Hong Kong-based Seaspan Corporation has returned to profit in 2017 with reported net earnings of USD 58.6 million for the fourth quarter and USD 175.2 million for the full year ended December 31, 2017.
This is a major rebound when compared to the corresponding USD 1.4 million net profit from Q4 in 2016 and a net loss of USD 139 million booked for the entire year.
Total revenues reached USD 214.4 million for the fourth quarter of 2017 and USD 831.3 million for the full year.
Full-year revenue decreased by 5.3 pct year-on-year, primarily due to lower average charter rates for vessels that were on short-term charters and off-charter days that related primarily to three 10,000 TEU vessels that were previously on long-term charters and commenced short-term charters with Hapag-Lloyd AG during the first half of 2017.
These decreases were partially offset by the delivery of newbuilding vessels in 2016 and 2017.
“2017 was an important and pivotal year for Seaspan. We continued to achieve strong operating results, maintain a sizable contracted revenue backlog, and grow our operating fleet on long-term time charters by taking delivery of five newbuildings with charters of 10 to 17 years,” David Sokol, Chairman of Seaspan, said.
“With a focus on driving shareholder value, we also took important steps to strengthen our corporate governance, deleverage our balance sheet, and increase our unencumbered asset base. We are pleased to have commenced 2018 with a USD 250 million investment by Prem Watsa-led Fairfax and the acquisition of two second-hand feeder vessels chartered to Maersk.”
Currently, there are 23 unencumbered vessels in Seaspan’s operating fleet, the company said.
“Against a backdrop of improving fundamentals and a changing competitive environment, we see a rich set of opportunities before us. I am confident we are well positioned to capitalize on these opportunities and to create substantial long-term shareholder value,” Bing Chen, President and Chief Executive Officer of Seaspan, commented.
Seaspan Corporation signed definitive agreements with Fairfax Financial Holdings Limited for USD 250 million of investment in January this year.
During the same month, the company took delivery of the fifth of five 11,000 TEU vessels on a long-term bareboat charter with MSC Mediterranean Shipping Company, MSC Yashi B.
2018 is not likely to be the turning point for the crude oil tanker market taking into account the anticipated fleet growth set to continue this year, distorting further the balance between supply and demand.
A total of 58 very large crude carriers (VLCCs) are scheduled to be delivered this year, although some of these are expected to be pushed to 2019, and further contracting has decreased when compared to 2017.
This compares to 50 VLCCs delivered in 2017 and 47 in 2016.
However, increased scrapping of older crude carriers has sparked some optimism with 13 VLCCs removed from the global fleet in 2017 and up to seven reported to be scrapped so far this year.
“It will take some time until the crude oil tanker market has sufficiently absorbed new supply of vessels, despite the existence of factors that are evident in strong markets. The inflection point in the market has clearly not yet arrived, but when it is here and the right opportunities present themselves, we will be prepared to act,” Frontline said in its financial report for the fourth quarter of 2017.
The Norwegian tanker owner has two more VLCCs pending delivery, with two VLCCs and one LR2/Aframax tanker delivered in January 2018.
On the demand side, the world economy and crude oil demand remain strong. The oil supply growth has primarily come from the Atlantic Basin, whilst the demand growth is in Asia, which is positive for tonne-mile development, Frontline said.
Nevertheless, the drawdown of crude inventories has pushed down the freight rates, negatively impacting the market.
“While inventories remain elevated, days of forward demand cover has decreased sharply due to rising consumption, and we expect inventory draws to halt in the second quarter of 2018,” Frontline added.
Speaking of the outlook, Frontline believes there will be opportunities going forward and the tanker owner says that it has the financial and commercial platform to grow its fleet when a beneficial opportunity arises.
“Until then Frontline is sharply focused on maintaining our cost-efficient operations and low breakeven levels,” the shipowner concluded.
The current orderbook for 1.42 million TEU of boxship giants will impact the capacity market shares between the three Alliances on the Asia to North Europe trade lane, SeaIntel informed.
Namely, the orderbook of 20,000+ TEU vessels is expected to push the Ocean Alliance to gradually match the Asia-NEUR capacity market share of 2M by 2019, and surpass them in 2020, while THE Alliance is expected to gradually lose market share.
THE Alliance will see their capacity market share decline from 25% to 21%, while Ocean Alliance will gradually match the 38% capacity market share of 2M by 2019, and then gradual surpass them in 2020.
If HMM confirms their rumoured order, they may reach a capacity market share of 6-7% in 2021, while the alliances will see their shares drop correspondingly, according to SeaIntel.
Even if 2018-2021 demand is expected to outpace that of 2012-2017, it will likely be necessary to close 1-2 services to balance supply and demand.
“Estimating future demand growth is fraught with difficulties, but industry consensus seems to suggest that demand growth will be better in the coming years, than what we’ve seen in 2012-2017. If this is the case, then closing three services would seem like overkill, but balancing supply and demand would probably necessitate the closure of 1-2 services, depending upon the underlying demand growth,” Alan Murphy, SeaIntel CEO, said.
Qatar-based LNG shipping company Nakilat recorded a net income of QAR 847.2 million (USD 232.6 million) in 2017, down from QAR 955.4 million (USD 262.3 million) posted a year earlier.
Despite the challenges facing the energy and maritime industry, the company said it managed to achieve positive results across its operations.
As explained, the results exceeded planned expectations in 2017 through enhanced operational efficiency and a reduction in general, administrative expenses and finance costs.
The net profit achieved in the fourth quarter of 2017 was higher than that achieved in the third quarter and fourth quarter of 2016, by 21% and 16% respectively.
Complemented by strategic long-term agreements with charterers, Nakilat has managed to maintain steady cash flow. Given the volatile market conditions, the company embarked on cost optimization initiatives, capitalizing on profitable business growth, and achieving cost savings.
Furthermore, Nakilat said it “continues to explore and capitalize on different business opportunities and mitigating business risks to strengthen the company’s international position.”
Nakilat’s fleet currently comprises 67 wholly- and jointly-owned LNG carriers and four LPG vessels.
Over the course of 2017, VLCC tanker values exhibited price depreciation for the second consecutive year, as the market fundamentals put pressure on earnings. Newbuilding contracts averaged US $82.8 million (basis Korea/Japan), a decline of 8.5% from 2016 average values; however, the second half of the year is pointing to a firmer market as yard capacity remains constrained and owners, backed with charter coverage, look to capitalize on the lowest annual prices since 2003 (Figure).
In 2017, 5-YR old tankers averaged US $60.5 million experiencing pricing pressure through the year, with a low of US $56.5 million recorded in February. On a year-over-year basis, this represented a 12.0% decline from 2016 levels. The 10-YR old tanker depreciated at a similar pace, falling 11.6% in the year, averaging US $40.9 million
In January 2017, we called for Newbuilding values to average US $82.0 million, with our projections falling only 1.0% below actual levels. Our 5-YR old vessel forecast of US $59.0 million (annual average value) was 2.5% below the actual recorded average value of US $60.5 million. The 10-YR old average value of US $40.9 million in 2017 was 5.8% above our original forecast.
Historically, our data shows that the price of a 5-YR old VLCC trades at around 79% of the Newbuilding contract value. In 2017, this ratio fell to 73% as weak earnings pressured the secondhand market more vigorously. In 2018, we expect 5-YR old values to account for 72% of a Newbuilding value, while the 10-YR old price should increase to 50%, below the long-term average of 57%. With scrap prices projected to remain at around US $16 million, our 10-YR price forecast of US $43.5 million, indicates that the scrap ratio will remain about 10% higher than the long-term average.
The demise of the crude tanker market could be translated to record demolition activity during 2018. In its latest weekly report, shipbroker Charles R. Weber said that “following a depressed year for crude tanker earnings during 2017, rising $/ldt demolition values appear to be the only positive development for owners of elderly tonnage during the first weeks of 2018 amid a worsened trading environment. Through the first eight weeks of 2018, crude tanker earnings have posted an average decline of 65% on the same period during 2017 – to levels that are either at or below OPEX costs in most cases. At the same time, $/ldt values have continued to rise, posting a 40% gain since the start of 2017. Strengthening $/ldt values already prompted an accelerating of demolition sales activity during 2H17 and, over the course of the whole year, more tanker tonnage was demolished than during 2014, 2015 and 2016 combined. The trend appears to be accelerating, as so far this year there has been 4.3 Mn DWT of crude tanker capacity sold for demolition; on an annualized basis, this is a nearly four‐fold year‐ on‐year increase. Several additional crude tanker units currently under negotiation for demolition sales suggest that the trend may rise still – particularly as many of the units being worked are VLCCs”.
According to CR Weber, “a heavy phase‐out program between now and the end of the decade had already projected by market participants and factored into the projecting of a recovery of earnings in the coming years, in light of the age distribution of the crude tanker fleet and the high cost of compliance with forward maritime regulations. Pegging the precise timing of most units’ phase‐outs, however, is complicated by a number of factors, not the least of which is the fact that many owners have historically enjoyed better returns from older units that usually have little or no debt servicing obligations. Our phase‐out projections are made both generally (based on age and SS/DD positioning) and granularly (in consideration of known variables pertaining to the deployment, trading orientation and ownership profile of each unit).
Yet, despite the expectations of both the market and our models, the extent of demolition activity was rather uninspiring until 3Q17 – well after the earnings downturn commenced. Moreover, even as the pace of demolitions surged during 3Q17 and 4Q17, the average age of demolished units actually rose to 27.7 years. The reluctance of owners to agree to demolition sales even as earnings were nosediving appeared to many as a harbinger of a poor trading market for years, rather than quarters, to come. Since the start of the year, however, the average age has declined considerably to 21.7 years, with no less than five units younger than 20 years included in the average. Participants in the crude tanker market will undoubtedly be closely monitoring the pace and age characteristics of units sold for demolition in the coming months to ascertain the shape a forward recovery of earnings may take. Certainly, a sustained commitment to the demolition option by owners would be a positive development that could hasten a recovery forward by at least a few quarters”, the shipbroker concluded.
Meanwhile, in the VLCC tanker market this week, CR Weber said that the market “appeared to be further deteriorating this week with fresh demand‐ side headwinds adding to those caused by an ongoing and pronounced structural oversupply situation. Fixture activity in the Middle East market dropped 7% w/w and COA coverage thereof increased by six percentage points to account for 43% of the total. The Atlantic basin was worse yet: there were zero fixtures in the West Africa market, marking the first such occurrence in over a decade while in the Americas, demand remained limited and fresh cargoes were met with a growing list of available units. Middle East Rates on the AG‐CHINA were unchanged at an apparent floor of ws39 (the shorter‐ haul AG‐SPORE route experienced a fresh weakening). Corresponding TCEs concluded the week at ~$8,406/day. Rates to the USG via the Cape were off by 0.5 point to ws17.5. Triangulated Westbound trade earnings were off by 6% to ~$15,041/day. Atlantic Basin Rates in the West Africa market followed those in the Middle East. The WAFR‐FEAST route was unchanged at ws41. The route’s TCE concludes the week at ~$12,482/day. In the Americas, rates were unchanged at $3.25m lump sum for CBS‐SPORE voyages”, the shipbroker concluded.
The consolidation drive in the container shipping sector through mergers and acquisitions is likely to slow down in 2018, according to online freight forwarder iContainers.
Instead, this is likely to pivot to freight forwarders, where the industry can expect to see an increase in M&A talks.
“In terms of carriers, I doubt we will see any more movements in the near future. I don’t see any major players breaking right now. Any acquisitions that were to take place now would be a purely strategic move, or if an opportunity presents itself for one of the bigger carriers to buy up a younger one,” Klaus Lysdal, Vice President of Sales & Operations at iContainers, said.
Amid a prolonged market downturn, many carriers resorted to forming alliances and setting agreements on slot purchases. These allowed them to gain cost-effectiveness by combining their resources without risking further debt. Such movements have had its effects trickle down to shippers, the online freight forwarder added.
The latest M&A round saw Japanese carriers NYK, MOL and K Line merge their containership business within the Ocean Network Express (ONE), scheduled to start operations on April 1, 2018.
Creation of ONE came on the back of M&A deals involving CMA CGM and APL, Cosco and CSCL, Maersk Line and Hamburg Süd, and Hapag-Lloyd with UASC.
“We’ve seen so many consolidation activities that there are now a lot fewer options for shippers to choose from and less flexibility with the number of carriers so dramatically reduced,” Lysdal explained.
“But on the other hand, the good thing that has come out of all of this is some very much-needed rate increases to make the industry healthier overall.”
SeaIntelligence Consulting’s CEO, Lars Jensen, agrees with the projection, adding that despite some aspirations for further mergers competition authorities are likely to block them.
“Long term, Hyundai and Yang Ming are not going to be viable in their present states. They’re too large to become niche carriers and too small to become super carriers. They will transform or disappear in some way, shape, or form. Yang Ming is likely to be absorbed into Evergreen, even though Evergreen hates the idea. Hyundai will persist as long as the Korean government wants to subsidize them,” Jensen adds.
According to Jensen, the shift may be moving down the line to the smaller carriers, where hundreds of small and medium-sized carriers will be starting to stir and probably where the consolidation game will ramp up over the coming years.
“The capacity operated by these carriers has skyrocketed. And it’s not because they were operating more ships. It’s because they were redelivering smaller charter vessels and taking larger ones on. There’s no way they can all fill the ships that way. So there will be a consolidation with these small and medium-sized carriers.”
Lysdal believes freight forwarders may also be mimicking the move and engaging in their own M&A activity for strategic growth purposes, with mid- and large-ranged forwarders acquiring tech-savvy companies as a shortcut into the digital market.
“I think we will see that the top players will be watching and observing from the sidelines for a while. Once they see someone really make a breakthrough, that’s when they make their move.”
BIMCO relaunches ship benchmarking system Shipping KPI after two years of redesign. The system helps shipowners and managers make strategic decisions about their fleet.
“The Shipping KPI system enables me, as a shipowner, to make rational strategic decisions on how to run my fleet, by benchmarking with other ships in the segments we compete in. It is an important step for BIMCO in its goal of developing digital solutions for the industry,” says Şadan Kaptanoğlu, owner of Kaptanoğlu Group, President Designate of BIMCO and chair of the Shipping KPI steering group.
Shipping KPI is based on self-reporting by 300 companies and a total of 6000 ships. It enables users to compare performance parameters between ships of similar type, tonnage, trades or flag states, while remaining anonymous.
Users can compare 33 different Key Performance Indicators (KPIs) – for example budget performance, ship availability, contained spills and officer retention. The KPIs are based on 64 individual performance indicators.
BIMCO’s short term target is to get more than 10,000 ships into the system to create an even better foundation for comparison and analysis.
Shipping KPI, a community tool
“We see Shipping KPI as a community effort. It is by the industry for the industry. It is designed for shipowners and ship managers, to help them compare apples with apples, without giving over proprietary data to their competitors. It enables us at Kaptanoğlu Group to manage our fleet better,” Kaptanoğlu says.
BIMCO has improved the reporting tool and made sure that the reporting values conform to IMO-rules and industry-standards. A lot of work has also gone into improving the user experience.
When you benchmark in the Shipping KPI system, the lowest level you can compare your ship or ships with is the data from a minimum of 10 ships, owned by at least three different companies.
The data is hosted with an external company, which is independently audited to verify its ability to safeguard the data. It should be noted that BIMCO does not have direct access to the data provided by the participating companies.
Free of charge
Shipping KPI is run by BIMCO on a not-for-profit basis. New users have to pay a sign-up fee, but thereafter, the tool is free for BIMCO members. Non-members have to pay a sign-up fee and thereafter an annual subscription of €1,975.
Shipping is often regarded as a relatively fragmented business, with over 94,000 vessels split between almost 24,000 owners. However, the level of consolidation varies greatly between sectors, while the recent increases in M&A and restructuring activity have driven some change. This month’s Fleet Analysis takes a look at consolidation amongst shipowners in a selection of shipping sectors.
A Tighter Chokehold
Some of the more consolidated sectors, led by cruise ships, are shown on the left of the graph. As of 1st February 2018 the ‘top five’ owner groups (ranked by the size of their fleet within the sector, in GT terms) owned 84% of cruise tonnage. With each group controlling a number of companies, strong brand loyalty, as well as the huge cost of vessels, make it difficult for new owners to enter the market.
The containership sector has also typically been a more consolidated part of shipping, with 46% of fleet tonnage accounted for by the ‘top ten’ owner groups as of 1st February. This share has risen from 37% at the start of 2010, driven in part by significant M&A activity, such as the acquisition of Hamburg Sud, UASC and CSAV by larger liner companies. Consolidation is even more pronounced when focussing on operation, with the top ten boxship operators deploying 80% of tonnage. Elsewhere, in the gas carrier sector, the ‘top ten’ owner groups accounted for 38% of fleet tonnage at the start of February. However, this was a decline from 49% at the beginning of 2007. Fleet ownership is now divided more evenly between energy majors, who were previously dominant, and independent shipowners, who have increased their share.
A Range of Combinations
In other sectors, consolidation is less pronounced. The ‘top ten’ offshore owner groups accounted for 27% of fleet tonnage as of 1st February 2018. The diversity of vessel types across the offshore fleet means that many owners specialise in a small number of sub-sectors, limiting the extent of consolidation across the fleet as a whole, although recent M&A activity has driven some change. Meanwhile, at the start of February the ‘top ten’ tanker owner groups accounted for 21% of fleet tonnage. Although this was a lower share than elsewhere, consolidation varies across the sector, for example due to high capital costs in the larger crude tanker sizes.
All Chopped Up
The bulkcarrier sector remains the least consolidated of the major vessel types, with the ‘top ten’ owner groups representing 15% of fleet tonnage at the start of February. Smaller owners have typically accounted for a higher share of the bulker fleet than in other sectors, and as of 1st February, there were almost 1,500 owner groups with just 1-5 vessels.
Shipping as a whole remains a relatively fragmented industry, with smaller owners accounting for a large share of vessels. Equally, owner groups with fleets of more than 50 vessels account for 47% of total tonnage, and M&A activity could continue to drive consolidation. However, with some sectors dominated by a small number of groups and others remaining more fragmented, consolidation across the world fleet still varies hugely.
Miami-based cruise company Norwegian Cruise Line Holdings (NCLH) reported record earnings in the fourth quarter and full year 2017, mainly due to robust revenue growth.
For the year ended December 31, 2017, the company generated a net income of USD 759.9 million, up from USD 633.1 million reported in the previous year, while its revenue for the period stood at USD 5.4 billion, rising 10.7% from USD 4.9 billion seen in 2016.
The increase was primarily attributed to a 6% rise in capacity days due to the delivery of Norwegian Joy in April 2017, Regent’s Seven Seas Explorer in June 2016 and Oceania Cruises’ Sirena in April 2016 and strong organic pricing growth across all core markets.
The company’s net income for the fourth quarter of 2017 reached USD 98.8 million, compared to USD 72.2 million reported in the same quarter a year earlier. NCL’s revenue for the quarter was up by 11.1% at USD 1.24 billion, compared to USD 1.12 billion seen in the fourth quarter of 2016.
“The strong, record performance we delivered in 2017 was the perfect end to a historic year as we celebrate the five year anniversary of our initial public offering,” Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd, said.
Looking at 2018, the company said that strong financial track record continues as the fifth consecutive year of double-digit EPS growth is anticipated. 2018 booked position was at all-time high entering the year with load factor and pricing higher than prior year across all three NCL brands driven by strong demand across all core markets.
“The continued strong global demand for our portfolio of brands will enable us to further grow revenue, resulting in our sixth consecutive year of net yield growth. This, coupled with the benefit of the launch of Norwegian Bliss and a continued focus on costs, will drive 2018 earnings to record highs,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd.