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.”

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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Maersk: Shipping profits stay ‘super strong’ as supply chain pain persists

Container shipping giant Maersk sees continued strength in U.S. imports and ongoing supply chain disruptions globally.

photo of a Maersk container ship

The container shipping boom refuses to end on its predicted schedule. Maersk previously guided for a sharp slowdown starting in July. That didn’t happen. Now it sees a gradual pullback toward the end of the year.

On Tuesday, the world’s second-largest container liner operator pre-reported an all-time high $10.3 billion in earnings before interest, taxes, depreciation and amortization for Q2 2022. During a conference call on Wednesday, Maersk CEO Soren Skou said that Q3 2022 will be “equally good,” i.e., around $10 billion.

Maersk has pushed back expectations for a “normalization” of its ocean business until Q4 2022. Even then, it doesn’t see a collapse. Its new guidance calls for full-year EBITDA of $37 billion, implying Q4 2022 EBITDA of around $7 billion. If so, Q4 2022 would be the fourth- or fifth-best quarter in the company’s history.

What has kept the container boom going longer than expected? Maersk executives cited three causes: ongoing supply chain congestion, continued U.S. import demand strength and higher long-term contract pricing.

‘No quick resolution’ to congestion

According to Maersk CFO Patrick Jany, “Q2 saw a continuation of global congestion, with several disruptions offsetting the weakening demand and lower economic outlook and [supporting a] still very high level of freight rates. Although spot rates softened, they remain high in absolute terms.

“While the demand outlook is certainly down, various disruptions preempted a wider erosion of freight rates, which led to an overall market development that was very similar to that of the first quarter, with both higher rates and lower [year-on-year] volumes.”

Skou said he has been frequently confronted with questions from investors on the development of global congestion. He explained, “Congestion really ramped up last year on the U.S. West Coast as import volumes jumped at the same time labor supply dropped due to COVID. We had expected congestion to ease by the middle of this year.

“The situation on the ground is that while congestion has eased a bit on the West Coast, congestion has spread to the East Coast and to Europe.

“Containers are just not moving off the terminals fast enough. On the West Coast, we have a massive problem getting rail cars. Yesterday, we had 8,500 containers in our L.A. terminal waiting for rail cars. That is three or four times the average from a few years ago.

“Across the West Coast, East Coast and Europe, we see issues with customers not picking up containers because of full inventories. This picture means that a quick resolution of the global supply chain issue is increasingly unlikely.”

US imports remain at ‘very high levels’

“Import volumes into the U.S. remain at very high levels,” said Skou. In contrast, he noted, imports to Europe are back to pre-pandemic levels.

Imports in millions of forty-foot equivalent units. Charts: Maersk. Data source: Maersk estimates including CTS data

An analyst asked Skou why U.S. imports have remained strong despite U.S. retailers reporting excess inventories and slowing demand for some products.

He responded: “Some of the [excess] inventory, particularly in the U.S., is the ‘wrong’ inventory. So, our customers are complaining that they have the wrong inventory and they still have to import the ‘right’ inventory.

“There are certain product categories, especially in durable goods, where pretty much everybody has bought [what they needed]. Everybody has bought a new couch, a new set of lounge furniture, a new TV screen — all the things we spent our money on during the pandemic.

“You cannot go on buying things like another TV screen. But there is still actually very strong demand for faster-moving stuff, especially in lifestyle and retail goods.

“With inflation being rampant in the U.S., people are able to afford less than they were a few months ago. At some point, that should have an effect on U.S. imports. The only caveat there is that savings are also very, very high. Many wise people have said that we should always be careful not to count out the U.S. consumer.”

Blue line: 2022 TEU import volumes. Green line: 2021. Chart: FreightWaves SONAR

Maersk contract rates exceed expectations

Yet another reason why the container shipping boom is lasting longer than some expected: long-term freight contract coverage. Spot rates get more attention and spot rates are falling. But contract rates are up sharply year on year.

Contract rates have been even higher than Maersk previously thought, one of the key reasons why it just hiked full-year guidance.

“The conclusion of our 2022 contracting season was very strong,” said Skou. Maersk now expects 2022 contract rates to be $1,900 per forty-foot equivalent unit higher than 2021 contract rates. That’s $500 more per FEU than it predicted just three months ago. “That reflects much better performance, compared to our expectations, in the latter part of Q2 and over the summer,” said Skou.

Maersk now has 71% of its long-haul business on contracts, mostly with beneficial cargo owners as opposed to freight forwarders.

The company’s average freight rate, including both contract and spot, came in at $4,983 per FEU in Q2 2022, up 64% year on year and up 9% from the first quarter. It was the highest quarterly average rate ever reported by Maersk — and the current quarter looks like more of the same.

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Container shipping boom continues: Hapag-Lloyd hikes outlook (again)

Shipping lines are still racking up extraordinary profits. Hapag-Lloyd forecasts continued strength in the second half.

photo of a Hapag-Lloyd ship

As great as 2021 was for container shipping lines, this year is turning out better. Germany’s Hapag-Lloyd has just raised its earnings outlook again.

The world’s fifth-largest liner operator said Thursday that it will post earnings before interest, taxes, depreciation and amortization of $10.9 billion for the first half of this year.

This translates into EBITDA of $5.6 billion for Q2 2022, the best quarterly result in the company’s history and up 145% year on year. Hapag-Lloyd reported EBITDA of $5.3 billion in the first quarter.

For the first half, volume came in at 6 million twenty-foot equivalent units, flat year on year. The average freight rate increased 80%, implying a rate of $2,902 per TEU for the first half.

Hapag-Lloyd’s average freight rate was $2,774 per TEU in the first quarter, meaning that rates in the second quarter — including both contract and spot rates — rose even higher.

For full-year 2021, Hapag-Lloyd reported EBTIDA of $12.8 billion. In March, it projected this year’s EBITDA would be $12 billion-$14 billion. In May, it pushed its outlook up to $14.5 billion-$16.5 billion.

On Thursday, it raised it significantly, to $19.5 billion-$21.5 billion, 52%-68% above last year’s result. Hapag-Lloyd’s outlook implies very strong results for the second half of the year of $8.6 billion-$10.6 billion.

According to Deutsche Bank analyst Andy Chu, “Even though our forecasts are significantly ahead of the market, today’s new guidance — especially at the top of the range [with] management very conservative — is materially ahead of expectations. The company is making extraordinary profits.”

How much money do shipping CEOs make? Here’s their 2021 pay info

Last year was historically strong for some maritime businesses, terrible for others. No matter what the sector, maritime CEOs made millions.

picture of Zim office; ZIM CEO compensation surged

Managing ships is big business. It should come as no surprise that bosses of ship-operating companies are highly compensated. What may surprise you is that the CEOs with the largest fleets don’t necessarily earn the highest compensation.

The biggest winners last year were almost certainly heads of private shipowning companies that sold or leased container ships for eye-watering sums and stashed windfalls in offshore accounts. Outside of the families themselves and their lawyers and accountants, no one will know how much they made.  

For CEOs employed as managers of public companies, compensation is sometimes (but not always) disclosed. Now that all the annual reports are in, annual general meetings have been held and remuneration reports have been filed, these numbers are publicly available.

Container shipping CEOs

Maersk: The world’s second-largest container-line operator, Denmark-listed A.P. Moller-Maersk, is unusual among commercial shipping entities. Its business model — end-to-end logistics with a focus on long-term relationships — is much less commoditized than, for example, a spot-trading tanker owner whose profits hinge almost entirely on volatile oil flows. Management decisions at a company like Maersk matter, a lot.

A.P. Moller-Maersk CEO Soren Skou (Photo: AP Photo/Ludovic Marin)

Soren Skou, CEO of A.P. Moller-Maersk, received total 2021 compensation of 46.8 million Danish kroners ($7.16 million based on end-of-year exchange rates), up from $7.08 million in 2020 and $5.71 million in 2019. Of Skou’s 2021 compensation, 25% was in stock and options.

Maersk’s net profit spiked by $15.2 billion in 2021 versus 2020, or by 514%. Skou’s compensation, measured in kroners, increased 8.6%.

Hapag-Lloyd: Rolf Habben Jansen is the CEO of Germany-listed Hapag-Lloyd, the world’s fifth-largest liner operator. In 2021, Habben Jansen earned total compensation of 2.9 million euros ($3 million). That’s up from $2.97 million in 2020 and $2.51 million in 2019. Habben Jansen’s compensation is all cash, no shares, “due to the low volume of Hapag-Lloyd shares in free float,” said the company.

Hapag-Lloyd’s net profits jumped by $9.7 billion last year versus 2020, or by 907%. Habben Jansen’s compensation, measured in euros, rose 14%.

Matson: Compensation for CEOs of U.S.-listed container-line operators is considerably higher than for European-listed companies when adjusted for fleet size, albeit more focused on stock awards.

Hawaii-based Matson (NYSE: MATX) is the world’s 27th-largest liner operator, according to Alphaliner data. Maersk’s fleet is 62 times the size of Matson’s. Hapag-Lloyd’s is 26 times larger. Even so, Matson CEO Matthew Cox earned total compensation of $5.96 million last year, well above Habben Jansen’s and only $1.2 million below Skou’s.

Matson’s net income increased by $734.3 million in 2021 versus 2020, or 380%. Cox’s remuneration rose by 9% (with 53% of his total in stock).

Zim: Eli Glickman, CEO of Zim (NYSE: ZIM), was the biggest compensation winner among publicly listed liner operators.

According to Alphaliner data, Zim has the world’s 10th-largest liner fleet, with less than an eighth the capacity of Maersk and less than a third the capacity of Hapag-Lloyd. Yet Glickman earned total compensation of $9.92 million last year, up sharply from $2.79 million in 2020. That’s triple what Habben Jansen earned and almost $3 million more than Skou.

Zim’s net income was $4.1 billion higher in 2021 than in 2020, equating to an increase of 787%. Glickman’s compensation rose by 255% (with 74% of Glickman’s reported 2021 compensation in stock, not cash).

chart showing CEO compensation in 2019-2021
Note: Zim CEO compensation not disclosed for 2019 (Chart: American Shipper based on company filings)

Bulk commodity shipping CEOs

Among the U.S-listed shipowners and operators in the dry and liquid bulk trades, the highest paid CEO last year was David Grzebinski, CEO of Kirby (NYSE: KEX). Kirby is America’s largest operator of inland tank barges. Grzebinski earned total compensation of $5.83 million in 2021, up 36% from 2020, with stock representing 57% of the total. His company recorded a net loss of $247 million in 2021, compared to a net loss of $272.5 million in 2020.

Eagle Bulk CEO Gary Vogel (Photo: John Galayda/Marine Money)

Gary Vogel, CEO of Eagle Bulk (NASDAQ: EGLE), received compensation of $3.94 million (54% in stock), up 135% year on year. Eagle Bulk reported net income of $184.9 million in 2021 versus a net loss of $35.1 million in 2020.

Lois Zabrocky, CEO of crude and product tanker owner International Seaways (NYSE: INSW), earned $3.04 million last year, down 10% from 2020. Her company reported a net loss of $133.5 million in 2021, compared to a net loss of $5.5 million in 2020.

Many U.S.-listed commodity shipping owners are so-called “foreign private issuers” and do not have to report individual executive compensation. Rather, they report aggregate compensation for management teams. Most of these disclosures reported total team compensation in the range of $2 million-$3 million for 2021, while others were considerably higher.

Scorpio Tankers (NYSE: STNG) reported total management team compensation of $22.9 million. Navios Partners (NYSE: NMM) reported $28.8 million. 

In addition, several listed shipowners do substantial related-party transactions with private entities owned by the public entity’s sponsor. The founder, the CEO of the public entity, can obtain profits via his or her private holdings.

Castor Maritime (NASDAQ: CTRM) paid $3.1 million in expenses to related parties last year. Globus Maritime (NASDAQ: GLBS) had administrative fees to related parties of $1.4 million. Top Ships (NASDAQ: TOPS) listed $1.1 million in expenses paid to related parties. Scorpio generates hundreds of millions of dollars in revenues each year via vessel pools controlled by the family of its founder.

Cruise shipping compensation

Management compensation in commercial shipping pales in comparison to cruise shipping, where vessels are run for hospitality, not transport.

At Carnival Corp. (NYSE: CCL), CEO Arnold David — who’s retiring next Monday — received compensation valued at $15.06 million last year (49% in stock). His compensation increased 13% year on year. Carnival reported a net loss of $9.5 billion for fiscal year 2021 (through Nov. 30) compared to a net loss of $10.2 billion the year before.

Richard Fain, who retired from his post as CEO of Royal Caribbean (NYSE: RCL) in January, earned $15.81 million last year (71% in stock). That was up 31% versus 2020 because Fain voluntarily declined stock awards that year due to COVID. Royal Caribbean lost $5.3 billion in 2021 and $5.8 billion the year before.

NCL CEO Frank Del Rio (Photo: AP Photo/Richard Drew)

The poster child of high compensation continues to be Frank Del Rio, CEO of Norwegian Cruise Line (NYSE: NCLH), a company that has half the fleet capacity of Royal Caribbean and a quarter the capacity of Carnival Corp. 

In 2020, Del Rio’s package totaled a headline-grabbing $36.38 million. During the annual general meeting vote that year, 83% opposed the payout, but those votes were nonbinding.

For 2021, the head of NCL’s compensation committee told shareholders that Del Rio’s new package was designed to “address the concerns that shareholders expressed” the prior year. Del Rio’s compensation in 2021: $19.67 million, with 72% in stock. During this May’s annual general meeting, there were more than five times as many nonbinding votes opposed to his compensation as there were in favor.

To put Del Rio’s package in perspective, NCL lost $9.5 billion in 2020-2021 combined. Maersk had net income of $21.1 billion over the same period. NCL’s current market cap is now around one-ninth the size of Maersk’s. And yet, over the past two years, the NCL CEO’s compensation was almost quadruple that of Maersk’s CEO.

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Win streak continues: Container lines just posted more record results

Photo of a Cosco-operated container ship off USIn the second quarter, new highs were set for Cosco profits, OOCL revenue per container, and Evergreen operating revenues.

Photo of a Cosco-operated container ship off US

Container shipping stocks are down double digits since March, yet ocean carriers are still posting record or near-record results. Several Asian liner companies have just released preliminary revenues and profits for Q2 2022 as well as monthly operating data through June. 

Despite pessimistic sentiment on stocks, the numbers are still huge.

Cosco

China’s Cosco, the world’s fourth-largest liner group, said Wednesday that it expects net profit for the first half of 2022 of 64.7 billion yuan ($9.7 billion), up 74% year on year (y/y).

Second-quarter profits totaled 37.1 billion yuan, making it the most profitable quarter in the company’s history. Cosco’s second-highest quarterly profit was 30.5 billion yuan in Q3 2021. It earned as much in the latest quarter as it did in the entire first half of last year.

OOCL

Cosco subsidiary OOCL posted preliminary operating results on Wednesday. OOCL’s disclosures provided more insight on how carrier revenues have kept climbing despite falling spot rates and lower volumes due to both congestion and, more recently, weaker import demand.

Revenues continued to rise over the past year because the average revenue per twenty-foot equivalent unit increased even as TEU volumes faltered. Higher average revenue per TEU has been driven by higher contract rates, particularly for U.S. importers, with those contract rates more than offsetting lower spot rates.

Hong Kong-headquartered OOCL reported total revenues of $5.3 billion for Q2 2022, up 52% y/y despite a 5.6% drop in throughput that OOCL attributed to “severe congestion.” The latest quarter’s revenues represent a new all-time high.

OOCL’s average worldwide revenue per TEU jumped 61.5% y/y to $2,874 in Q2 2022. The trans-Pacific market was by far the biggest driver. Revenue per TEU in the trans-Pacific spiked 97.6% y/y to $4,365. OOCL’s cargo in other trades (Asia-Europe, trans-Atlantic, intra-Asia) averaged only $2,355 in revenue per TEU, 46% below the trans-Pacific average.

Chart: American Shipper based on data from OOCL

Highlighting the diverging trends in trans-Pacific spot rates and contract rates, OOCL’s average revenue per TEU in the trans-Pacific (including both spot and contract business) increased 10% in the second quarter versus the first quarter of this year, despite indexes showing a clear decline in spot rates on this lane in April-June versus January-March.

Weekly spot rate assessment in $ per FEU. Blue line = Shanghai to LA, green line = Shanghai to NY/NJ. Chart: FreightWaves SONAR

Evergreen, Yang Ming

The same pattern — higher revenues despite lower spot rates — shows through in monthly operating data from Taiwan’s Evergreen and Yang Ming. Yang Ming, the world’s ninth-largest ocean carrier, has yet to post revenues for June, but its April-May numbers imply that Q2 2022 will boast the company’s second-highest quarterly total ever, if not a new record. Evergreen, the world’s sixth largest carrier, just posted its June operating revenues; Q2 2022 came in at a new all-time high of 175 billion New Taiwan dollars ($5.9 billion).

Chart: American Shipper based on data from Evergreen

The pace accelerated through the quarter. June boasted the highest monthly revenue in Evergreen’s history: $60.2 New Taiwan dollars ($2 billion).

chart showing container revenues of Evergreen and Yang Ming
Chart: American Shipper based on data from Evergreen and Yang Ming

Maersk, Hapag-Lloyd

European carriers will report Q2 2022 results in early August. Deutsche Bank analyst Andy Chu expects fresh records when Maersk (the world’s second-largest liner operator) and Hapag-Lloyd (No. 5) report.

The analyst forecasts that Maersk’s earnings before interest, taxes, depreciation and amortization will come in at $10.4 billion in Q2 2022, surpassing the previous record of $9.1 billion in the first quarter. Chu forecasts Hapag-Lloyd’s Q2 2022 EBITDA at $4.9 billion, just above first-quarter levels.

“We expect a strong Q2 reporting season. In most cases … we think FY 2022 will be a record year,” said Chu. The caveat for container-shipping stocks: “We think company outlooks for 2022 are largely irrelevant, as share prices are being driven by the macroeconomic outlook — interest rates and energy prices — and not the stock specifics.”

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