the effect of premium surcharges in its calculations. This has resulted in a steeper decline than shown by other indexes that don’t include premiums in their assessments.

Zim CFO Xavier Destriau said during the conference call the surcharges “had been a significant feature toward the end of 2021 and during the first quarter of 2022, [but] these have clearly faded over the [second] quarter. And we are not assuming we will generate significant additional surcharges going forward.”

On spot rate trends, Zim CEO Eli Glickman said, “Over the past several weeks, we’ve seen a decline in freight rates, particularly in the trans-Pacific. We recognize that the trades may have peaked, however, rates remain elevated and therefore very profitable.”

Destriau predicted that spot rates will continue to gradually decrease, with third-quarter averages below the second quarter, and fourth-quarter averages below the third.

Asked why trans-Pacific spot rates are falling despite high U.S. port congestion — particularly on the East and Gulf coasts — Destriau replied, “Demand is still strong, but it’s not as strong as it used to be. Let’s be clear: There are signs of weakening. That may be … why rates are starting to normalize.”

Zim’s fleet capacity and throughput

Zim’s focus on spot upside in targeted trade lanes was one reason its earnings rose so fast during the COVID era. Another reason, particularly in the earlier stages of the pandemic demand surge, was its decision to rapidly grow its throughput by adding more ships to its fleet.  

Its fleet has risen from 96 vessels at the time of its January 2021 initial public offering to 149 currently. Almost all of the additions are from the charter market, with Zim paying premium rates for multiyear leases. By agreeing to high-priced charters, it increased its upside exposure to the record-high freight market — at the expense of downside commitments to pay high charter rates in years ahead when freight rates will almost certainly be lower.

By paying steep charter prices to add more ships, Zim was able to grow its fleet, and thus its quarterly throughput, faster than larger liners that kept their fleet size steady off much larger bases. 

Zim’s Q2 2022 throughput was up 23% since Q4 2019, the last quarter before the pandemic. In contrast, Hapag-Lloyd’s quarterly throughput was down 1% over the same timeframe, and Maersk’s was 8% lower.

(Chart: American Shipper based on data from Maersk, Hapag-Lloyd, Zim)

Zim’s quarterly throughput peaked a year ago. It handled 856,00 TEUs in Q2 2022, down 7% from Q2 2021. The charter market has been largely sold out, providing less opportunities to grow the fleet with leased tonnage, while port congestion continues to limit throughput.

In other words, an earlier driver of Zim’s earnings boom — fleet growth — had already stalled and now another driver — rates —  is headed down.

Zim’s future charter exposure

Asked about the company’s ability to unwind charter exposure should there be a recession, Destriau pointed out that Zim has 28 charters come up for renewal in 2023 and 34 in 2024. Meanwhile, it has 46 long-term-chartered newbuildings due for delivery in 2023-24.

Destriau maintained that this mix gives Zim flexibility to manage its fleet size based on market conditions. 

If freight rates are strong enough, it will renew expiring charters and add new service strings as newbuilds are delivered. “But if the global economy enters a prolonged recession and demand significantly drops, then obviously, we would not renew those charters.”

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The plunge in dry bulk shipping: Ominous signal on China’s economy?

Rates and sentiment in dry bulk shipping have fallen hard. Economic pressures in China appear to be a major culprit.

photo of a dry bulk ship unloading in China

It wasn’t just container shipping that raked in the cash last year. Dry bulk shipping enjoyed its best year in a decade. This year is different.

Container shipping spot rates have fallen, but contract rates are up, supporting average rates. Ongoing port congestion is still tying up container ships and partially offsetting a pullback in cargo demand. Container lines will earn even more in 2022 than 2021.

Not so in dry bulk. Spot rates have nosedived and bulker owners are far more exposed to spot pricing than container lines. Dry bulk congestion has cleared, releasing significant capacity into the market. Dry bulker owners may be back in the red by year-end.  

China appears to be the culprit for much of dry bulk’s reversal, particularly for larger bulkers known as Capesizes (vessels with capacity of around 180,000 deadweight tons or DWT) that heavily rely on Chinese imports of iron ore and coal.

“The Cape market continues to be as appetizing as a bucket of prawns on a hot day,” wrote brokerage FIS on Tuesday. “Although the index decline slowed today, it was mainly due to the fact that we can’t actually fall much further as we rapidly approach the Earth’s core.”

Rates for sub-Capesize bulkers known as Panamaxes (65,000-90,000 DWT) and Supramaxes (45,000-60,000 DWT) — which carry a wide variety of cargo, are less dependent on China and have rates more in line with global GDP moves — are also sinking.

What’s happening in the dry bulk market could be an indicator of deepening economic pain in China and elsewhere.

Sentiment is ‘worst it has been in many years’

In October, average Capesize rates topped $80,000 per day and some individual ships earned over $100,000 per day. As of Tuesday, the Baltic Capesize index assessed rates at just $8,783 per day. That’s not only well below all-in cash breakeven, which includes financing costs, it’s below operating expenses (crewing, stores, etc.)

Freight futures are also falling. Brokerage SSY reported that calendar year 2023 Capesize forward freight agreements were offered Tuesday at $14,900 per day and 2024 contracts at $14,750 per day.

According to Breakwave Advisors, founder of the Breakwave Dry Bulk Shipping ETF (NYSE: BDRY), “Freight futures, especially ones maturing beyond next month, are purely driven by expectations. Earlier this year, memories of last year’s $100,000 day rates increased hopes of a repeat, driving futures to unexplainably frothy levels that have now retracted back to reality.

“The ongoing spot market collapse is having a detrimental impact on traders’ sentiment [and is creating] very steep losses on numerous freight books.

“The weak spot market reflects China’s ongoing recession in the real estate sector … [which is] very crucial for shipping,” said Breakwave. “That is something that should have been easily identifiable months ago. But it wasn’t, as traders were blinded by vivid memories of the past. Currently, sentiment is the worst it has been in many years.”

Chinese stimulus to the rescue?

Chinese steel production — which supports iron ore and coal imports — fell to 907 million tons in July, down 6% from June, according to the World Steel Association.

The hope in dry bulk shipping circles is that China will unveil a major stimulus plan in the second half to offset economic hits from lockdowns and the real estate crisis.

“Our view is that absent a historic collapse of the Chinese economy, upcoming stimulus efforts will provide the catalyst for major restocking of iron ore, and thus, a swift jump in dry bulk demand,” said Breakwave.

The counterargument: According to a report in the Australian Financial Review, Morgan Stanley believes China is hesitant to deploy major levels of stimulus; that even if it does, there would be a six-month lag until it shows up materially in commodities markets; and that Chinese domestic iron ore stockpiles are currently high.

Rates for medium and smaller bulkers also falling

During parts of the 2021 dry bulk rally, as well as this year, smaller bulkers outperformed larger ones. Smaller vessels are still outperforming Capesizes but at lower rate levels; the sub-Cape vessel classes are pulling back too.

According to Clarksons Securities, average spot rates for Supramaxes were the equivalent of $17,700 per day on Tuesday. Supramaxes earned almost twice that in March.

Panamax rates were down to $17,000 per day on Tuesday. Panamax rates neared $30,000 per day in March.

(Chart: Clarksons Securities. Data: Clarkson Research Services, Clarksons Securities)

Dry bulk stocks head south

U.S.-listed dry bulk stocks performed exceptionally well in 2021, racking up triple-digit gains. They continued their ascent in the first five months of the year, despite the negative news on the Chinese economy due to COVID-19 lockdowns and that country’s real estate crisis.

However, since the beginning of June, dry bulk stocks have taken a downward turn, in line with trends in rates and freight futures. Star Bulk (NASDAQ: SBLK) — whose ships earn more because of their exhaust gas scrubbers — is down 22%, Safe Bulkers is down (NYSE: SB) 23%, Grindrod (NASDAQ: GRIN) 26%, Golden Ocean (NASDAQ: GOGL) 30%, Eagle Bulk (NASDAQ: EGLE) 32% and Genco Shipping & Trading (NYSE: GNK) — which has heavy Capesize exposure — 38%.

(Chart: Koyfin)

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Five years on Wall Street: Shipping’s exits, arrivals, whales and minnows

The latest shipping company poised to delist has a market cap of $3.9 billion. The latest new entrant’s market cap is under $20 million.

photo of NASDAQ, where more shipping stocks are listing

There were high hopes in the 2000s and even the 2010s that ocean shipping would evolve into something more than a niche trading and investing space on Wall Street.

The hope was that consolidation would whittle down the crowded field to a few large-cap whales with business models that worked across cycles and garnered the respect of larger investment funds. The reality over the past half-decade: Consolidation is coinciding with larger-cap shipping stocks going private. And the field of shipping minnows — including penny stocks — keeps growing.

Another one bites the dust …

The latest expected departure: Atlas Corp. (NYSE: ATCO), owner of Seaspan, the world’s largest container-ship lessor. It has 127 vessels on the water with total capacity of 1.16 million twenty-foot equivalent units and an additional 67 on order with total capacity of 793,800 TEUs. Atlas has a market cap of $3.9 billion.

Atlas received a take-private proposal on Aug. 4 from holders of 68% of its stock, as well as ocean carrier ONE. The stated rationale for the plan is that “the shipping industry will go through significant changes over the next several years … and it will be essential for the company to make timely decisions, many of which could impact short-term results … decisions [that] cannot be made as efficiently as a public company.”

That sounds like an argument that shipping companies shouldn’t be public in the first place. The industry has always faced significant changes in its markets — many unforeseen. They have always required management to weigh short-term stock effects versus long-term returns.

Loss of shipping stocks due to privatizations

The public liquefied natural gas (LNG) shipping sector, in particular, has been gutted by privatizations and fleet sales in recent years. “Unfortunately, there are very few ways to play LNG shipping with the public equities,” noted Stifel analyst Ben Nolan in May.

Teekay LNG was acquired by private equity company Stonepeak in January. GasLog Ltd. was bought by BlackRock in June 2021.

Outside of the LNG space, container-equipment lessor CAI was bought by Japan’s Mitsubishi Capital in November. Seacor, which owned U.S.-flag vessels, was taken private by American Industrial Partners in April 2021.

Mixed-fleet owner DryShips was taken private by its controversial Greek sponsor George Economou in August 2019.

“You can’t paint all of the privatizations below with a broad brush,” a shipping finance source who declined to be identified told American Shipper. “DryShips had become uninvestable and would never get anything near NAV [net asset value] valuation. Seacor was a conglomerate that frankly didn’t act as a public company.

“The one thematic you could arrive at is that LNG shipping is long-term-contract-based, but because of the pool it swam in — shipping — it was never going to get the infrastructure-like valuations it truly deserved. So, private equity and others were attracted to the cash flows and low entry points and took them private.”

Loss of stocks due to sales

Beyond privatizations, the field of U.S.-listed shipping stocks has been pared by sales to other public companies that are not predominantly in shipping, or are outside U.S. equity markets.

In January, Golar LNG Ltd. (NYSE: GLNG) exited shipping with the sale of its LNG carrier fleet to a new entity, The Cool Co. (The Cool Co. is listed in Oslo.)

Golar LNG Partners was sold to New Fortress Energy (NYSE: NFE) in April 2021.

The company formerly known as Scorpio Bulkers announced its partial exit from bulk shipping in August 2020. It confirmed a full exit that December. It sold its last bulker in Q2 2021. The renamed company, Eneti (NYSE: NETI), is now focused on offshore wind-farm installations.

Loss of stocks due to consolidation

A further reduction in shipping names is coming through consolidation by larger U.S.-listed players.

Navios Holdings (NYSE: NM) announced the sale of its entire drybulk fleet to daughter company Navios Partners (NYSE: NMM) on July 27. Previously, Navios Acquisition bought Navios Midstream in December 2018, and Navios Partners bought Navios Acquisition and Navios Containers last year. There’s now one Navios stock covering containers, dry bulk and tankers — Navios Partners — down from five.

In the tanker space, Frontline (NYSE: FRO) plans to acquire Euronav (NYSE: EURN) and create a combined entity with a market cap of $4.2 billion. Euronav CEO Hugo De Stoop would lead the combined entity and current Euronav shareholders would own 55%.

That megadeal is contingent on more than 50% of Euronav shareholders tendering stock to Frontline in Q4 2022 — a tender that may come up short given opposition by the Saverys family, which owns 20% of Euronav’s shares.

Other consolidations in the U.S. public market over the past-half decade included the acquisition of Diamond S Shipping by International Seaways (NYSE: INSW) in July 2021, the merger of Global Ship Lease (NYSE: GSL) and private box-ship owner Poseidon Containers in November 2018, the sale of the Gener8 Maritime fleet to Euronav and International Seaways in June 2018, and the sale of Navig8 Product Tankers’ fleet to Scorpio Tankers (NYSE: STNG) and the BW Group’s supertanker fleet to DHT (NYSE: DHT) in 2017.

Additions from spinoffs, IPOs and direct listings

The loss of aggregate market cap in the U.S.-listed shipping space due to privatizations and fleet sales would have been severe save for one big arrival: Israeli container liner operator Zim (NYSE: ZIM), which conducted an initial public offering in January 2021. Zim currently has a market cap of $6 billion and is by far the largest U.S. listed shipping stock.

There were three other sizeable Wall Street newcomers in recent years: LNG carrier owner Flex LNG (NYSE: FLNG) debuted via a direct listing in June 2019. Product tanker owner Torm (NASDAQ: TRMD), dual-listed on Nasdaq in January 2018. And dry bulk owner Grindrod (NASDAQ: GRIN), dual-listed on Nasdaq in June 2018.

Beyond that, newcomers have been dominated by Nasdaq-listed microcaps that frequently dip in and out of penny-stock territory and have extremely low market caps. Pricing of these names, sponsored by Greek shipowners, is highly volatile, assumedly appealing to retail traders who buy stocks as if placing bets at a casino.

The latest entrant is bulker owner United Maritime (NASDAQ: USEA), a spinoff of Seanergy (NASDAQ: SHIP). United’s shares have lost 73% of their value since listing on July 6. Its current market cap is under $20 million.

Shares of tanker owner Imperial Petroleum (NASDAQ: IMPP) — a spinoff of StealthGas (NASDAQ: GASS) — were listed on Dec. 3. Its shares traded at 37 cents on Monday, down 95% from its public debut.

Shares of OceanPal (NASDAQ: OP) — a spinoff of Diana Shipping (NYSE: DSX) — commenced trading on Nov. 30. The stock was at 46 cents on Monday, down 90% from its first day of trading.

Mixed fleet owner Castor Maritime (NASDAQ: CTRM) began trading on the Nasdaq in early 2019. Its share price is down 91% since then.

More microcaps to come

United, Imperial Petroleum, OceanPal and Castor have all done equity offerings handled by the Maxim Group. During the Marine Money conference in New York on June 23, Lawrence Glassberg, executive managing director, predicted more entrants to come.

“You will see smaller companies coming public. One of the big things you’re seeing: new companies going public through spinouts. I would venture to say you’ll probably see another three to five by the end of this year — new public companies coming out.

“From our perspective on the Maxim side, we do have at least one company on file for an IPO that’s on the smaller side and we’re transitioning with another company to a public transaction. There is appetite. It’s all about volatility, volatility, volatility. There is the ability to sell equity to investors,” said Glassberg.

Threats to future scale

Thanks to Zim, the combined current market cap of the new shipping names that debuted over the past five years is roughly in line with the preannouncement market caps of shipping names that privatized or sold out.

The big difference is in the scale of the companies. Median market cap of the new entrants is about half that of the median for departures.

Will more privatization plans follow the latest proposal for Atlas, leading to the loss of more big names?

What the LNG companies had in common with Atlas was a preponderance of multiyear contracts. Public dry bulk and tanker owners don’t have that long-term coverage. Even in booms, public dry bulk and tanker owners maintain significant spot exposure, and time-charter durations are shorter than in LNG or container shipping.

Because of this, the financial source speaking to American Shipper said, “I don’t believe it’s the privatization angle that threatens the future scale of the public shipping space.”

He does see two other threats to scale, however. First, the “hyper-cyclical volatility amid the microcaps.” And second, the very nature of tankers and bulkers, which is to carry fossil-fuel cargoes. Assuming global decarbonization efforts move forward, then “over time there will be less oil and coal to move. Not immediately, obviously, but over the next 10 to 15 years.”

Hapag-Lloyd CEO: US consumer still ‘holding up,’ demand not collapsing

Hapag-Lloyd bookings point to a gradual unwind of the container shipping boom, not a crash.

photo of a container ship

The container shipping outlook from Hapag-Lloyd, the world’s fifth-largest liner company: Demand is moderating, spot freight rates should keep ticking lower, and congestion — currently very high — should abate. But demand is not collapsing. Congestion in some regions, such as the U.S. East Coast, is more stubborn than in others. And higher contract rates will offset spot rate declines, leading to near-record second-half profits.

Container shipping demand

“The U.S. consumer seems to be holding up reasonably well,” Hapag-Lloyd CEO Rolf Habben Jansen said during a conference call on Thursday. “If you look at the first half, trans-Pacific volumes were growing [year on year], which is remarkable given the steep increases we saw in 2021 versus 2020.”

According to CFO Mark Frese, “Currently, markets are talking intensively about weakening demand. But despite all the bad news, demand remained robust in the reporting period [Q2].”

Commenting on import demand as of today, halfway through Q3, Habben Jansen said: “We see U.S. demand holding up, whereas certainly in Europe and some other places there’s probably more nervousness and uncertainty. We don’t see demand falling off a cliff — anywhere.”

Blue line: 2022 imports, green line: 2021 imports (Chart: FreightWaves SONAR)

However, he does see “a fairly material easing of demand” compared with the peak. “We definitely see signs of the economy cooling down, which will help markets normalize in the months and quarters to come.

“We used to be multiple times oversubscribed on every ship system; we are still oversubscribed today but not as strongly anymore. That’s why you see the spot rates coming down. It’s not like there is no tension whatsoever. But there are certainly signs that the market is easing somewhat. We see that in the bookings and quotations being requested.”

Container shipping spot rates

Hapag-Lloyd secured an average rate of $5,870 per forty-foot equivalent unit in Q2 2022, up 71% from the year before and its highest quarterly average ever.

Its average rates rose 6% sequentially versus the first quarter, during a time when the Shanghai Containerized Freight Index, which measures spot rates, dropped 26%. The rise in Hapag-Lloyd’s average rates was driven by higher annual and multiyear contract rates, said Frese.

According to Habben Jansen, 45%-50% of Hapag-Lloyd’s business is under contract. He expects spot rates on the remaining 50%-55% to continue their decline through the second half, although he noted that “by historical standards, spot rates are still at very high levels.”

The company’s full-year guidance implies contract rates will continue to support average rates. Hapag-Lloyd expects earnings before interest, taxes, depreciation and amortization of $8.6 billion-$10.6 billion in the second half, with Q3 stronger than Q4. The upper end of its second-half guidance is close to the $10.9 billion in EBITDA in the record-breaking first half, implying ongoing market strength.

“The exceptional freight rate environment continues to be the main driver of our financial performance,” said Frese.

Congestion easing at some ports, but not on East Coast

Port congestion is helping to support rates by tying up ships, removing effective transport capacity from the freight market.

Clarksons’ container shipping congestion index is now close to its all-time high. According to Hapag-Lloyd, the index jumped 53% for the U.S. East Coast in Q2 2022 versus Q1 2022, with China up 28%, Northern Europe up 26% and the U.S. West Coast down 14%.

chart showing container shipping congestion
Container congestion in million TEUs; 7-day moving average (Chart: Hapag-Lloyd. Data source: Clarkson SIN)

“I don’t think this shows the entire picture,” said Habben Jansen of the Clarksons index.

“We do see some signs of things easing. The U.S. West Coast has clearly improved. The Med is running fairly smoothly. Asia has clearly improved compared to a couple of months ago. Container availability is clearly better than it was some months ago. So, I would expect this congestion index is going to show an improvement over the months to come.

“The real issues now are on the U.S. East Coast and in [Northern] Europe,” he said. On the East Coast, “things are not deteriorating but they are not improving.” In Europe, congestion “is being driven by labor tensions at a number of big ports. Once that’s behind us, I’d expect to see further easing there.”

Advantage goes to cargo shippers in 2023-2024

The wind-down of congestion — when it finally happens — will release more ships into the market. A wave of newbuild deliveries will inject even more capacity in 2023-2024.

“We have seen the orderbook going up further,” said the Hapag-Lloyd CEO. “Right now it’s at about 28% of the global fleet [the percentage of capacity on order versus capacity on the water]. That’s quite high. It’s a very significant orderbook, which means we will get quite a lot of new vessels in the fleet going forward.

“How much of that will be absorbed by demand or by new environmental regulations or [offset] by increased scrapping remains to be seen,” he said. New environmental rules that might effectively require lower speeds could reduce capacity by 5%-10% in 2023-24, he said. (Competitor Maersk estimates a higher potential: 5%-15%.)

In addition, ships kept in extended service by boom-era rates will be put into drydock for maintenance when more capacity is available. “It will create more space to catch up on some of the drydockings that need to be done,” said Habben Jansen.

But overall, Hapag-Lloyd expects container shipping’s future market balance to tip in favor of cargo shippers. After several years of import demand outpacing transport supply, it cited estimates that global fleet capacity will grow 7% in 2023, more than twice the 3% growth rate for demand.

“We clearly see that over the coming 24 months, supply growth will outpace demand growth,” said Habben Jansen.

chart showing Hapag-Lloyd results

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Tanker shipping stocks pull away from the pack, hitting fresh highs

Tankers stocks are doing great. Dry bulk and container stocks temporarily stopped the bleeding. “Maxim stocks” still underperform.

a photo of Wall Street; shipping stocks are seeing mixed fortunes

Shipping stocks are not considered “buy and hold” investments these days — for good reason. It’s all about timing. Case in point: Tanker stocks are now soaring after years mired in negative territory.

Fresh 52-week highs were hit Tuesday by Scorpio Tankers (NYSE: STNG), Ardmore Shipping (NYSE: ASC), Euronav (NYSE: EURN), DHT (NYSE: DHT), International Seaways (NYSE: INSW) and Teekay Tankers (NYSE: TNK).

Tankers stocks are up double digits year to date (YTD), in some cases triple digits. However, the rebirth of tanker stocks comes after two painful “bagholder” years. Anyone who bought and held a basket of tanker stocks since January 2020, pre-COVID, would have only recently broken even.

To gauge how shipping stocks have fared, American Shipper crunched the numbers by segment — tankers, dry bulk and containers — both YTD and across the COVID era.

The analysis also examined Greek-sponsored micro-cap shipping stocks in various segments involved in fully disclosed, dilutive sales of common equity and warrants facilitated by New York investment bank Maxim Group. “Maxim stocks” appear to attract retail investors looking to gamble on short-term price swings even though data confirms that these shipping stocks fare much worse than others over time.

Winners and losers YTD

The pattern of winners and losers YTD is very different from the medium-term pattern over the course of the pandemic. From Jan. 1 to Monday’s close, tanker stocks were up 88%. Dry bulk stocks were up 21% and container shipping stocks just 1% (for methodology, see below).

In contrast, shares of shipping companies that have sold equity via Maxim-related deals were down 42% YTD.

(All charts by American Shipper based on adjusted closing price data from Yahoo Finance)

This year has been a continual upward climb punctuated by a few brief pullbacks for tanker stocks. Dry bulk shares kept pace with tanker shares until June, after which lower spot rates and economic headwinds took their toll. Dry bulk shares have seen a small recovery since mid-July.

Container shipping shares maintained their winning streak until the end of March. Then they fell back, although, like dry bulk shares, they’ve regained some ground since mid-July.

The Maxim-linked shipping share average jumped briefly in March due to a fleeting spike in one equity, Imperial Petroleum (NASDAQ: IMPP), after which that stock and the overall average slid lower.

Product tankers trump crude tankers in 2022

Tanker stock performance has diverged based on tanker type this year. Shares of pure product-tanker owners are far outperforming the rest, up by an average of 173% year to date. Mixed fleet owners — with both crude and product tankers — are up 73%. Pure crude-tanker owners are up 47% (an impressive gain considering that crude tanker owners are still reporting losses).

chart of shipping stock prices

COVID-era shipping stock performance

Over the course of the pandemic, container shipping stocks have been by far the biggest winner. As a group, they’re still up 409% on average since Jan. 1, 2020, despite flat performance in 2022 YTD.

Dry bulk shares have been the second-biggest winner. Even with this year’s retrenchment, they’re up 129% since January 2020. In contrast, tanker stocks — which are more in the spotlight this year — are essentially flat versus January 2020 (up 3% as of Monday’s close).

chart of shipping stock prices

Highlighting the importance of stock-trade timing, the performance of different tanker segments over the medium term was the reverse of 2022 YTD performance. Since Jan. 1, 2020, product tanker stocks fared the worst, mixed-fleet stocks were in the middle, and crude tankers fared best.

‘Maxim stocks’ down over 90% vs. pre-pandemic

The performance of the Maxim-linked shipping equities over the medium term highlights just how important it is to get in and out of such equity bets very quickly.

Keeping in mind that the maximum loss is 100%, the share values of Top Ships (NASDAQ: TOPS) and Globus Maritime (NASDAQ: GLBS) were both down 98% at Monday’s close versus Jan. 1, 2020. Over the same time frame, shares of Seanergy (NASDAQ: SHIP) and Castor Maritime (NASDAQ: CTRM) were both down 91%.

Shares of Imperial Petroleum — a spinoff of StealthGas (NASDAQ: GASS) that Maxim has supported — have lost 95% of their value since the stock began trading in early December. Shares of OceanPal (NASDAQ: OP) — a spinoff of Diana Shipping (NYSE: DSX) that conducted an offering with Maxim as sole bookrunner — have lost 91% of their value since they began trading in late November.

A new shipping equity doing Maxim-placed offerings emerged last month. Seanergy spun off United Maritime Corp. (NASDAQ: USEA) into a separate listing that began trading on July 7. 

In just one month, United Maritime’s shares shed 71% of their value.

Methodology for shipping stock averages:

Averages use adjusted closing price data of U.S.-listed shipping stocks from Yahoo Finance. Segment averages were not weighted by market cap.

Only large “pure” owners in each segment were included in averages. For the pure product-tanker average: Scorpio Tankers and Ardmore Shipping. Crude tankers: Euronav, DHT and Nordic American Tankers (NYSE: NAT). Mixed-fleet operators: Teekay Tankers, Frontline (NYSE: FRO) and International Seaways. Tanker owners with significant holdings in non-crude/product segments, such as Navios Partners (NYSE: NMM) and Tsakos Energy Navigation (NYSE: TNP), were excluded.

The dry bulk average was made up of the four largest U.S.-listed pure bulker owners by market cap: Star Bulk (NASDAQ: SBLK), Golden Ocean (NASDAQ: GOGL), Genco Shipping & Trading (NYSE: GNK) and Eagle Bulk (NASDAQ: EGLE).

The container shipping average comprises liner operators Zim (NYSE: ZIM) and Matson (NYSE: MATX), as well as pure container-ship lessors Danaos (NYSE: DAC), Global Ship Lease (NYSE: GSL) and Euroseas (NASDAQ: ESEA). Costamare (NYSE: CMRE), Atlas (NYSE: ATCO) and Navios Partners were excluded due to significant noncontainer holdings.

The Maxim stocks average comprises Top Ships, Seanergy, Castor Maritime, Globus Maritime, Imperial Petroleum and OceanPal. Due to the recency of its listing, share pricing of United Maritime was excluded.

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No precipitous plunge in container shipping rates, just ‘orderly’ decline

Port congestion and voyage cancellations by shipping lines are preventing a steeper slide in spot container freight rates.

A photo of a container ship; rates remain high

There’s an old Greek shipping saying that goes: “Ninety-eight tankers and 101 cargoes, boom. Ninety-eight cargoes and 101 tankers, bust.” This doesn’t translate so well into modern-day container shipping because the consolidated liner sector manages the number of ships in service a lot better than the fragmented tanker business.

Tanker spot rates can plunge violently lower when supply exceeds demand. One of the big questions for container shipping has been: Will spot rates plunge precipitously after demand pulls back, as it has in the past in bulk commodity shipping? Or will there be a gradual decline toward a soft landing?

So far, it looks gradual. Trans-Pacific rates have steadied in July and early August. In fact, some indexes show spot rates ticking higher again.

Spot rates are at least temporarily plateauing because U.S. import demand remains above pre-COVID levels, some U.S. ports remain extremely congested, and ocean carriers are “blanking” or “voiding” (i.e., canceling) sailings, both because their ships are stuck in port queues and because they’re matching vessel supply with cargo demand to avert the fate of Greek tanker owners.

“Void sailings are still the go-to options for carriers at this point to try and stymie the fall in rates,” said George Griffiths, managing editor of global container freight at S&P Global Commodities.

“Congestion is still the buzzword for East Coast ports, with Savannah currently feeling the full force of loaded imports and associated delays,” he told American Shipper.

FBX trans-Pac rates up 3% from recent lows

Different spot indexes give different rate assessments but generally show the same trends.  The Freightos Baltic Daily Index (FBX) Asia-West Coast assessment was at $6,692 per forty-foot equivalent unit on Friday.

The good news for shippers booking spot cargo: That’s just one-third of the all-time peak this index reached in September. The bad news: Friday’s assessment is up 2.7% from the low of $6,519 per FEU hit on Aug. 2, and it’s still 4.5 times higher than the rate at this time of year in 2019, pre-COVID.

chart showing container shipping rates
Rate assessment in $ per FEU. Blue line: 2021, orange line: 2019, pre-COVID. (Chart: FreightWaves SONAR)

The FBX Asia-East Coast spot rate assessment was at $9,978 per FEU on Friday, less than half the record high in September. However, it was up 3.5% from the recent low of $9,640 on Aug. 2 and still 3.6 times higher than 2019 levels.

chart showing container shipping rates
(Chart: FreightWaves SONAR)

Drewry indexes show gradual slide

The weekly index from Drewry portrays a gentler descent than the FBX, because Drewry did not include premium charges in its spot assessments at the peak.

Unlike the FBX, Drewry’s Shanghai-Los Angeles assessment does not show a recent uptick. It was at $6,985 per FEU for the week announced last Thursday, its lowest point since June 2021. It was down 44% from its all-time high in late November 2021, albeit still 4.2 times higher than rates at this time of year in 2019.

(Chart: FreightWaves SONAR)

Drewry’s weekly Shanghai-New York assessment was at $9,774 per FEU on Friday. Rates were relatively stable over the past two week, yet the latest reading is the lowest since June 2021 and down 40% from the peak in mid-September.

Drewry’s Shanghai-New York assessment on this route is still 3.5 times pre-COVID levels.

(Chart: FreightWaves SONAR)

S&P Global: East Coast rates 50% higher than West Coast

Daily assessments from S&P Global Commodities (formerly Platts) show a widening divergence between North Asia-West Coast and North Asia-East Coast Freight All Kinds (FAK) rates.

S&P Global assessed Friday’s North Asia-East Coast FAK rate at $9,750 per FEU, up 2.6% from the recent low hit on July 29. Spot rates on this route have roughly plateaued since late April, according to this index.

S&P Global put Friday’s North Asia-West Coast rate at $6,500 per FEU, still gradually falling and at the lowest point since late June 2021. The gap with East Coast assessments has been widening since May, with the East Coast rates now 50% higher than West Coast rates.

(Chart: American Shipper based on data from S&P Global Commodities)

“East Coast rates are significantly higher than West Coast rates due to the congestion we are seeing,” said Griffiths.

Port congestion still very high

Matthew Cox, CEO of ocean carrier Matson (NYSE: MATX) explained on his company’s quarterly call earlier this month: “In fall of last year, we saw over 100 vessels waiting at anchor or offshore waiting to get into the ports of Los Angeles and Long Beach. We still have 100 ships waiting. But a lot of that congestion has moved into different ports. We [have] the same number of ships but just more distributed to different places.”

The number of ships waiting off all North American ports topped 150 in late July, according to an American Shipper survey of ship-position data from MarineTraffic and queue lists for Los Angeles/Long Beach and Oakland, California.

The count fluctuates by the day (and by the hour as ships enter and leave queues) and is now down 15% from its peak — but still historically high. As of Monday morning, there were 130 ships waiting offshore. East and Gulf Coast ports accounted for 71% of the total, with the West Coast share falling to just 29%.

The queue off Savannah, Georgia, was the largest at 39 ships on Monday morning. It was considerably higher just a few days earlier. According to Hapag-Lloyd, there were 48 container vessels off Savannah on Friday, with wait times of 14-18 days.

The queue off Los Angeles/Long Beach has now virtually vanished. On Monday morning, it was down to just 11 container vessels, according to the queue list from the Marine Exchange of Southern California. It hasn’t been that low since November 2020. It hit a high of 109 ships on Jan. 9.

Spot rate easing expected to continue

On last Wednesday’s quarterly call by ocean carrier Maersk, CFO Patrick Jany said port congestion preempted a steeper drop in spot rates. Even with support from congestion, he predicted short-term rates will decline further in the months ahead.

“We have seen an erosion of short-term rates in the past few months that has been stopped here and there by renewed or new disruptions,” Jany said. “The erosion of the short-term rates will continue. It won’t be a one-day drop but a progressive erosion toward a lower level of short-term rates in the fourth quarter.”

Jany predicted that when rates stop falling, they “will stabilize at a higher level than they were in the past [pre-COVID] and higher than our cost level.”

During the latest quarterly call by logistics provider Kuehne + Nagel, CEO Detlef Trefzger predicted rates would ultimately settle at levels two to three times pre-COVID rates. A Seko Logistics executive made the same prediction during a recent briefing.

According to Cox at Matson, spot rates “are adjusting slowly. There’s no falling off a cliff. The word we use is ‘orderly.’ We’re seeing rates decline from their peak, but … we expect an orderly marketplace for the remainder of the year, with our vessels continuing to operate at or near capacity.” 

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War effect on crude trade: Long-lasting and just beginning

It appears increasingly likely that war-driven changes to global crude flows will persist — and grow — through 2023.

photo of a crude oil tanker

Is the shift in global crude flows due to the Ukraine-Russia war a fleeting event or a more lasting, structural change?

At first, many market watchers and investors viewed it as short-lived. It now seems like something to count on for at least the medium term. More Russian crude will likely head to India and China for a longer period of time, and more Atlantic Basin and Middle East crude will head to Europe to replace Russian barrels.

“Oil supply chain disruptions related to Russia’s invasion of Ukraine are proving to be durable and marked by significantly longer average voyages,” said Steward Andrade, CFO of Teekay Tankers (NYSE: TNK), during Thursday’s quarterly conference call. “These trade pattern changes are likely to be long-lasting.”

Executives of Euronav (NYSE: EURN) highlighted the same point on their quarterly call on Thursday. According to Brian Gallagher, Euronav’s head of investor relations, “This isn’t some event that happens over a few weeks. There’s a longevity to the structural change.”

Only the beginning

The EU ban on crude oil and petroleum product imports doesn’t take effect until Dec. 5 for seaborne shipments and Feb. 5, 2023, for pipeline imports.

As of now, Europe is still importing large quantities of Russian crude. Pre-invasion, volumes were around 4 million barrels per day (b/d). Various estimates put the reduction to date at around 700,000 to 1 million b/d. Tanker effects are already significant despite the transition being just one-quarter complete.

“We are only seeing the beginning of a story that will have a long tail,” said Euronav CEO Hugo De Stoop.

Upside for smaller and midsize tankers

War-driven trade changes have mainly impacted smaller tankers known as Aframaxes (with capacity of 750,000 barrels) and midsize Suezmaxes (1 million barrels). Larger tankers known as very large crude carriers (VLCCs, with capacity of 2 million barrels) are too big to call at Russian terminals.

Andrade explained, “Short-haul exports of Russian crude oil to Europe have fallen by around 700,000 b/d compared to pre-invasion levels, with Russian crude oil increasingly being diverted to destinations east of Suez, particularly to India and China.

“Europe is having to replace short-haul Russian barrels with imports from other regions, most notably from the U.S. Gulf, Latin America, West Africa and the Middle East. These changes are primarily benefiting Aframax and Suezmax tankers due to the load and discharge regions involved.”

Compares average seaborne crude oil flows in three months prior to invasion versus three months after (Chart: Teekay Tankers earnings presentation based on data from Kpler)

“When oil imported into Europe previously came five days from the Baltic and now comes approximately 20 days from the Middle East on a Suezmax or approximately 20 days from the U.S. Gulf on an Aframax, that is obviously helpful for ton-mile demand.”

Tanker demand is measured in ton-miles: volume multiplied by distance. The longer the average distance, the more tankers you need to carry the same volume.

“When China imports oil from the Baltic on Aframaxes — which we’ve seen recently — it’s another example of increased ton-mile demand due to changing trade patterns,” added Andrade.

More ship-to-ship transfers to VLCCs?

Euronav expects the war effect to benefit VLCCs as well, for two reasons: because of ship-to-ship transfers in the Russia-to-Asia trade and because of the strong interconnection between Suezmax and VLCC markets.

“The most efficient way to transport crude oil over long distances is obviously on a VLCC. So ideally, they would do transshipment,” said De Stoop, referring to Aframaxes or Suezmaxes loading in Russia and transferring cargo to VLCCs. 

“We’ve already seen a few of those, largely off Africa. We’ve also seen cargo being discharged in Libya and Egypt for relatively short periods then lifted again on bigger ships. The part of the industry that can do that [carry Russian oil] is trying to find the most efficient way to carry that oil to the Far East.”

Suezmax-VLCC connection

Meanwhile, if Suezmax rates rise too high versus VLCC rates, oil shippers traditionally combine two Suezmax cargoes into one lot and use a VLCC instead.

“There are a lot of markets where two Suezmax cargoes can go into one VLCC, so you have this push-pull effect,” said De Stoop. “When the Suezmax market is doing very well, and is seeing many more cargoes, that would naturally have a knock-on effect on the VLCC market. Those two markets are really, really interconnected.

“When we speak to the chartering desks of our clients, it’s usually the same people [booking Suezmaxes and VLCCs] and they monitor the price of one versus the other. In the last two or three weeks, we have seen a lot of cargoes that were shown to our Suezmax desk and then they disappeared and popped up in the [VLCC] pool. Two cargoes were being combined in order to be carried by a VLCC.

“Normally, it’s the VLCC segment that is doing the heavy lifting for all the other segments. This time around — because the disruption is coming from Russia and Russia is not a VLCC market — the pushing is coming from the smaller sizes.

“The Aframaxes are pushing the Suezmaxes and the Suezmaxes are now pushing the VLCCs. Simply because when you compare rates of Suezmaxes to VLCCs, it’s a lot cheaper to use VLCCs. [According to Clarksons, Suezmax rates are currently 30% higher.] 

“And that’s what we have seen in recent weeks. That’s the main reason why we believe the VLCC market improved after the Suezmax had already improved.”

Tanker earnings roundup

The VLCC market may be improving, but it was extremely weak in the second quarter and the early part of the third quarter.

Euronav, which owns VLCCs and Suezmaxes, reported a net loss of $4.9 million for Q2 2022 compared to a net loss of $89.7 million in Q2 2021. Its adjusted loss of 12 cents per share was just shy of the consensus outlook for a loss of 11 cents.

Euronav’s VLCCs earned an average of $17,000 per day in Q2 2022. So far in the third quarter, the company has 47% of available VLCC days booked at a significantly lower rate: only $12,700 per day. De Stoop attributed this to longer-haul voyages booked during a period of weak rates and VLCCs employed on lower-earning repositioning voyages.

Teekay Tankers — which owns a fleet of Suezmaxes, Aframaxes and product tankers — reported net income of $28.5 million for Q2 2022 versus a net loss of $129.1 million in Q2 2021. Adjusted earnings per share of 76 cents topped the consensus forecast for 61 cents.

Teekay’s spot-trading Suezmaxes earned $25,310 per day in Q2 2022. So far in the third quarter, the company has 43% of its available Suezmax days booked at an even higher average rate: $29,600 per day.

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Saber-rattling in Taiwan Strait stokes new supply chain threat

Chinese military exercises in the Taiwan Strait will delay shipments. Further escalation could have dramatic supply chain effects.

a map of ships near Taiwan

China will conduct live-fire military exercises in the Taiwan Strait and around Taiwan from Thursday to Sunday in retaliation for House Speaker Nancy Pelosi’s visit — exercises that are expected to breach Taiwan’s territorial waters and block some busy international shipping lanes.

Any escalation of tensions would create yet another major threat to global supply chains.

If the strait were ever closed to commercial traffic, it would be a negative for cargo shippers and a positive for ship owners and operators. Delays would push up transit time and reduce effective vessel capacity, boosting freight rates.

House Speaker Nancy Pelosi and Taiwan President Tsai Ing-wen (Photo: AP Photo/Taiwan Presidential Office)

“The Taiwan Strait is one of the busiest straits in the world,” said Maersk CEO Soren Skou during his company’s quarterly conference call on Wednesday.

“Obviously, if it were to close, it would have a dramatic impact on shipping capacity, in the sense that everybody would have to divert around Taiwan and add to the length of the voyages,” Skou said. “That would absorb significant capacity. But I have to say that there seems to be no suggestion that this is where we’re going.”

Bloomberg calculated that almost half of the world’s container ships and 88% of larger container ships transited the Taiwan Strait this year. It also reported that some liquefied natural gas (LNG) carriers have already rerouted or slowed speed in response to the coming military exercises.

Brief ‘partial blockade’ or something bigger?

According to Peter Williams, trade flow analyst at VesselsValue, “With China conducting significant military drills and military tests around Taiwan … there is potential for substantial disruption to trade in the region.”

VesselsValue analyzed location data on commercial ships currently in Taiwanese waters, as well as those en route to Taiwan. As of Wednesday, it found 256 container ships, tankers and bulkers in Taiwanese waters, with another 308 destined to arrive. Of inbound container ships, tankers and bulkers, 60 are scheduled to arrive before the Chinese military drills conclude on Sunday.

Shipping agency GAC warned in customer notice that “some of the exercise areas are within the VTS [Vessel Traffic Service] range of various ports of Taiwan. The port control bureau has set up a warning range. If a vessel enters the area, it will prompt a warning by the port VTS and be requested to leave as soon as possible to avoid any accidents.”

According to Evercore ISI analyst Krishan Guha, “With China warning foreign planes and ships to stay away while its military exercises proceed, the result is what Taiwan’s ministry of foreign affairs terms a blockade, though possibly only a partial one, with some air and sea lanes still potentially open.”

Guha continued: “The current exercises and effective partial blockade are scheduled to last only a few days but could be extended or restarted, leading to a more prolonged crisis, as well as more serious disruptions to global chip and other tech-component supply chains.”

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