Seaspan Chief Financial Officer David Spivak said liner companies want to deal with larger charter owners, which could benefit Seaspan, since its 9 percent share of the global leased containership fleet is the largest of any independent owner.
Seaspan, the largest independent containership lessor, believes it will benefit from the recent emphasis on consolidation, alliances and joint ventures in the container shipping industry.
“It helps mitigate counterparty risk, it moves our customer base more towards profitability, it puts some rationality sort of into the industry,” Seaspan Chief Financial Officer David Spivak said.
“From our perspective, we like what we see,” he told participants at a J.P. Morgan Aviation, Transportation & Industrials Conference last week.
Spivak said there has also been some consolidation in the containership chartering industry, although less through mergers and acquisitions than attrition as small charter owners have gone bankrupt over the years. He noted how the share of tonnage that containership charterers provide liner companies has increased from about 30 percent in 1996 to just under 50 percent in 2016 and 2017.
The Hanjin bankruptcy last year was helpful to the remaining liner companies, and “sort of woke people up to the importance of differentiating on who your providers are,” Spivak said. This has resulted in a “flight to quality” and end users paying more attention to who they use for logistics services, he explained.
In addition, liner companies are paying more attention to the companies they charter ships from, Spivak added. “They want to deal with large charter owners, ones that are solvent, ones that are reliable,” he said.
This could benefit Seaspan, since its 9 percent share of the global leased containership fleet is the largest of any independent owner, he said. Seaspan has 114 cotainerships – 88 owned, 15 operated for affiliate GCI, and 11 that are under construction, which are scheduled to be delivered by the end of 2018 (eight owned by Seaspan and three owned by GCI).
In nearly all instances, Seaspan is an operating lessor, which means that when it charterers ships, they are crewed, maintained and insured by Seaspan, while the liner companies that charter the ships are responsible for the fuel and utilization of the ships.
Seaspan focuses on long term charters and has a revenue backlog of $5.2 billion. The company’s long term charter portfolio extends out, on average, seven years.
Today, the capacity of Seaspan’s fleet is 693,900 TEUs. About 94 percent of the company’s revenue for 2017 is from the 557,900 TEUs, or 80 percent, of its capacity with long term portfolios, while the remaining six percent of revenue comes from 20 percent of its capacity on ships leased under short term contracts.
The ships on short term charters are primarily Panamax vessels, and Spivak said they operate in a very depressed market with rates below breakeven. Consequently, this has led to an increase in ship scrapping in 2016, with 655,000 TEUs scrapped, and Spivak said 750,000 TEUs are expected to be scrapped this year.
Still, Spivak said rates for Panamax ships had improved in recent weeks, jumping about 25 percent from a low of about $4,000 per day to around $5,000 per day. Panamax ships are just able fit through the old locks in the Panama Canal, and generally have a capacity of anywhere from around 4,000 TEUs up to 5,000 TEUs.
His company has been scrapping some of its older Panamax ships and replacing them with younger ships of about the same size.
“Interestingly, the asset values have been so depressed that we’ve been able to buy eight-and-a-half-year-old assets at the price we can sell a 15 year old asset,” Spivak said. “We think that is a very unique situation.”
Given the few Panamax ships on order and high level of scrapping, Seaspan believes rates for Panamax ships may rise.
Spivak said the container shipping industry is beginning to move to equilibrium as ordering of new ships remains light, owners defer delivery of ships, and container trade increases. Spivak pointed to Clarkson Research statistics, which illustrated how seaborne container trade in 2016 rose 3.5 percent to 181 million TEUs, with Far East-U.S. volumes increasing 4.3 percent to an all-time high of 14.2 million TEUs.
He said several analysts are predicting demand to exceed net supply in 2017 and 2018.
In addition, Spivak noted that because of the downturn in the shipping business, Seaspan has focused a lot on overhead and has been able to reduce operating costs per ownership day to about $6,000 a day in the last quarter of 2016 from about $6,800 in the fourth quarter of 2015.
Seaspan expects to benefit from container shipping consolidation
