New York-listed Eagle Bulk Shipping is being linked to the purchase of a scrubber-fitted ultramax bulker for a price that suggests further confirmation of values sagging off their market peaks of May and June. The Connecticut shipowner is paying below $28m for the 61,200-dwt Ultra Trust (built 2015), according to sources in the dry bulk market. The buy would mark Eagle’s return to the sale-and-purchase market for the first time since June 2021 and suggests the owner has acted at a time when values are 10% to 15% lower than the early-summer apex. Eagle Bulk declined comment on the reports on Tuesday.

The seller is Ultrabulk of Denmark, which is understood to control the vessel through a leasing agreement with Japanese financiers. Ultrabulk, the dry bulk arm of Chile’s Ultranav, is thought to be exercising a purchase option and re-selling the vessel, which was built at Japan’s Imabari Shipbuilding. The sale price is $1m or cheaper than the $28.8m estimate from VesselsValue for the Ultra Trust, which is also equipped with a ballast water treatment system.

Another reference was provided on Tuesday by Arrow Shipbroking, which noted that the 61,000-dwt Pavo Bright (built 2017) was sold in mid-June for “mid-$33m” range. Though that vessel is younger, it also lacks a scrubber, which typically adds between $1m and $2m to values. Arrow said the high for a 7-year-old scrubber-fitted ultramax came in December 2022, when a price of $31.3m was paid for an unidentified vessel.

A more-recent comparison can be found in a deal by New York-listed Diana Shipping, which paid an average $36.67m for nine Sea Trade Holdings ultamaxes built between 2015 and 2018. While the average age again is younger, the Sea Trade vessels are not equipped with scrubbers. If the average price is adjusted to some $35.7m for 2015 vintage, the level is still more than 20% higher than the Eagle purchase.

One other comparison comes in a pair of Golden Ocean ultramaxes sold in July. The 61,000-dwt Golden Cecile and Golden Catharine (both built 2015) were reported sold for $31.5m each. Both had ballast systems installed.

The Ultra Trust would be the first Japanese-built bulker purchased by Stamford-based Eagle Bulk since chief executive Gary Vogel took the helm in 2015. It would bring Eagle’s fleet count to 53 ultramaxes and supramaxes.

The panamax bulker market had a good day on Tuesday thanks to supply constraints and grain expectations out of the Americas, while the rest of dry bulk shipping lost some ground. The Baltic Exchange’s Panamax 5TC spot-rate average across five key routes gained 6.5% on Tuesday to come in at just over $12,700 per day. “The cargo list is well supported by the end of September and beginning of October for grain cargoes exporting from the US Gulf, where we have seen some bids rise a touch from last week,” French shipbroker Barry Rogliano Salles (BRS Group) said in a report on Tuesday.

Kotoko Kaiun’s 82,000-dwt Ever Zenith (built 2021) was hired on Tuesday to carry grain from east coast of South America to Europe at $23,000 per day, Baltic Exchange data showed. Loading is set for 20 September. A similar voyage has not been fixed since 23 August, when a 79,000-dwt bulker was chartered for $26,000 per day on the route. But assessments for transatlantic round voyages jumped $585 on Tuesday to hit $10,100 per day. Despite Tuesday’s gains, the Atlantic market still lacks mineral cargoes. “As the tonnage list continues to build, it leaves many in doubt as to how long the positive feel will last,” BRS said.

It was a mixed day for panamax futures on Tuesday, but FFAs continued point to higher spot rates in the months and quarters ahead. October contracts gained $357 to come in at $16,300 per day, but December contracts dipped $179 to just over $15,100 per day.

BRS Group added that panamaxes in the North Atlantic may come down and pick up soybeans from East Coast South America and send them to China, which expects to boost soybean imports by 9% to 98 MMT during the 2022-2023 marketing year. Meanwhile, Brazil is expected to export 92 MMT of soybeans during the marketing year, up 19% from what it sent out in the prior marketing year, Greek broker EastGate Shipping said. “This gives hope to earnings’ projections for the medium-sized bulkers that tend to carry the commodity on long-haul voyages,” the company said in a report on Tuesday.

Further, Canada is expected to harvest 34.6 MMT of wheat during the same marketing year, up 55% more wheat than last marketing year’s volume. The country also expects to export 19.5 MMT of canola during the year, up 19% from the prior marketing year, EastGate said.

“Overall, China’s feed needs remain elevated lending hope to the shipping markets, as it is said that China has been postponing its grain purchases towards the last quarter in anticipation that a large US harvest of around 123 MMT will put pressure on the commodity prices,” EastGate said.

Other bulker segments took losses for Tuesday. The Capesize 5TC slipped 9.1% on Tuesday to $6,093 per day, while the Supramax 10TC gave up $127 per day to come in at $16,355 per day.

What is the best way for investors to put a value on shipping stocks? At a time that the dynamics of listed companies are in a state of flux the question is an important one. That dynamic is one where the big guns are getting bigger through M&A and there is a new school of minnows, penny stocks, swimming in the pond.

Analyst Amit Mehrotra, who covers shipping and a universe of surface transport names at Deutsche Bank, has just published a “Primer on valuing Shipping companies” which lays out what he believes to be the key parameters.  He suggests that: “The key to long term equity value creation in shipping is not embedded in net asset value (NAV), but rather sustainable cash flow attributable to equity holders.” Mehrotra believes that in the world of shipping investing, lower risk can mean higher reward. He cites tanker stalwarts Euronav/Frontline (EURN/ FRO), along with Star Bulk (SBLK) on the dry side, “which offer the financial scale to represent true investment opportunities. Interestingly, these companies have business models that prioritize risk management and low debt”.

A slightly different take on these issues comes from Clarksons Securities,  in a recent tanker market presentation from analyst Frode Morkedal who suggested that the point where we are in the longer-term cycle will impact exactly how investors look at “value”. In his slides, he suggested that during a longer-term upswing, which he suggests the tanker market is experiencing, investors will change their way of putting prices on shipping equities, moving from the NAV methodology towards a valuation framework built around cash flows and earnings with the peer group of large tanker stocks presently trading at somewhere around 3.6x earnings. For investors in tanker shares, this could bring back a return to the excitement of the mid 2003 to 2008, in Morkedal’s view, as P/E ratios begin to expand.

The differences in viewpoints are subtle. Mehrotra, stressing the importance of bigger players with clean balance sheets, at a time that emissions regulations have effectively created barriers to new entrants, suggests such considerations get ahead of pure cyclicality. He noted that EURN and SBLK have dramatically outperformed peer companies in their respective sectors. Deep in the weeds of financial metrics, he explains an emphasis on NAV limits upside outcomes during cycles because cash flows are only valued at 1x- “…via the increase or decrease in net debt.” He says that valuations tied to the changes in cash flows can achieve higher multiples, like Morkedal’s view of investors’ valuation mechanics after they’ve decided that an upturn is real. Mehrotra’s “Primer” emphasizes not-so-subtle differentials. He says that prudent risk management, certainly the case with EURN and SBLK, will boost company valuations across the full spectrum of market conditions. He says that: “we see equity values of companies with low leverage remain relatively resilient in downturns vs. equity in companies with high leverage become impaired as market participants price in the potential need for new equity at the lowest point in the cycle.” Conversely, he says that: “Shipping companies with low leverage at all points in the cycle also have an ability to invest in a downturn, when asset values are lower, which secures low breakeven rates”.

Scorpio Tankers (STNG), a company not favored by Mehrotra, which, indeed, has been heavily leveraged, is mentioned as a potential beneficiary of the shift in trade flows with the Ukraine war at a time of a low tanker orderbook. He says: “There have been several periods over the last two decades where refined product tanker rates spiked for several weeks, followed by a quick rebound back to lower rates. Given the current favorable demand dynamics as well as expected low fleet growth in coming years, this time could be different and be the beginning of a sustained upcycle in rates as underlying supply and demand dynamics have never been so favorable.”

While we have remained bearish for much of the global economy and certainly for the steel market outside of China, one positive issue that we have continued to stress in our work is that there has been a very solid chance that China’s steel production bottomed in late July.  New today is data released showing China’s steel production increased again in late August, just as it increased first back in early August and then again during the middle of the month.   Daily crude steel production at large and medium-sized mills in China averaged 2.03 MMT during August 21- 31.  This is up by 2% from the middle of August, is up by 7% from the low seen in late July and is down year-on-year by only 1%. 

The ongoing rebound in China’s steel production is encouraging especially considering that it has been occurring while coronavirus cases and restrictions have been intensifying across the nation. 

The most recently released data as of September 4th shows that the daily coal burn rate at China’s six major coastal power plants has come in at only 861,000 tons.  This is only 0.5% higher than the 857,000-ton burn rate that was seen one week prior (which at the time marked the lowest burn rate seen since early July).  The last three weeks have a significant change in coal burn.  Before these last three weeks, coal burn had set records during four of the prior five weeks.  Compared to the record burn seen back in mid-August, the most recent 861,000 burn rate is down by 7%.  It is, however, still up year-on-year by 11% — but China remains well supplied with coal. 

Goldman Sachs appears to have broadened its shipping interests by revealing holdings in John Fredriksen’s Frontline and seismic survey player Magseis Fairfield. Filings made to the Oslo stock exchange state that the US investment banking behemoth now has 5.26% of the tanker company, with 271.7m shares worth $139m. Goldman Sachs also controls 11.29% of Magseis Fairfield, giving it a holding worth $27m.

The disclosures were classed as a “newly disclosable position” because of changes to the European Union’s substantial shareholding rules relating to transparency on 1 September. But the filings do not necessarily mean the investment bank controls the shares. In March, the group made a similar filing about passing the 5% threshold in Oslo-listed MPC Container Ships, but it later emerged that this stake was being held on behalf of other unnamed investors. Frontline and Goldman Sachs have been contacted for comment.

The Frontline holding would make Goldman Sachs the third-biggest investor behind Norwegian pension fund Folketrygdfondet (5.28%) and ahead of BlackRock (2.67%). Fredriksen himself controls about 36%. Frontline’s shares closed +2% at $11.92 in New York on Friday and were up nearly 1% at NOK 119.70 ($11.90) in Oslo on Monday.

Frontline and Magseis Fairfield have announced major tie-ups with rivals this year. The tanker company is trying to push through a merger with Belgium’s Euronav, while the offshore player announced the creation of a seismic survey giant through its takeover by ship charterer TGS.

The Oslo-listed seismic operations are coming together to form a company with a market cap of more than $1.7bn. Magseis Fairfield operates remote vehicles from ships to collect ocean bottom node data. It also owns the 65-loa seismic survey vessel Fairfield Endeavor (built 1977).

Goldman Sachs’ shipping investments include a 29% position reported in Evangelos Marinakis-backed Capital Product Partners and nearly 5% in Norway’s Klaveness Combination Carriers.

In 2021, class society Lloyd’s Register agreed to sell its business assurance and cyber security division to Goldman Sachs Asset Management for more than $100m.

Q2 results for global liner shipping have surpassed what has ever been reported by any company in the historically low margin transportation sector, according to a new report from container veteran John McCown, who heads up Blue Alpha Capital. Seven individual container shipping companies had Q2 net income higher than UPS, consistently the most profitable transportation company in the world, with these carriers more than twice as high on average compared to the American logistics giant. The combined net income of UPS, FedEx, Union Pacific, and JB Hunt in Q2 was $5.5bn, just 8.6% of the earnings of the container shipping industry. Collectively, the net income to revenue margin of those leading US transport companies was 9.2% in the second quarter of 2022, just one-fifth of the actual container shipping margin. Comparing liners to the FANG quartet, namely tech giants Facebook, Amazon, Netflix, and Google, also highlights the rarified atmosphere container shipping has entered over the past year. Container shipping industry profits were 14% higher than total FANG profits in Q4 last year, 103% higher than FANG profits in Q1, and 145% higher in Q2. Moreover, the container shipping industry’s net income to revenue margin of 46.1% in Q2 was four times the overall FANG margin and still almost twice as much if low margin Amazon is excluded.

McCown has tallied the results of 11 global liner operators that issue financial reports, who represent nearly two-thirds of total capacity, while assuming the remaining non-reporting operators had similar per teu results to develop the overall container industry results. McCown argued that too much focus had been spent by analysts and media this year on the declining spot market, which he said accounted for only 10% of boxes shipped. Contract rates remain massively elevated and are the reason McCown is forecasting liner shipping will make a cumulative net profit of $244.9bn for the full year of 2022, a remarkable 65.2% improvement over 2021’s record results. “The folks who focus on spot rates and are predicting a near-term earnings collapse are substituting narrative for analysis and will be proven wrong. We may be at or near the peak, but no earnings collapse is imminent,” McCown wrote. A key tool to watch, according to McCown, are blanked sailings. “Look for that to be a key driver of the industry’s performance for the balance of 2022 and in the years beyond,” McCown predicted.

Data from Container Trades Statistics (CTS) shows that worldwide container volumes were down 1.6% in the second quarter compared to the same quarter last year, extending a downtrend from the 1.2% volume decline in the first quarter. Many other analysts are voicing caution about liner prospects. The demand-led spikes seen during the pandemic that propelled container shipping to record earnings are now a thing of the past, according to recent analysis from Copenhagen-based Sea-Intelligence. Sea-Intelligence has run the numbers on supply and demand during the covid era, and its conclusions add to the growing consensus that volumes are slipping, and it is only supply chain chaos such as port congestion that is helping prop up rates. Global demand was consistently at a level 10% higher than capacity, from November 2020 to January 2022, according to Sea-Intelligence. However, the gap has been narrowing, and the most recent data from June, shows a gap down to 2% versus the pre-pandemic levels. “All in all, what the data shows is that the extreme spikes in freight rates in 2021 were indeed driven by a situation where demand suddenly exceeded capacity at a global level, but it can also be clearly seen that this was an effect primarily driven by the unavailability of capacity,” Sea-Intelligence argued. The recent trend towards normalization has in turn also been primarily driven by gradual improvements in schedule reliability and vessel delays, Sea-Intelligence suggested, going on to predict that the supply/demand balance will continue to decline, and freight rates will be under increasing downwards pressure. Sea-Intelligence warned yesterday that trends on the transpacific ought to worry carriers. “As of now, scheduled capacity deployed on both Asia-North America trades for the upcoming weeks is considerably higher Y/Y, which will likely outpace even the most generous assumptions of demand growth. If this level of capacity deployment is maintained, utilization levels are likely to drop even further, causing a downwards pressure on freight rates,” Sea-Intelligence stated in its most recent report.

The Shanghai Containerized Freight Index (SCFI) spot box freight rate index stood at 2,848 points on September 2, down 10% week-on-week and now down 44% on the peak at the start of 2022, albeit still more than three times the 2019 average. Rates on the Shanghai-US west coast route fell by more than 20% week-on-week to $3,959 per feu. While long-term box freight rates continue to climb, they are finally showing signs of coming under pressure. Data from online platform Xeneta shows that long-term rates increased 4.1% in August, standing 121.2% higher than this time last year. Nevertheless, there are signs that new long-term contracted rates are starting to drop on key trading corridors. However, due to the fact they’re replacing expiring agreements with considerably lower rates, the average paid by all shippers is still climbing. “Volumes are dropping and as expected, long-term rates are beginning to follow the trend set by the spot market,” Patrik Berglund, Xeneta’s CEO, commented last week. Unveiling record quarterly results on Friday, Rodolphe Saadé, chairman and CEO of CMA CGM, became the latest high-profile liner executive to highlight the changing fortunes in the container trades. “The global decline in consumer spending, which was already perceptible this summer, will lead to more normal international trade conditions in the second half as well as to a downturn in shipping demand,” Saadé said.

Two vessels involved in the Ukrainian grain export trade have suffered delays in Turkey’s Bosporus strait. The engine of the 6,900-dwt Cook Island-flag multipurpose Briza (built 2003) failed at around 2330 GMT on Friday night as it transited the waterway, according to ship agency Tribeca Shipping. The MPP anchored near Istanbul’s Kandilli area. The ship then lifted anchor at 0120 GMT on Saturday and was taken to an anchorage area in the southern Bosphorus by tugboats. Traffic in the strait was halted. Southbound voyages resumed at 0530 GMT Tribeca added.

The Briza remained at anchor on Monday morning, AIS data showed. The vessel’s destination is listed as Chornomorsk in Ukraine. The Briza is operated by Ukraine’s Donbass Transit Service. It was due to load grain under a UN-brokered deal agreed in July with Russia. The Istanbul-based Joint Coordination Centre (JCC), which oversees the agreement and includes UN, Russian, Ukrainian, and Turkish officials, said on Friday the Briza had been inspected and cleared to sail to Ukraine along with seven other ships. This was the second casualty incident involving a Ukrainian grain export vessel in two days.

The 32,000-dwt Panama-flag Lady Zehma (built 2005) grounded in the strait on Thursday, with a cargo of more than 30,000 tonnes of grain from Ukraine. The ship, which had left Chornomorsk on 28 August, was towed to anchorage in Istanbul. A rudder failure was blamed for the incident.

Turkish state broadcaster TRT Haber said traffic was reopened following a halt after the accident. Tribeca reported the towage and salvage operation started three hours after the grounding. During the grounding, the ship’s bow had been about 150 meters from shore in the busy Bebek neighborhood, according to a witness and Refinitiv Eikon data. The Lady Zehma, listed by Clarksons as owned by unknown Turkish interests, remained at anchorage in Istanbul on Monday.

Security fears have meant Ukrainian trade has been limited to older, low-value ships so far. As of Friday, about 1.77 MMT of grain and other foodstuffs had been exported from Ukraine under the deal, while 160 inbound and outbound voyages had been enabled, the JCC said.

Russia blockaded Ukrainian ports followings its 24 February invasion of Ukraine. Three terminals were unblocked under the deal signed on 22 July.

A second capesize has been reported sold for demolition in the span of three weeks, suggesting that underwhelming earnings for such ships may yet provide work for underemployed scrapyards. Cash buyer Best Oasis says in its latest weekly report that the 174,100-dwt Star Tianjin (built 2004) is heading towards the scrapyard. According to Clarksons, the vessel is changing hands for $600/ldt on an “as is” basis in the Indian port of Vizag.

Chartworld Shipping, the Lou Kollakis-led company currently listed as managers of the ship, didn’t respond to a request for comment. Until late last year, the Star Tianjin was trading as Mineral Tianjin in the fleet of Belgium’s Bocimar. If confirmed, the Star Tianjin would be the youngest capesize to be sold for demolition since December 2020, according to data from VesselsValue. The “premium price” fetched by the Star Tianjin reflects a large quantity of bunker fuel remaining on board, Clarksons said. There is also “speculation (that) the unit could be fixed for a short trade,” the London-based brokerage added.

Regardless of the deal’s particularities, however, a second sale of a capesize within three weeks can only mean good news for a demolition market that has been disappointing. According to the latest Clarksons figures, demolition sales have declined at an annual pace of 41% so far this year to 9.4 MDWT. “Against the backdrop of cooling bulk carrier earnings, there appears to be potential for an increase in older bulk carrier tonnage entering the recycling market,” Clarksons said. Older and less fuel-efficient capesizes without scrubbers have fared particularly badly in freight markets lately, with earnings consistently below operating expenses.

A first step in removing some of that tonnage from that age of ships took place in mid-August, when Golden Union, another Greek owner, reportedly sold its oldest ship, the 171,500-dwt Captain Veniamis (built 2001), for about $550 per ldt. Any large-scale scrapping revival, however, looks unlikely if India remains the only destination where large units can be scrapped.

With floods wrecking large parts of Pakistan, activity at demolition yards in the country has been “severely disrupted”. Rivals in Bangladesh continue facing financial constraints as yards are barred from obtaining letters of credit above $3m. “End-buyers from Alang are maintaining their offer price levels due to the pertaining scarcity of units available in the recycling market resulting in competitive bidding among recyclers to secure tonnage,” Best Oasis wrote.

CMA CGM, the world’s third-largest container line, posted record profits for a sixth consecutive quarter but warned of an “already perceptible” decline in consumer spending that would lead to a shipping downturn as early as this year’s second half. The French container line has reported $34 billion in profits since the pandemic began and said intense pressure on global supply chains and acute geopolitical stability continued in the second quarter of 2022. Profits gained 118% to $7.6bn on revenues of $19.48bn for the three-month period ending June 30, even as volumes carried dipped slightly year-on-year. Revenues were up 57% compared with 2021’s second quarter, with the shipping division accounting for four-fifths of money earned. Record-breaking profits came even as fuel costs were $1bn higher for the container line’s fleet of more than 550 vessels over the first six months, the company reported.

Container lines are generating the highest profits since containerization began more than 50 years ago on the back of continued global logistics logjams and supply chain interruptions that began with mass lockdowns across the world to deal with the global pandemic. CMA CGM chairman and chief executive Rodolphe Saadé said the company was accelerating supply chain investments beyond shipping, completing purchases of two logistics companies, and finalizing air freight contracts with Air France-KLM, of which it is now the biggest shareholder.

As freight rates collapse on the key transpacific route to the US West Coast from China ahead of the peak season, the company noted that inflationary pressures and geopolitical tensions had clouded the outlook for the traditional peak season, now underway. “The sharp increase in energy costs, combined with rising commodity prices, is weighing on consumer spending and could have a negative impact on the economic situation and the outlook for growth in world trade,” the company said. “In recent weeks, inflationary pressures have caused a slowdown in consumer spending and therefore a softening in demand for maritime shipping. In some regions, these developments have led to a decline in spot freight rates.”

Widespread port congestion reduced the quality of service that CMA CGM provided, and limited volumes carried, while pushing up operating costs by 22% including a 75% rise in bunkering costs. The company shipped 5.62m TEUs in the second quarter, lower than the 5.69m seen over the year-ago period, which the group attributed to global supply chain pressure and port congestion.

Some 90% of consolidated profits were being reinvested the company said.  A fleet of 12 aircraft begins operating by 2026 and 44 new vessels with dual fueled engines to run on liquefied natural gas are currently on order. CMA CGM also highlighted recent investments in satellite and space-based connectivity to support maritime and logistics and had acquired a stake in Eutelstat Group.