Oil, ore, grain, containers and other cargo at the mercy of the seas and hostile parties

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And, less surprisingly, the US is threatening sanctions if one mistakenly votes “environmentally friendly” at this week’s IMO meeting:

The United States on Friday threatened to use visa restrictions, commercial penalties, additional port fees on ships owned, operated, or flagged by countries supporting the framework and sanctions on officials “sponsoring activist-driven climate policies,” to retaliate against nations that back IMO’s proposed carbon tax that aims to reduce global greenhouse gas emissions from the international shipping sector.

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I’m now writing a brief overview of the container market situation based on Q3 results, even though ZIM’s results, at least, are yet to be reported (results due on Tuesday).

Perhaps to most people’s surprise (including mine), this year has been a year of very strong growth for the entire container market. Volumes have grown at an annual rate of over 5%, and it also appears there has been growth in ton-miles. So, even though a fair amount of tonnage has entered the market this year (mainly large ships over 10k TEU), there has been clear demand for them.

Freight rates themselves have clearly risen, and there is demand for container transport in the market. Companies (Maersk, HLAG, etc.) are reporting quite good figures for the first 9 months, and Q4 looks set to follow a similar trend. Now that China and the USA have put the trade war on hold (it remains to be seen whether for a year or something else), this should have a demand-supporting effect.

The ship chartering markets have continued with very strong demand, clearly exceeding supply. This means that companies chartering out vessels are enjoying very good and long-lasting returns. For example, GSL 2025 is fully sold out, 96% of 2026 capacity is sold, and 76% of 2027 capacity is already sold at very comfortable levels, meaning companies will continue their good performance for at least the next couple of years. At some point, the fleet should also start to renew, which could also provide support for companies chartering out vessels.

The situation in the Red Sea continues, and ships are still circumnavigating the Cape of Good Hope. Apparently, last week the Houthis expressed their desire to end this ship-sinking game (Houthis Announce End of Red Sea Shipping Attacks), but I understood there was also some kind of business logic behind this (safe passage for a fee). Of course, Israel’s actions create different personal incentives, but I don’t expect a very long-lasting peace in this region, and situations can change quickly. Ultimately, this would most affect the business of liner companies, where the impact would be positive through reduced costs (fuel).

So, based on current information, I am not at all worried about the performance of companies in this sector, and I believe they will continue to generate money for owners for at least the next year. However, the future is difficult to predict, and recent years, in particular, have taught us that global politics is now particularly unstable.

Edit: Oh, and it’s good to note that the IMO meeting regarding emissions trading practically went on a year-long coffee break. It’s difficult to assess at this point how that issue will progress. But it’s also good to remember that there are other drivers for reducing emissions, especially for the most valuable cargoes. I will try to write a slightly broader reflection on this for different segments and perhaps even companies.

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Danaos reported a rather strong quarter, where fleet modernization and sensible debt restructuring particularly stood out. A slight softening of earnings remained in the background, as the company increased its contract backlog, thereby securing a steady cash flow well into the future, despite market fluctuations.

Investors’ main attention was precisely on long-term charter agreements, in addition to the company’s apparently successful refinancing and fleet expansion. Costs increased slightly, but the company has performed well given the circumstances and has proceeded with deliberate steps towards a more stable and profitable future without unnecessary risks or, for example, rash actions regarding its plans.

https://x.com/Earnings_Time/status/1990534849552417157

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LNG bunkering is predicted to grow over 40% annually for the next 8 years. LNG carriers will naturally benefit from this as consumption grows. However, participation in this is quite limited if you own, for example, a Flex LNG company. I had New Fortress Energy as one of my LNG plays, but I had to give it up and probably lost 6k; the company is already insolvent. Then I owned CLCO, which is going private, and it felt a bit difficult to sell at a break-even. At one point, I had HMLP, which I managed to sell at a peak price, and it also went private, and shareholders were robbed there. It makes you wonder about these situations.

Are there any companies in the bunkering sector that one can invest in, or is it that large shipping companies, such as BW Group, handle those fueling stations? Of course, the builders of this infrastructure are one way to invest, and I have invested a bit there. However, it’s quite difficult to find a meaningful investment target; I don’t know how. Any tips?

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Dynagas and Capital Clean Energy Carriers. The LNG orderbook is, however, quite ugly.

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I did have Dynagas preferred shares, but they were eventually redeemed. I’m not really convinced by those. Those bunkering operations are apparently handled by either private companies or giant corporations. I guess shipping and pipeline companies are where one can profitably participate in the gas boom now. With oil companies, you get the falling oil price as a bonus.

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Fuel delivery, and this applies to both oil and gas, is usually handled by the party from whom the fuel is purchased. The players in that field include both large oil companies and smaller, more local operators. These, in turn, acquire suitable vessels from the market to deliver that gas to ships in desired ports.

When looking at the owners of existing LNG Bunkering vessels, at least MOL and Linde, which are listed, can be found. But I certainly wouldn’t buy those from this angle :rofl:

In fact, one could also ask how profitable the delivery of gas from terminal to ship will be? Traditionally, bunker vessel owners have not, to my understanding, been goldmines.

A bit of perspective. Currently, 73 dedicated LNG bunker vessels have been delivered or are on order. These are mostly relatively small vessels, averaging around 8800 DWT. A typical vessel can thus take a little under 20,000 cubic meters of LNG for delivery to customers. Only the largest receiving vessels have a tank of similar size (e.g., the CMA CGM Seine 24k TEU containership has an 18,600 m3 LNG tank). And with that, the vessel can travel 20,000 nm ( VESSEL REVIEW | CMA CGM Seine – CMA CGM dual-fuel containership to serve Far East-Europe routes) - that distance thus corresponds to roughly 1/5 of the distance traveled in a year, so roughly speaking, the tank only needs to be refilled every couple of months.

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Thanks, this is indeed what I was trying to achieve. So, bunkering is not a goldmine, at least not initially. One would think LNG vessels would be valuable, even if they are small. Presumably, there will also be different practices for that.

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The question is who will get the largest share of the upcoming LNG supply to ships?

When considering the chain, the players are:

  • LNG terminal (i.e., where gas is liquefied and loaded onto large LNGC vessels)
  • LNGC vessels that distribute gas around the world to distribution terminals
  • Owners of distribution terminals
  • Company that procures LNG from the market for delivery to the customer
  • Vessel that delivers gas from the distribution terminal to the customer’s vessel

Then there are the financiers in this picture, and of course the shipbuilders and marine technology suppliers.

But these already go far beyond the topic of the chain. Still, a couple of tips to consider:

  • GTT is involved in quite many parts of the chain (tanks for all different ships as well as onshore tanks), so I would see them being in the best position here.

  • Today, by chance, I came across a large export terminal construction company called NextDecade ( NextDecade | Delivering energy for what’s NEXT), ticker is NEXT. But even there, it might still be a bit too long until cash flows. But once things get started, money will come from it. Now we might be getting close to the bottom, from which the rise begins, but will it then be the rise that carries further?

Regarding the LNGC market itself, I don’t see the situation as bad at all. A lot of vessels are indeed coming, and more orders are on the way. But most of these are under long-term contracts and are related to the significant growth in the number of LNG export terminals, especially in the USA and Qatar. Additionally, I believe that some of the old steamships will exit the market when their contracts expire.

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GSL was shopping and managed to acquire 3x8600TEU vessels:

Global Ship Lease Announces Agreement to Acquire Three 8,600 TEU Containerships | Global Ship Lease

It’s interesting to compare this latest deal to the price received for three older and smaller vessels sold at the end of last year ($54.4M - 1x5900TEU+2x2200TEU). On the other hand, it can also be compared to the 4x9010 TEU vessels purchased at the end of last year ($270m).

The vessels are thus very affordable. This low price is due to the long-term charter agreements made at low rates that come with them. However, when these agreements expire, the vessels still have plenty of time to generate revenue. So, they generate revenue immediately in some way, but their true value will become apparent later.

And if I understand correctly, the ships are in use by CMA CGM (in my opinion, the only vessels that fit the description). I believe there is significant potential for improvement in these.

This also partly indicates that vessels chartered by liner companies can be significantly lower than market prices, and thus evaluating the earnings of these companies based on today’s charter rates requires accuracy/information.

I personally see this deal in a positive light and believe it shows that the company has the patience to make sensible capital allocation decisions in the market. Although, of course, it might be tempting to receive larger dividends relative to the company’s profit. But how should one then play the long-term game?

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The price cannot be compared as these have some 6-year below-market-rate contract attached.

The deal is still quite good for GSL and at least smarter than Costamare’s and Danaos’ expansions into the dry bulk sector. GSL is paying a premium here over the ships’ current contracts and scrap value, but it’s probably quite possible that the vessels will still have operational value in the mid-2030s.

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https://www.calcalistech.com/ctechnews/article/sjh11pr011bg

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