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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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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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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Ships that ‘scrub’ emissions earn twice as much as those that don’t

Exhaust gas scrubbers are allowing tankers, bulkers and container ships to keep burning dirtier — and much cheaper — marine fuel.

photo of a bunker tanker refueling a bulk ship

Some businesses fight new environmental regulations tooth and nail. Others figure out how to make money off them. Take the IMO 2020 regulation that slashed sulfur content of shipping emissions. Many shipowners have transformed this landmark global emissions regime into a huge competitive advantage.

Since the regulation’s enforcement date on Jan. 1, 2020, ships have had to use more expensive fuel with 0.5% sulfur content known as very low sulfur fuel oil (VLSFO), or fuels with even lower sulfur content.

The exception: Ships can install exhaust gas scrubbers at a cost of around $2 million-$3 million per ship. Scrubber-equipped vessels can continue to burn the cheaper fuel used pre-2020 that has 3.5% sulfur content, known as high sulfur fuel oil (HSFO).

If the spread between HSFO and VLSFO is wide enough, the fuel-cost savings cover the cost of the scrubber installations and generate profits thereafter.

Shipowners have bought a lot of scrubbers. And the VLSFO-HSFO spread is now gapingly wide.

Scrubbers are “paying off in record amounts,” said Jefferies shipping analyst Omar Nokta in a client note Wednesday. “Several shipowners have disclosed a full payback already of their initial investment.”

Stifel shipping analyst Ben Nolan said this week: “The spreads between high- and low-sulfur fuel have widened dramatically.”

Spreads hit record high in July

The spread initially widened when IMO 2020 was first enforced, as expected. Then it unexpectedly evaporated after COVID lockdowns hit. It rose back up as the price of crude increased after the lockdowns ended, then surged in the wake of the Ukraine-Russia war, surpassing spreads in early 2020.

The average price of VLSFO at the world’s top 20 bunkering ports was $369.50 per ton higher than the average price of HSFO on Wednesday, according to data from Ship & Bunker. It reached an all-time high of $420.50 on July 5.

Average price at top 20 bunkering ports (Chart: American Shipper based on data from Ship & Bunker)

Spreads at individual refueling hubs have been more extreme than the global average. In Singapore, the world’s largest bunkering port, the VLSFO-HSFO spread hit $580 per per ton on July 5 and was at $508.50 on Wednesday, according to Ship & Bunker data. 

In Fujairah, United Arab Emirates, the world’s third-largest refueling hub, the spread reached $549 per ton on July 5 and was $490 on Wednesday.

Scrubber impacts on tanker and bulker spot earnings

Given the massive amount of fuel consumed by larger ships on long-haul voyages, such spreads are creating huge earnings differentials in the spot market.  

In bulk commodity shipping, the ship operator covers the fuel cost in a spot voyage deal, not the cargo shipper. Clarksons Platou Securities estimated that 10-year-old very large crude carriers (VLCCs, tankers that carry 2 million barrels of oil) with no scrubbers, burning VLSFO, earned the equivalent of $16,200 per day in the spot market on Thursday.

The same ship, with a scrubber, burning HSFO, was paying $22,000 less per day for fuel, equating to a net day rate of $38,400 per day. 

Based on Clarksons’ average breakeven for a 10-year-old VLCC of $28,000 per day, a non-scrubber VLCC is still bleeding cash in the spot market, whereas the scrubber-equipped VLCC is earning 2.4 times as much and is back in the black.

In the dry bulk shipping sector, a Capesize (a bulker with capacity of around 180,000 deadweight tons) with no scrubber earned the equivalent of $22,000 per day in the spot market Thursday, according to Clarksons. A scrubber-equipped Capesize saved $22,400 per day on fuel, thus netting twice as much: $44,400 per day.

Based on the breakeven of a 10-year-old Capesize of $18,000 per day, a non-scrubber Capesize is pocketing a small gain, a scrubber-equipped Capesize a large one.

Scrubber impact on container shipping

There are also scrubber implications for container lines and their shipper customers.

Container ships with capacity of 8,000 twenty-foot equivalent units or more dominate the two largest mainline trades: Asia-Europe and Asia-U.S. According to Clarksons data, 46% of container ships with capacity of 8,000 TEUs or more already have scrubbers, with more installations pending. Of ships 12,000 TEUs or larger, 59% are already equipped with scrubbers.

Cargo shippers with contracts are increasingly paying higher bunker adjustment factors (BAFs) as carriers recoup the rising cost of fuel.

“Most bunker fuel surcharges are linked to VLSFO price,” Vespucci Maritime CEO Lars Jensen said earlier this year. “This, de facto, means that if a carrier has scrubbers on the vessels and BAFs linked to VLSFO, it is effectively getting paid by shippers for the high cost of VLSFO while at the same time buying the [HSFO] for less and pocketing the difference.”

Two tiers for shipping stocks?

Shipowner stocks don’t traditionally trade based on management strategy. Shipowner equities are widely seen as commoditized plays on the underlying transport demand.

However, some analysts maintain there could be more differentiation going forward. Companies with scrubber-equipped ships and/or vessels built in the last decade with more fuel-efficient designs could pull away from the pack.

“Those companies with exhaust scrubbers, particularly on larger ships, should outperform as the market becomes more bifurcated,” Nolan said.

He believes Scorpio Tankers (NYSE: STNG) and DHT (NYSE: DHT) are the best positioned among public tanker companies to gain from scrubber installations, with Star Bulk (NASDAQ: SBLK) and Safe Bulkers (NYSE: SB) best positioned on the dry bulk side.

According to Nokta, “Historically, investors have seen little differentiation in company fleets, but that is changing. Those companies with a heavier focus on modern, eco-design ships [and/or scrubbers] are likely to see a premium valuation … due to the visibly strong outperformance they are now capturing. There is a widening divergence in company earnings power depending on the equipment on hand.”

Click for more articles by Greg Miller 

US exports of crude oil and diesel are climbing even higher

Tankers are very busy loading up with U.S.-produced crude oil and refined products sold to overseas buyers.

A photo of a tanker off Texas. US exports of crude, diesel and gasoline are rising

At-the-pump prices for gasoline and diesel may be down from all-time peaks but they remain exceptionally high. Simultaneously, U.S. exports of crude and refined products to Europe and Latin America continue to rise.

“Rising [diesel] exports shipments have drained domestic supply,” reported Argus on Monday.

Citing ship-movement data from Vortexa, Argus said that diesel exports averaged 1.45 million barrels per day (b/d) July 1-13, the highest level since July 2017.

Data provided to American Shipper by Kpler showed that total clean products exports (including diesel, gasoline, jet fuel and other products) averaged 2.5 million b/d through the first half of July, one of the highest monthly averages since August 2019.

chart showing diesel prices
Chart: FreightWaves SONAR

U.S. refined products heading south

Reid I’Anson, senior commodity analyst at Kpler, told American Shipper, “On the clean product side of the ledger, exports are pretty much back in line with pre-pandemic levels, with most of these barrels ending up in Latin America, especially Mexico.”

Argus said that U.S. diesel exports to Mexico and South America are now at their highest level in a half-decade.

Kpler puts total U.S. tanker exports — including crude, clean products and dirty products (such as fuel oil) — at 5.95 million b/d month to date, up around 5% from May-June levels. The average for the first half of July is within shooting distance of the all-time high of 6.1 million b/d in December 2019.

July 2020 average is month to date. Chart: American Shipper based on data from Kpler

More U.S. crude to Europe, less to Asia

The resurgence of America’s products exports to pre-pandemic levels coincides with rebounding crude exports. More U.S. crude is going to Europe and less is going to Asia, which is in turn buying more crude from Russia.

U.S. crude exports “continue to maintain consistency at around the 3.1 million b/d level, with strong volumes heading for Europe maintaining in July,” said I’Anson.

There are three main drivers of U.S. crude exports, according to ship brokerage BRS: the emergency Strategic Petroleum Reserve (SPR) release in the wake of the Ukraine-Russia war, recovering U.S. crude production, and limits to U.S. refinery intake capacity.

Erik Broekhuizen, head of tanker research and consulting at Poten & Partners, noted in a report on Friday that most of the SPR crude has gone to domestic refiners in the U.S., with only a small portion going overseas, mostly to Europe.

“It does not really matter where the SPR crude is being refined,” he explained. “The oil market is a global marketplace and prices are driven by worldwide supply/demand dynamics.”

As a result of the SPR release, higher domestic production, and “U.S. refineries already running flat out with utilization rates in the high-90% range, we expect most of the additional [non-SPR] barrels to hit the export market,” said Broekhuizen, who predicted that U.S. crude oil exports could increase by 1 million b/d or more during the next six months.

Thus, the SPR release will “turbocharge” exports even if SPR crude itself is not being exported.

Limits to US refinery intake

According to BRS, “U.S. refinery intake has oscillated around 16.5 million-16.7 million b/d over recent months, in line with the five-year average but roughly 1.4 million b/d below its historical high. There is little potential that [U.S.] refining throughputs should rise further this year given that 1.3 million b/d of U.S. refining capacity was shuttered over 2020-21.

“Indeed, we believe that there is more potential for unplanned stoppages over the coming months, either in the wake of hurricanes or from refineries being run so hard in the wake of soaring transport fuel crack spreads that problems emerge.”

In light of domestic refining limits, BRS expects U.S. crude exports to continue to rise this summer, potentially reaching 4.5 million b/d by the end of this year. It predicts U.S. crude exports will regularly reach 5 million b/d next year and will “occasionally touch 5.5 million b/d” — and that “the U.S. will be the largest source of incremental crude tanker demand this year and beyond.”

Click for more articles by Greg Miller 

In topsy-turvy commodity trades, small ships outperform big ships

photo of large crude tanker; large ships are earning less than small shipsFrom crude tankers to product carriers to dry cargo ships, the largest vessels are earning less than their smaller counterparts.

photo of large crude tanker; large ships are earning less than small ships

You pay more to get more. Renting a four-bedroom townhouse is far more expensive than renting a studio apartment. The nightly rate for a penthouse suite is much higher than for a standard room.

So, in ocean shipping, you might expect booking a load of coal on a mammoth dry cargo vessel would cost a lot more than on a bulker carrying less than a third the volume. Or that a spot voyage deal for a supertanker carrying over twice the volume of crude oil, or a product tanker carrying over twice the gasoline, would be way more expensive than on a smaller ship.

This year, you’d be wrong. Spot employment for smaller bulk commodity ships costs more than for larger ships — in most cases, a lot more.

Rates for large ships vs. small ships

According to Clarksons Platou Securities, spot rates for 10-year-old very large crude carriers (VLCCs, ships with capacity of 320,000 deadweight tons, or DWT) averaged the equivalent of just $1,400 per day year to date (YTD) through Tuesday.

Aframax tanker NS Consul (Photo: Flickr/Kees Torn)

Spot rates for Aframax crude tankers (115,000 DWT) — which hold over 60% fewer barrels than VLCCs — were 15 times higher: $21,300 per day YTD. 

In the product tanker sector, spot rates for larger vessels known as LR2s (115,000 DWT) averaged $26,200 per day YTD for 10-year old vessels. That’s 10% lower than rates for medium-range (MR) product tankers (50,000 DWT) with less than half the cargo capacity of an LR2.

Clarksons’ data shows the same disparity in dry bulk shipping.

Spot rates for larger bulkers known as Capesizes (180,000 DWT) averaged $18,100 per day YTD. Rates for Supramaxes (56,000 DWT), which have less than a third of the capacity of Capesizes, averaged 49% higher: $26,900 per day. 

The dry bulk market is “upside down [compared to] normal trading patterns,” noted Stifel analyst Ben Nolan in his latest quarterly earnings preview.

Megasized bulk commodity ships traditionally earn more than smaller ones because they move so much more volume per voyage. The reason this year is “upside down”: Different size categories carry different bulk commodities and/or ply different routes. The supply-demand balances for the various trades currently favor smaller tankers and bulkers. Such a reversal of fortune happens from time to time but rarely in such a sustained and across-the-board fashion.

Crude tankers

VLCCs serve long-haul, high-volume crude trades such as Middle East to Asia and U.S. to Asia. Smaller tankers don’t have the same scale efficiencies and serve shorter routes, but they’re much more versatile than VLCCs in terms of terminals that can fit them.

VLCC underperformance versus smaller crude tankers has been ongoing since early 2021. “The oil markets seem to be conspiring against the VLCCs,” wrote Erik Broekhuizen, manager of marine research at Poten & Partners, in a recent report.

“VLCCs have traditionally been the bellwether of the tanker markets. The largest crude-oil-carrying ships were usually the leading indicator of where the markets were heading. This changed during the pandemic.”

The VLCC Al Yarmouk (Photo: Jim Allen/FreightWaves)

VLCC rates are getting hammered from both sides: supply and demand. On the supply side, brokerage BRS said there will be 48 VLCC newbuild deliveries this year, 25 of which have already hit the water. Only one VLCC had been scrapped and three sold for scrap through May.

On the demand side, OPEC continues to limit seaborne exports and COVID lockdowns have hit Chinese fuel demand. Broekhuizen noted that “China, the world’s largest VLCC employer, has cut back on purchases from West Africa, Latin America and the U.S.”

Meanwhile, the Ukraine-Russia war has been a boon for sub-VLCC tanker classes as Russian exports continue to flow.

Aframaxes account for 85% of Russian crude exports, according to BRS. India is replacing imports that used to ship from the U.S. aboard VLCCs with imports from Russia aboard Aframaxes as well midsize Suezmaxes (tankers that carry half the volume of VLCCs). Europe is replacing some Russian crude imports with U.S. crude carried aboard Suezmaxes, reducing volumes available to ship from the U.S. to Asia aboard VLCCs, according to Broekhuizen.

Product tankers

The rate advantage for smaller tankers is also driven by higher shipping demand for refined products than for crude, as consumption of gasoline, diesel and jet fuel recovers from pandemic levels. (In terms of tanker scale, the larger product tankers, LR2s, are the same size as the smaller crude tankers, Aframaxes.)

The premium for smaller versus larger product tankers is being partially fueled by strong demand for U.S. refined product exports in western South America, driving high volumes via the Panama Canal aboard MRs.

“MR product tankers earned as much in the last nine weeks as they did in the entirety of 2021,” wrote Nolan on Sunday. “Should the market for product tankers and Aframax [crude tankers] remain at current levels, it could be a year for the record books.”

Dry bulk

Dry bulk is the world’s largest freight market by volume. It features a particularly differentiated cargo mix based on ship size.

Capesizes are highly dependent on iron-ore cargoes — mostly from Australia and Brazil to China — and secondarily, coal and bauxite.

Sub-Capesize bulkers carry a much more diverse range of cargoes (grains, coal, cement, steel, salt, ores, logs, fertilizer, phosphate, aggregates, alumina, copper, salt). They also call on a much more diverse range of destinations. 

Iron ore being unloaded from a Capesize bulker in China (Photo: Shutterstock/Ambient Pix)

Whereas Capesize rates hinge on Chinese demand, smaller bulkers are more linked to global GDP. Smaller bulkers have also benefited from cargo that used to be containerized but switched to bulk to save on freight.  

According to BRS, dry bulk volume to China in the first half of 2022 fell 9.2% year on year amid COVID lockdowns. Capesizes have “unperformed on the back of easing [port] congestion, China’s slowing appetite for iron ore and coal, and weather- and COVID-related supply disruptions in Brazil and Australia, respectively.”

China imports iron ore and coal aboard Capesizes to produce steel. With the country’s housing market under pressure, Chinese steel production fell 8.7% in January-May versus the same period last year.

Maritime Strategies International (MSI) pointed out that freight rates have been so strong for smaller bulkers versus larger ones this year that “even a shipment of logs, typically carried in Handysize [under 35,000 DWT] or Supramax bulkers, was carried from Uruguay to China in a 205,000 DWT bulker in April.”

Outlook for large vs. small tankers

If history is any indication, larger commodity ships will regain their premiums.

Frode Mørkedal, analyst at Clarksons Platou Securities, predicted that VLCCs will rise “like a phoenix” and “prosper.”

Aframax tanker Gold Sun arriving in Houston (Photo: Jim Allen/FreightWaves)

Regarding the 10-year-old VLCCs averaging a paltry $1,400 per day this year, Clarksons forecasts rates will rebound to $41,000 per day next year (78% higher than Aframaxes) and $55,000 per day in 2024 (90% higher than Aframaxes).

According to Broekhuizen, “In the long term, the economies-of-scale benefits of VLCCs will bring this segment back to prominence.

“The dominant oil producers in the Middle East and the fastest growing consumers in Asia all have the infrastructure to use VLCCs. They will use the largest-available vessels to minimize the delivered costs.”

And on the supply side, the orderbook for new VLCCs is historically small. This guarantees exceptionally low fleet growth, a big plus for future rates. Deliveries for 2023-2024 are already set, due to construction lead times. There are just 15 new VLCCs due next year and only three in 2024, according to BRS. No VLCCs are on order for 2025 or later.

In the product tanker market, the gap between LR2s and MRs has already narrowed. Demand for long-haul cargoes of refined petroleum has risen, boosting LR2 rates. The premium of MR earnings to LR2 earnings was much higher in April than it is today. Clarksons predicts that larger product tankers will once again outperform smaller product tankers in 2023-24.

Outlook for large vs. small dry bulk ships

The rate gap has also narrowed between larger and smaller dry bulk carriers. In dry bulk, though, it’s more about rates for smaller ships coming back down toward larger-ship rates, as opposed rates rising for larger vessels.

Geared Handysize bulker Maple Ambition in New Zealand (Photo: Flickr/Bernard Spragg)

Nolan expects that “Brazilian and Australian iron ore [shipments] should increase,” a plus for Capesizes going forward, while “some of the spillover [of container cargo to bulkers] should ease,” a negative for smaller vessels.

BRS also cited the connection with container shipping, where spot rates have fallen from their peaks. “The easing of the container-ship market would reduce pressure on bulker employment for de-containerized cargo,” the brokerage noted.

Clarksons expects larger bulkers to once again earn more than smaller bulkers in 2023-2024. But unlike its outlook for VLCCs, it does not foresee a big rate increase.

According to Clarksons’ Mørkedal, “We expect Capesize spot earnings to average $23,000 a day in 2022, then fall to $22,000 per day in 2024 before rising slightly to $24,000 per day in 2024. In other words, a reasonable freight market — as the majority of companies’ financial breakeven [rates] are between $13,000 and $14,000 per day — but an unimpressive market development overall.”

Click for more articles by Greg Miller 

A cargo of corn being loaded aboard a bulk carrier (Photo: Shutterstock/Alexey Lesik)

Tankers carrying diesel and gasoline rake in cash amid pain at the pump

Picture of a product tankerThe first half has been phenomenal for product tankers. How much of shipping upside is due to the war?

Picture of a product tanker

As the first half of 2022 draws to a close, shipping fortunes are mixed. Container shipping is the biggest winner from a profit perspective while product tankers are the biggest winners in the stock market.

Pain at the pump is coinciding with a boom for owners of tankers that carry petroleum products. Freight rates and stocks have been fueled by the Ukraine-Russia war as well as the post-COVID scramble for diesel, gasoline and jet fuel.

Despite recent stock market turmoil, shares of Scorpio Tankers (NYSE: STNG) are still up 181% year to date. Product tanker owner Ardmore Shipping (NYSE: ASC) is up 118%, Oslo-listed Hafnia Tankers 95% and Torm (NASDAQ: TRMD) 71%.

In contrast, shares of container shipping stocks are down year to date. Dry bulk stocks shed much of their 2022 gains this month.

ChartL Koyfin

War versus fundamentals

The question for product tanker investors is: How much of this is about the war and how much is fundamentals?

“Some are still skeptical of the sustainability of an upturn under the premise that the recent strength is purely a function of disruption resulting from Russia’s invasion of Ukraine,” said Evercore ISI analyst Jon Chappell in a client note.

“This is not war,” countered executives of Scorpio Tankers during a presentation on Tuesday hosted by Evercore ISI.

Scorpio’s head of chartering, Lars Dencker Nielsen, acknowledged that changing flows due to the war in Ukraine are having an effect. But he argued that “much of the market recovery today was already underway even before the war began and that the true impact of the redrawing of the product trade map [due to the war] is yet to come later this year.”

Scorpio has a long history of talking its book. But Chappell sees evidence of fundamental strength from channel checks elsewhere.

“After meeting with several commodity traders, oil majors and rival shipowners over the last several weeks, [we see] a strong and accelerating demand for long-dated time-charter contracts that imply that many industry players, on both side of the chartering desk, believe current market strength has significant legs,” he said.

Chappell noted that in the product tanker trade, the cost of shipping “has always been a sliver of the cost of the commodity. Today, with product tanker rates nearing all-time highs, the cost of freight still pales in comparison to the arbs [arbitrages] the traders make from moving the cargo, given trade dislocations and regional shortages. Traders have to move cargoes and almost no level of product tanker rates is going to change their profit calculus.”

Spot rates far exceed breakeven rates

“Product tankers continue to be the standout performers,” affirmed Clarksons Platou Securities analyst Frode Mørkedal. 

Clarksons’ rate assessments for Wednesday:

  • Larger product tankers in the long-haul trades known as LR2s (80,000-119,999 deadweight tons or DWT) built in 2015 or later are obtaining spot rate equivalents of $62,900 per day. The average breakeven for this vessel type is $25,000 per day. Crude tankers in this size category are earning around half the LR2 rate.
  • Spot rates for modern LR1s (55,000-79,999 DWT) were $54,600 per day. Breakeven is $19,000.
  • MRs (25,000-54,999 DWT), which mainly operate in regional trades, are the workhorses of the product tanker business. Modern MRs were earning spot rates of $60,300 per day, more than triple the average breakeven of $18,000.

Tanker insurance ban raises questions

Chances have faded for a quick resolution of the war and a snap back to prewar supply relationships between Russia and Europe, the U.S. and the U.K.

Earlier this month, the EU agreed to cease seaborne imports of crude from Russia by Dec. 5 and refined products by Feb. 5, 2023. These measures would be positive for tanker rates. Shipping demand is measured in ton-miles: volume multiplied by distance. The EU import ban would increase the distance traveled by both Russian exports and EU replacement imports.

However, the EU decision also banned EU insurance and reinsurance for Russian crude and product cargoes going to other countries. The U.K. is expected to follow suit. If the insurance ban goes into effect, it could be a negative for product tanker ton-miles, because it may limit cargo volume.

Brokerage BRS believes that an EU/U.K. insurance/reinsurance ban “will see mainstream tanker owners essentially prohibited from carrying Russian oil.” Cargoes would shift to Russia’s sanctioned tanker fleet and the so-called “shadow fleet.” The shadow fleet is composed of older tankers with opaque ownership engaged in sanctioned Iranian and Venezuelan trades.

The problem for Russian exports of clean (finished, refined) exports is that there are not enough Russian-controlled tankers and shadow tankers to handle the load, according to BRS. 

“Russia has a very small clean tanker fleet with its LR vessels almost exclusively trading dirty [transporting fuel oil]. Its smaller tankers are too small to make the shipping of large volumes of Russian clean products over long distances economic. 

“Meanwhile, the shadow fleet is almost exclusively lifting crude or fuel oil, which makes these units unsuitable for clean products. This suggests that Russian clean product exports will slow to a trickle in the event of an insurance ban.”

Click for more articles by Greg Miller 

Batten down the hatches: Shipping stocks ‘unable to escape the torrent’

photo of stock chart; shipping stocks are fallingBulk commodity shipping stocks held up well before this month. Now they’re falling alongside container shipping stocks.

photo of stock chart; shipping stocks are falling

Bulk commodity shipping stocks kept rising in May even as the broader market fell, offering shelter from the storm. Not so in June. With few exceptions, dry bulk and tanker stocks that previously held up are sinking. Declines for container shipping stocks have accelerated.

Shipping stocks have been “unable to escape the torrent,” wrote Clarksons Platou Securities analyst Frode Morkedal. “Demand destruction is a major source of concern.”

Ben Nolan, shipping analyst at Stifel, said, “The equities of a number of sectors in shipping are extremely sensitive to the shift in the broader market.” 

In the past week alone, shipping stock sentiment have been hit by a World Bank warning on stagflation; a report from FreightWaves maintaining that import demand is “dropping off a cliff”; the announcement of an 8.6% inflation gain for May, the highest increase since 1981; and resurgent COVID restrictions in Shanghai and Beijing.

The Dow Jones Industrial Average (DJIA), S&P 500 and NASDAQ Composite all hit fresh 52-week lows on Monday. Shipping stocks sank across the board.

Shipping stock moves since June 1

Container and dry bulk names have been the biggest losers this month.

As of Monday’s close, shares of liner companies Zim (NYSE: ZIM) and Matson (NYSE: MATX) were down 25% and 15%, respectively, versus their June 1 open. Container-ship lessor Danaos (NYSE: DAC) was down 21%, while Costamare (NYSE: CMRE) — which leases container ships and owns dry bulk ships — was down 18%.

Among the dry bulk owners, Star Bulk (NASDAQ: SBLK) was down 24% month to date, Eagle Bulk (NASDAQ: EGLE) 22% and Genco Shipping & Trading (NYSE: GNK) 18%.

Change from close on Monday vs. open on June 1. Chart: American Shipper

Container and dry bulk stocks have fallen faster than the DJIA, S&P 500 and NASDAQ Composite, whereas tanker stocks have lost less ground than the indexes. “Energy-related shipping equities were more insulated,” noted Nolan.

DHT (NYSE: DHT), which operates very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude), is down only 6% this month, despite the fact that VLCCs are still mired in their worst below-breakeven slump in three decades.

Product tanker stocks have been the best performers in June.

Shares of Ardmore Shipping (NYSE: ASC) and Scorpio Tankers (NYSE: STNG) are actually still up 2% for the month, despite falling with the rest of the shipping names on Monday.

Product tanker spot rates remain sharply higher than the five-year average, at $40,000-$50,000 per day, according to Clarksons. Rates are being buoyed by trading dislocations from the Ukraine-Russia war and the global scramble for scarce diesel and gasoline.

Product tanker spot rates. Chart: Clarksons Platou Securities. Data sources: Clarksons Platou Securities, Clarkson Research

Declines vs. 52-week highs

Shares of different shipping segments hit their 52-week highs at different times.

Container shipping shares generally peaked around late March. The turning point coincided with a plunge in domestic transportation stocks on fears of a looming freight recession, initially fed by reports from FreightWaves.

Container shipping shares are also falling due to a decline in spot rates from their highs, despite the fact that spot rates remain exceptionally strong, contract rates are much higher this year and liner companies expect to earn even more in 2022 than last year.

In contrast to container shipping stocks, most dry bulk and tanker stocks hit 52-week highs in late May. Dry bulk stocks have fallen much faster than tanker stocks since then. As a result, container shipping stocks and dry bulk stocks have seen sharper drops from 52-week highs than tanker stocks.

Chart: American Shipper

The exception is Nordic American Tankers (NYSE: NAT), which owns Suezmaxes (tankers that carry 1 million barrels of crude). Shares of NAT are down 46% from a 52-week high reached a year ago.

Shipping stock performance during pandemic

Looking further back, different shipping segments have seen very different stock behavior during the pandemic era.

Dry bulk and container shares fell sharply in H1 2020, at the onset of COVID. Container stocks rebounded first, in H2 2020. Dry bulk stocks began their run-up in early 2021.

Both dry bulk and container stocks have far outpaced the broader market indexes. Since Jan. 1, 2020, Danaos is up an astonishing 607%, despite the recent pullback. Zim went public on Jan. 27, 2021, at $15 per share. Even with its recent slide, it’s still up 222% from the IPO price.

Among dry bulk names, Safe Bulkers (NYSE: SB) is up 138% since pre-COVID, Golden Ocean (NASDAQ; GOGL) 121% and Star Bulk 116%. Container-ship lessor Global Ship Lease (NYSE: GSL) is up 114%.

Tanker stocks followed a totally different path. Pre-COVID, tanker rates and share prices were strong, driven by tensions in the Middle East and U.S. sanctions.

In the pandemic era, tanker stocks initially rose as ships filled with floating storage cargoes in Q2 2020, then fell back thereafter as bloated inventories cut transport demand. Tanker equities have recently been supported by the Ukraine-Russia war and sentiment on increased fuel demand for air and land-based transport.

Because tanker rates and sentiment were high pre-COVID, most tanker stocks are now trading lower than they were on Jan. 1, 2020. 

Change from close on Monday vs. open on Jan. 2, 2020 (except for Zim, vs. IPO price). Chart: American Shipper

NAT is down 61%, DHT 34%, Frontline (NYSE: FRO) 32% and International Seaways (NYSE: INSW) 24%. Unlike container and dry bulk stocks, the tanker stocks — including product tanker names like Scorpio — have underperformed the DJIA, S&P 500 and NASDAQ Composite across the COVID era.

Click for more articles by Greg Miller 

Ship fuel enters uncharted territory as prices hit new wartime peak

ship fuelIt took longer than expected, but the IMO 2020 investment pitch — save on ship fuel by installing scrubbers — is paying off big time.

ship fuel

It’s not just the price diesel and gasoline and jet fuel that’s surging. The price of the marine fuel consumed by the world’s container ships, tankers and bulkers is breaking records.

The price of very low sulfur fuel oil (VLSFO) — the 0.5% sulfur content fuel that powers most commercial ships — just exceeded the price spike that occurred soon after Russia’s invasion of Ukraine.

According to data from Ship & Bunker, the average VLSFO price at the world’s top 20 bunker (marine fuel) ports was $1,042 per ton on Wednesday, double its price a year ago. (The previous record was $1,040.50 per ton on March 9.)

Scrubber investments pay off

In January 2020, the IMO 2020 rule required ships to switch to VLSFO (or even more expensive marine gas oil) unless they had exhaust gas scrubbers or burned liquefied natural gas. Ships with scrubbers continued to burn cheaper high sulfur fuel oil (HSFO) with 3.5% sulfur content.

According to Ship & Bunker data, the average top-20-ports spread between VLSFO and HSFO jumped to a record $314.50 per ton on Jan. 7, 2020, amid the IMO rule transition. The spread then collapsed during the first year of COVID, sinking to a mere $45 per ton on Nov. 2, 2020. At that point, multi-million-dollar investments in scrubbers looked like a mistake.

No longer. 

The spread is now flirting with a fresh high. HSFO known as IFO380 averaged $741.50 per ton on Wednesday at the top 20 ports. That put the VLSFO-HSFO spread at $300.50 per ton.

Price is average at top 20 bunker ports. Chart: American Shipper based on data from Ship & Bunker

The situation is even more extreme at certain hubs. On Thursday, the VLSFO-HSFO spread at the key Asian bunkering hub of Singapore was $454.50 per ton.

At these spreads, scrubber investments are highly profitable.

Container shipping fuel effects

What does the marine fuel situation mean for vessel owners and operators?

In container shipping, fuel costs are passed along with a lag effect via bunker adjustment factors (BAFs). These BAFs will be tacked on top of already record-high contract rates.

The majority of larger container ships handling longer-haul runs have scrubbers. According to Clarksons Platou Securities, 77% of container ships with capacity of 17,000 twenty-foot equivalent units or more have scrubbers, as do 61% of 12,000- to 16,999-TEU ships.

Lars Jensen, CEO of Vespucci Maritime, pointed out how ocean carriers with scrubber-equipped ships could profit from the spread.

Jensen recently wrote, “Most bunker fuel surcharges are linked to VLSFO price. This, de facto, means if a carrier has scrubbers on the vessels and BAFs linked to VLSFO, it is effectively getting paid by shippers for the high cost of VLSFO while at the same time buying the IFO380 [for] less and pocketing the difference.”

Commodity shipping fuel effects

In tanker and bulker shipping, the owner pays for fuel in a spot voyage deal. Thus, the higher the fuel price, the lower the spot rate net of fuel.

The current dynamic creates a huge advantage for owners that either have ships with scrubbers allowing them to burn HSFO, or have fuel-efficient “eco” designs allowing them to burn less VLSFO or HSFO.

In shipping sectors that are making money, like dry bulk and product tankers, owning scrubber-equipped and/or eco ships adds to profits. In a sector that’s losing money, like very large crude carriers (VLCCs), owning scrubber-equipped and/or eco ships reduces cash bleed.

Clarksons estimated on Thursday that an older non-eco, non-scrubber VLCC would hypothetically lose $7,400 per day in the spot market (on paper; in reality an owner would not do the voyage). In comparison, an eco, scrubber-equipped VLCC would earn $19,200 per day. Even in the best case, most VLCCs are still losing money; Clarksons put the all-in breakeven rate for a 5-year old VLCC at $34,000 per day.

In an example of a profitable sector, Clarksons put Thursday’s spot rate for non-eco, non-scrubber medium-range (MR) product tankers —  the ships that carry gasoline, diesel and jet fuel — at $39,700 per day. Eco, scrubber-equipped MRs were at $50,100 per day.

Clarksons lists the breakeven for a 5-year old MR at $18,000 per day. Even old MRs are raking in cash. Those saving on fuel are raking in even more.

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