Fearnley Securities believes the days of big shareholder payouts are over for Israeli line Zim. The container ship owner has lowered its full-year earnings guidance as the market continues to normalize. The New York-listed company expects to make $400m to $500m less profit than earlier projected. Fearnleys analyst Oystein Vaagen said Zim’s “dividend party” is over, downgrading the stock from “buy” to “sell.” He blamed soft freight markets, macroeconomic uncertainty, and likely “disappointments” over fourth-quarter dividends.

Freight rates held up better than expected in the third quarter at $3,600 per teu, the analyst added, but the blended Shanghai Containerized Freight Index is down 50% so far in the final three months. “Hence, we believe the lower end of [profit] guidance is a more likely scenario. With the market now moving from inflation to growth fears, Zim is one of the equities we expect to be pressured,” Vaagen said. Zim’s liquidity is now $1.3bn in cash and $1.8bn in net working capital. Fearnleys sees this dropping below $2bn. The owner has a capex of between $400m and $500m, plus $2bn of lease costs in 2023.

It declared a dividend of $354m, or $2.95 per share, representing about 30% of third-quarter net income. Vaagen sees a maintained 30% payout as more likely in the fourth quarter, implying just $0.20. A further weakening in the market could rapidly impact cash, he believes. The container ship newbuilding orderbook stands at 27% of the operational fleet. This, combined with weakening demand, is heavily pressuring rates. Fearnleys is assuming freight rates of $1,700 per teu in 2023 and a 5% drop in volumes in the fourth quarter of this year. It is projecting a fall of 2% in 2023 and 2024 as congestion continues to unwind. “With high market uncertainty, dropping rates (drastically impacts bottom line given high lease costs), we see 30% dividend payment as the prudent option,” Vaagen said. “Moreover, should markets worsen more than our assumptions, the cash position could disappear as quickly as it was gained.”

Bulker markets are set for a rebound once China’s economy normalizes next year, according to Golden Ocean Group’s chief executive. Ulrik Andersen uses the word “perspective” more than once while speaking to TradeWinds. “Ok, we’re going through a bit of a rough patch here but look at where we’ve come from. The past 24 months have been outstanding,” he said. “I think we can stomach a couple of quarters where we do not make three-digit million in net profit.”

For all the talk of weakness, profits $104.6m for the third quarter, are still at a level that Golden Ocean could not have dreamed of a few years ago. Perspective is all. Bulker rates have disappointed during the second half of this year as port congestion has unwound, supplying excess tonnage to markets, while Chinese demand for dry cargo imports remains depressed by the country’s zero-Covid policies. Golden Ocean has kept its focus on taking forward cover where possible and saving money on fuel costs using scrubbers and fuel-efficient vessel modifications. Gains have also been made through the sale of vessels, $22.9m on two ultramaxes that were delivered during the third quarter, and on derivatives. And then there is the sizeable cash position that Golden Ocean has accumulated, alongside what it has already distributed to shareholders. “We have been retaining capital every quarter since we started making money in the middle of 2020. We have a balance sheet now with $228m in cash, so we have already a quite significant balance sheet to weather any storm,” Andersen said.

Paying dividends is key to Golden Ocean’s capital allocation strategy, he added, but “you can only pay dividends when you make money, at least, that’s how we do it. If you look at what we are reporting for Q4 on what is already fixed, you can very quickly establish that we will make money again in Q4.” Golden Ocean has bookings for 75% of its available capesize days this quarter at $23,100 per day on average. Its panamax vessels are booked for 78% of available days at an average daily rate of $19,100. Now all eyes are on 2023, but expectations for next year are restrained. Trading in the freight derivatives market currently indicates rates of just over $6,000 per day for the first quarter and over $12,000 per day for the 2023 calendar year. “Next year, we have said very clearly that it looks like a weak start to the year. I mean, that’s common. It is seasonally the weakest quarter in nine out of 10 years,” Andersen said. “But how long that soft market will continue will depend very much on when China discontinues their zero-Covid policy. Because once that happens, the stimulus that has already been employed will work much better.”

Golden Ocean has a low level of forward cover for the first three months of 2023, just 10% across the whole fleet. Just 4% of capesize days are booked during the first quarter at an average rate of $21,300 per day. Panamax days have a higher level of cover, with 21% of days booked at $21,150 per day. Golden Ocean’s results failed to rally enthusiasm among investors on both sides of the Atlantic when they were announced on Wednesday. In Oslo, the stock settled 10% lower at the end of the day’s trading. In New York, shares in the firm sank by 12.5%. “The reason for that is simple. It is that the panamax market has offered much better forward value than the cape market for the past couple of months,” Andersen said. “The cape Q1 [paper] is trading around $6,000 per day, and we don’t see a lot of downside to those numbers, so that has not been interesting for us to lock in.” Golden Ocean believes the Chinese economy will revive at some point next year, once the zero-Covid policy is discontinued. A rebound in commodity demand from China combined with low supply of new vessels should stimulate the capesize market and result in rates shooting up again, Andersen said. “It doesn’t take much for this to actually ignite again and doesn’t take a lot of demand growth, particularly when you look at the basically zero influx of vessels that we have, coupled with the IMO 2023 regulations, which also give some inefficiencies,” he said.

Zim is preparing for a freight market in which some liner services are no longer viable. The Israeli carrier is planning to redeliver charters, blank sailings and streamline its service network to cut costs. Chief executive Eli Glickman said that will help the company adapt to what he calls the “new normal”. That refers to an emerging operating environment where carriers face higher costs and lower revenues. A taste of what 2023 may herald is already emerging on some routes, noticeably on the transpacific.

On the trade from Asia to Los Angeles, where Zim operates an expedited service, the freight market is already close to breakeven levels. “There is not much more room for further reduction in this trade,” Zim chief financial officer Xavier Destriau said. “When we pass the breakeven, there will be a lot of different actions we will take.” The first steps could involve the blanking or cancellation of sailings. Zim and partners, including Swiss operator Mediterranean Shipping Co, have already blanked some sailings on the transpacific. The expectation is that more could follow if markets continue to fall. Zim is also looking at merging services in its service network. Destriau said that may involve “combining a couple of trade lanes and to reallocate capacity elsewhere”. The measures reflect “the primary objective of sailing a ship that makes money”. If Zim were to operate “with the cost structure we have today, we would bleed”. Further cost reductions are expected to come from redelivering ships to their owners. “We have 25 vessels coming up for renewal [next year] and today we are looking at redelivering some of them,” Destriau said.

Glickman argues that the company has prepared itself for the turn in the market. Zim has about 61 older vessels that can be handed back to their tonnage providers. “If the market is strong, we can re-charter them again. If not, we will redeliver the vessels,” Glickman said. He added that Zim is in an extraordinarily strong position, with net income in the first nine months of the year hitting $4.2bn. That was a better result than the whole of 2021, which was Zim’s best year to date, Glickman said. It has lifted Zim’s total cash position to $4.4bn. That shift in the market comes as Zim is slated to take delivery of 46 container ship newbuildings over the next two years fixed on long-term charters. Ten 15,000-teu dual-fuel vessels are expected to serve on Asia to US east coast services. The others are wide-beam ships from 5,300 teu to 7,000 teu in capacity. These have been taken on charter from tonnage providers Seaspan Corp, Regional Container Lines, Navios Maritime Partners, MPC Container Ships and MPC Capital. Glickman said the ships will make Zim’s fleet more efficient.

Ultimately, though, Zim will focus on cost control to compete with rivals and potential newcomers. “The risk is that somebody would want to come in and bleed more than you,” Destriau said. “But we have a cost structure which we think would put us in a competitive position. It is critically important, for us and shareholders, to remain a competitive player in an industry which is under stress. But we’re not going to be the first one to have our head below the water line, if we come to that point. That’s what we can control.” On Thursday, Zim sharply lowered its full-year guidance as the container market started to normalize. Lower volumes and a steeper-than-expected drop in freight rates led Zim to lower its guidance to between $7.4bn and $7.7bn. That suggests the normalization of markets may be more painful but quicker, Destriau said. The downgrade was between $400m and $500m lower than projected, reflecting a normalization of the markets dogged by macroeconomic and geopolitical uncertainties. The earnings adjustment comes after the carrier announced a sharp drop in year-on-year profits. Zim reported a profit of $1.16bn for the three months to the end of September. That is sharply down on both the $1.46bn logged in the same period last year and the $1.34bn in the second quarter this year.

It’s not a great time for consolidation in the broader market, but shipping is keeping merger-and-acquisition bankers busy amid more favorable conditions. That was the take from veteran M&A banker Mark Friedman of Evercore in remarks to the annual Marine Money ship finance forum in New York on Thursday. The broader market has seen a strong correlation over the past 20 years between overall market strength and deal flows, so it is not a great surprise that deals are slumping in 2022 with the S&P 500 index down about 17% on the year and Nasdaq falling more than 20%, Friedman said.

Global M&A deals are at $1.85bn through 31 October, well down on the $3.7bn seen in 2021 and more on pace with the $2.17bn seen in the Covid-hit year of 2020. But shipping equities have outperformed the market. Tanker stocks are up an average 235% on the year, bulkers 121% and container owners 61%. Against that backdrop, there have been at least eight significant M&A shipping deals in the last two years, with Evercore involved in half of them, Friedman said. “Shipping historically sees very little activity happening at the bottom of a cycle and not a lot at the very top,” Friedman said. “You tend to see it when the markets are improving, or when there is still enough juice left in an existing up market.” Among the biggest recent shipping deals have been a trio of take-private transactions: Seaspan parent Atlas Corp being acquired this month by insider Poseidon Acquisition Corp, Teekay LNG by Stonepeak in October 2021, and LNG player GasLog by private equity’s Black Rock in February 2021. More conventional consolidation has come through International Seaways’ March 2021 acquisition of Diamond S Shipping, Diana Shipping’s August buy of private Sea Trade Holdings, and two pending deals: Frontline’s combination with fellow tanker giant Euronav and Taylor Maritime’s tender for shares of Grindrod Shipping in dry bulk.

“Some of these are big transactions by shipping standards,” Friedman said. A transaction like Diana’s $330m strike for nine Sea Trade ultramaxes demonstrates the public company’s ability to approach fleet renewal at a time when there is little activity otherwise in the newbuilding market, Friedman said. “In tankers and dry bulk, there’s almost a nil orderbook,” Friedman said. “If you wanted to expand your scope in the past, newbuildings were the normal channel of growth. Right now, that’s not available.” Friedman told TradeWinds following his remarks that he thinks the shipping consolidation trend has legs. “I believe so,” he said. “Strong CEO confidence, strong markets and share prices portend for a likely active M&A period for shipping companies.”

When the US Fed Reserve holds its last meeting of 2022 on 14 December, it is expected to raise its benchmark funds rate for the seventh time this year as it strains to tamp down inflation. Shipping is in no way immune to the changes, which have seen one-year Libor jump from 0.11% in September 2021 to nearly 5.5% today. While there have been no apparent casualties in the wave of pricier money to date, public shipowners have been weighing the reality in their quarterly earnings reports and investor calls in recent weeks, with varying spins on the trend. Who might have been expected to be caught out by the clampdown? How about a company with heavy debt that is mostly at floating-rate margins? That sounds a lot like Scorpio Tankers heading into 2022. But as Streetwise reported last week, New York-listed Scorpio has been in a race to slash that debt before rising interest exacts too deep a toll on its balance sheet. Scorpio has bought out costly lease financing on 24 of the 100 product tankers in its fleet and is on target to pare $1.2bn in debt during the calendar year, from a starting point of nearly $3bn. It would be the first time Scorpio goes under $2bn in leverage since 2016.

The company was saved, first, by its pre-emptive sale of 12 LR1 tankers to Hafnia in January, which freed more than $170m in liquidity. But perhaps more importantly, then the clean product market entered a long-awaited recovery, aided by dislocations from the war in Ukraine. This created the cash flow to let Scorpio start buying back its tankers from Asian lessors. Scorpio’s progress can be viewed in classic glass-half-empty, glass-half-full fashion. On the one hand, Scorpio’s work has meant it can keep its fleet-wide financial break-even at $17,500 per vessel per day despite the rising interest costs. On the other, it has been unable to reduce that figure despite slashing leverage because its money costs are higher. There are other owners who do not have Scorpio’s issues, either because they have lower leverage or locked in fixed interest rates through caps, or both.

US-listed dry bulk owners Genco Shipping & Trading and Eagle Bulk Shipping both fall into this category and were able to reassure investors on their recent earnings calls. BTIG analyst Greg Lewis qualified a question to Genco management by noting that the company does not have much debt. Starting from a much lower base than Scorpio, Genco also has been slashing debt through voluntary repayments in furtherance of its new high-dividend model, with leverage down to $180m at the end of the third quarter. “But clearly borrowing rates do impact asset prices as well,” Lewis ventured. Genco chief financial officer Apostolos Zafolias said the owner had interest caps in place until the end of 2024 at a weighted average of 94 basis points over Libor and its successor, Sofr. “In terms of the existing debt, we are pretty well hedged and covered,” Zafolias said. But for others, rates are now in the high single digits when base rate and margin are combined, “and then there is obviously the alternative financing providers space which has higher financing costs”.

Eagle Bulk was able to remind investors that last year it managed to fix the Libor rate on its $250m term loan at 87 basis points until the end of 2024. Even so, that would not help any new debt needed for vessel acquisitions. Eagle Bulk therefore would hope to use cash in the event it pursues one-ship or two-ship acquisitions soon. Gary Vogel, chief executive of Eagle Bulk, said: “It’s a completely different environment. We’re keenly aware that if you put leverage on a vessel today at 50%, your debt is significantly more expensive. I think it’s helpful in that it will give people pause and limit speculative buying, because it just makes cost of ownership and cash break-evens that much greater.”

Yet there is another reason behind high borrowing costs to consider pausing on vessel acquisitions, and it was cited by a couple of tanker executives in remarks to Streetwise. DHT Holdings chief executive Svein Moxnes Harfjeld said his VLCC company has low debt and swaps in place until the end of the second and third quarters of 2023. But interest cost is not at the forefront of his mind in taking a break from the sale-and-purchase market. “Cost of debt is not the reason we are not buying, it is the nominal prices,” Harfjeld said, referring to the run-up in tanker valuations. A second tanker executive who asked not to be identified said interest costs are a factor, but not the factor in his view. “I think the biggest deterrent to asset acquisitions is simply the higher price of assets,” he said.

New York native Peter Georgiopoulos was one of shipping’s pioneers in building companies with help from private equity, but things changed a lot, and not for the better, between his start in the 1990s and his final experiences 20 years later. Georgiopoulos laid out that transition with typical bluntness on Thursday at a Marine Money conference in Manhattan as he was interviewed on stage by another veteran of the investment’s wars, Scorpio Tankers president Robert Bugbee.

Bugbee set things in motion by noting that Georgiopoulos had delivered outsized returns in the early days with his New York-listed tanker company General Maritime, particularly with respect to early backer Oaktree Capital Management. “It was a lot more fun in the early days,” Georgiopoulos reflected. “I developed a relationship with one of the Oaktree founders and I could say ‘Let’s go buy those ships.’ And while of course, it wasn’t quite that simple, there also weren’t 15 layers of decision-making. Toward the end, I had some staffer asking me “how many Xerox machines do you have in your office?” I told him, I don’t know how many Xerox machines, and it’s none of your business. If you’re worried about Xerox machines, we’re f–ked.”

The anecdote leads nicely to the present day, as Georgiopoulos is doing his own thing at the helm of Athens-based United Overseas Group (UOG). Georgiopoulos and longtime lieutenant Leo Vrondissis formed UOG and in January 2021 acquired Dubai-based United Arab Chemical Carriers (UACC) for an undisclosed price. UACC was founded in 2007 with a fleet of 22 vessels, of which 20, nine chemical tankers, two LR1s and nine MRs, were owned. “What I like about this time, I put my own money into it, it’s my company,” Georgiopoulos said. “I’ll do what I think is best, as I always try to do. I don’t have anyone to answer to.”

The pioneer in New York public listings, Genmar listed in 2001, made clear that he prefers the private-company route now. He also sounded like he can do without private equity partners going forward. “I had no private-equity friends in this deal, I don’t know that I have any private-equity friends anymore,” he said. “They’re not your friends,” he told Bugbee. “Even when you’re making a lot of money for them, they’re not your friends.”

GoodBulk has again boosted its bottom line during weak freight markets by selling off vessels and has distributed its largest ever payment to shareholders. The shipowner, which has its shares registered on Oslo’s over-the-counter market, recorded a net profit of $31.2m, which equated to $1.04 in earnings per share. This includes a $30.8m gain on the sale of a vessel delivered during the period. The quarterly result compares with a profit of $32m in the same period of last year, when earnings per share were $1.06.

GoodBulk, which is the public arm of C Transport Maritime (CTM), kept up its consistent quarterly dividends by paying $2.25 per share to its investors or around $66.6m in total for the third quarter. Chief executive John Michael Radziwill confirmed to TradeWinds that the “capital repatriation” payment is the largest quarterly distribution to shareholders in GoodBulk’s history. It also ranks among the largest quarterly dividends paid to shareholders by a listed bulker owner in at least the past two years. “The first and second round of investors have been completely repaid and have made 31% and 19% above their investment until now. We have given back close to $400m to our investors,” Radziwill told TradeWinds.

GoodBulk said this year so far it has seized opportunities and sold nine vessels in what it said was the strongest sale and purchase environment in eight years for capesizes and in 11 years for the panamax segment. “We are opportunistic and are not shy to sell assets if market conditions are right,” Radziwill said. The most recent vessel sale reported by brokers was in mid-September, when the 177,200-dwt Aquadonna (now Mikata, built 2005) was sold for an undisclosed price to a buyer since named by shipping databases as Singapore Shipping.

GoodBulk’s fleet of 14 capesizes each earned an average time-charter equivalent (TCE) rate of $15,657 per day during the third quarter and are currently 100% exposed to the spot market. Its vessels trade in the Capesize Chartering Ltd pool, which GoodBulk said has enabled its spot vessels to outperformed the Baltic Capesize Index by 24% in the third quarter and by 27% between January and September this year. The company said its fleet-wide leverage is below 30%, giving it an “ultra-competitive breakeven that is still below where paper is trading currently. Even in the current rate environment, GoodBulk is still generating cash.”

The company’s estimated normalized breakeven for 2022 is $10,816 per day after operating expenses, debt service and corporate general and administrative (G&A) expenses. Next year, it is estimated at $10,521 per day. “The orderbook for this segment is still around historical lows, representing about 6% of the current fleet at sea, which means that capesize fleet growth should remain limited in the next couple of years,” GoodBulk said in its third-quarter report. “Looking forward, the record-low orderbook in the dry bulk segment in combination with upcoming environmental regulations will be the biggest support to freight rates next year.”

2,388 new daily coronavirus cases were reported in China on 17 November 2022, the highest amount reported since April 29th.  Going forward, China’s current surge continues to show no sign of abating and no significant reopening improvements in the Chinese economy are likely to occur in the very near term.  The current surge of new daily coronavirus cases continues to hold back the Chinese economy to some extent. 

The UN and the Ukraine government have announced a 120-day extension of the Black Sea Grain Initiative. The deal between Ukraine and Russia was due to expire on Saturday but there were concerns Russia would not agree to an extension. It appears the agreement may have been struck after concessions were made to include more Russian grain and fertilizers.

UN secretary general Antonio Guterres said on social media site Twitter: “I welcome the agreement by all parties to continue the Black Sea Grain Initiative to facilitate the safe navigation of export of grain, foodstuffs and fertilizers from Ukraine. The initiative demonstrates the importance of discreet diplomacy in finding multilateral solutions.”

Ukraine’s President Volodymyr Zelenskyy also Tweeted a 120-day extension had been agreed, but Russia and Turkey have yet to comment on the deal.

So far more than 11 MMT of grain and other agricultural products have been shipped out of Ukraine on the Black Sea Grain Initiative since shipments started in August. The extension falls well short of the one-year agreement that Ukraine and the UN were hoping for. The deal is seen as critical to helping alleviate global food insecurity.

At this stage, it is unclear whether the extension will also include the port of Mykolaiv which would allow more Ukraine grain out of the country. The current agreement only includes the ports of Odesa, Yuzhny and Chornomorsk. Insurers will also welcome the development as it also keeps the door open for ships that have been caught in the conflict since the outbreak of hostilities to get out. War risk underwriters will be on the hook for the full insured value of the vessels if they remain trapped at Ukraine ports for more than one year.

Singapore-based bulker owner Grindrod Shipping has seen earnings decline as it prepares to be taken over by Taylor Maritime Investments (TMI). The US-listed company said net profit in the quarter was down at $22.1m from $49.3m a year ago. Interim chief executive Stephen Griffiths, who is also the chief financial officer, said results were quite strong overall, but lower than in the second quarter as charter rates fell continuously.

“While supply fundamentals have remained intact with a low orderbook persisting due to uncertainty surrounding new engine technology and emissions controls, trade demand appears to have softened so far this year,” he added. Griffiths said in the first half of the year, minor bulks were the only major category of cargoes to remain positive from a growth perspective, but they too contracted in the third quarter. “Our vessels continued to outperform the larger dry bulk vessel classes during the quarter and year-to-date periods, and have delivered robust free cash flows for the company, further strengthening our balance sheet,” the interim boss added.

Handysizes achieved time charter equivalent earnings (TCE) of $23,257 per day, with supramaxes and ultramaxes at $25,645. So far in the final three months, handysizes have averaged $15,688 per day. Supramaxes and ultramaxes have managed $22,850 per day.

Revenue sank to $107m from $135m in the third quarter. There was a reduction in short-term operating days due to the redelivery of ships that were chartered in during a weaker market. These deals were not extended due to the reduced demand for dry bulk tonnage brought about by global recession, high interest rates and continued shutdowns in China, Grindrod said.

Ed Buttery-led TMI is paying $26 per share for Nasdaq-listed Grindrod in a deal valuing the target at $494m. Grindrod does not intend to declare any further dividends for 2022 prior to the takeover.