Greek owner John Coustas patted himself on the back as his container ship company Danaos announced a staggering profit late on Monday. “We foresaw the ongoing disruption in the supply chains and tightening of the container market through 2022 many quarters ago,” he said in a press release after his Piraeus-based company revealed that net income increased nearly sevenfold in 2021 from the previous year, to $1.05bn. Net income in the fourth quarter rose to $166m from $47.8m in the corresponding period of 2020. About half of Danaos’s annual profit, $543.6m, represents financial gains realized as the fair value of Danaos’s stake in Israeli liner company Zim “surpassed all reasonable expectations,” according to Coustas.

Danaos currently holds about 6% in Zim, after selling 3 million of its shares in the company last year for net proceeds of nearly $121m. Danaos results also include a $111.6m gain on debt extinguishment, as Zim and South Korean liner HMM redeemed bonds held by the company, as well as a $64m gain on the buyout of Gemini Ship holdings — a private Coustas vehicle that owned five post-panamax container ships. Remaining profitability was driven by sky-high charter income in a red-hot market for the company’s more than 70 container ships.

Danaos’s timely outlook directed its growth and strategy and helped maximize returns, Coustas said in his comment. Danaos sees no quick end to the current “positive dynamics” in the container market. “Our chartering policy will generate even better cash flows in 2022,” Coustas said. Padded by contracted revenue of $2.8bn through to 2028, the company said it felt comfortable enough to announce a 50% increase to its dividend to $0.75 per share. There may be even more in store to reward shareholders.

“The company’s significant cash flows support the increased dividend and also provide us flexibility to pursue accretive growth opportunities, continue to reduce leverage and also begin to consider a share buyback,” Coustas said. Coustas had told analysts as early as August that a dividend increase was on the cards from 2022. Danaos, which stood on the verge of bankruptcy in 2018, had not paid dividends for 13 years before resuming them in the first quarter of 2021.

Counterparty risk of the kind that almost sank the company a few years ago, when major liner company and Danaos charterer Hanjin Shipping went belly-up, “has completely disappeared,” Coustas said. Long-term charters are becoming the norm and liner companies expand in non-seaborne transport modes to spread their risk, Coustas argued.

On top of that, the German KG market, which was responsible for 70% of containership newbuildings during the previous shipbuilding boom, isn’t around anymore. Uncertainty over future environmental standards keeps a lid on the orderbook anyway, he added. “The future is bright and Danaos is well positioned to benefit from it,” Coustas added.

Cleaves’ new shipping hedge fund is building a long position in dry bulk. It increased its exposure — currently 52% — during the dip, according to a report by the fund, which is led by Joakim Hannisdahl, a former head of equity research. The rest is held in cash.

The Oslo-based fund, which launched in October last year, gained 3% in January versus the previous month, and is up a further 2.3% so far in February. “We are optimistic towards dry bulk shipping,” it said, with a seasonal shift expected after the Chinese New Year and the Beijing Olympics. “Although our forecast is for dry bulk earnings to average around the same level as 2021, we believe this is not reflected in the current pricing of the shares,” which are at a 25% discount to net asset value. Besides that, with the enterprise multiple at 2.8 for this year, “we see significant upside ahead.”

While the fund divested its liquefied natural gas and liquefied petroleum gas shipping positions before the market fell in the middle of last month, it is looking for re-entry opportunities in the very large gas carrier segment ahead of what is expected to be “better fortunes” in the second and third quarters of this year.

It is also monitoring a re-entry point in the oil tankers sector, which it dropped in December. Although the outlook is “bright” from the fourth quarter of this year, it “appears unattractive taking a bet on the segment at all-time-low earnings and amidst one of the worst reporting seasons on record,” it said.

The fund has yet to take a position on car carriers and containers.

Meanwhile, its Irish structure to attract international investors should be ready in April.

The soybean harvest in Brazil fell short of analysts’ expectations and will likely translate into an upsurge in demand for US stock and a hike in global prices. Brazil was anticipated a record harvest but lower yields and harvest delays due to adverse weather caught traders and end users by surprise. More than 110 ships have been chartered on a preliminary basis to load crops in the Pacific Northwest. Chicago future prices have shot up by 30% since early November to an eight-month high with the premium for July contracts over November rising eight-fold.

US sales of exports jumped to 2 MMT last week, far over analyst expectations. The higher cost of soybeans are set to impact the broader supply chain at a time when global prices of food are at near record highs. Feed costs for animals are set to rise as well as prices for cooking oil, already boosted by record palm and canola oil prices.

China typically looks to South America for supplies in Q1 as harvesting begins in early January. Until a few months ago, a bumper harvest was set for the continent with 145 MMT coming from Brazil, 50 MMT from Argentina and 10 MMT from Paraguay. Now experts forecast a drop in total exports of about 20 MMT ahead of La Nina which has brought unusually high temperatures and droughts to key growing regions.

10 years ago, Ukraine exported a mere 4 MMT of wheat; this rose to 18 MMT in 2020 and once official figures are in, will probably have exceeded 20 MMT in 2021. With Russian wheat exports dropping around 12 MMT to 25 MMT in 2021, Ukrainian wheat has become an important alternative market for several countries, particularly in Africa and the Middle East, which accounts for around 40% of all Ukrainian grain exports. Egypt and Indonesia, at around 3 MMT, are the largest markets for Ukrainian wheat whilst cargo shipped to Turkey is up 50% at 1.5 MMT.

Ukraine has benefited from the increase in global wheat prices over the past year but has recently seen prices start to come off, down to $311 this week, as buyers have become concerned about potential supply issues in the light of the region’s current political tensions and the proximity of Russian troops to the main wheat growing areas in the east of the country, whilst a strong crop in Australia has seen a number of Southeast Asian countries particularly Malaysia, Philippines and Thailand as well as Bangladesh switch to purchasing wheat from a closer source. A further concern for Ukrainian farmers with potentially reduced demand for their wheat is the exceptionally high costs of fertilizers and fuel given that the currency, the hryvnia, has weakened more than 5% so far this year.

Stronger dividend payouts by dry bulk peers have caused New York-listed Genco Shipping & Trading’s valuation to trail some others in the sector, but a solution is coming. That was the take from Genco chief executive John Wobensmith in a recent interview with Value Investor’s Edge commentator J Mintzmyer as the Manhattan-based bulker owner prepares to unveil its fourth-quarter earnings. The big news for Genco will be the size of its own dividend under a new high-payout policy previewed by the owner last April.

While Genco has taken its time rolling out the new product – slashing debt along the way – others have already been paying fatter dividends, including the likes of Greece’s Star Bulk Carriers and Connecticut’s Eagle Bulk Shipping. Mintzmyer asked Wobensmith why Genco “trades among the cheapest in the entire market in the dry bulk sector”. The researcher added: “There are companies that have less attractive or less transparent dividend policies, and they trade higher than Genco. What do you think is going on there, John?” Wobensmith said that on a price-to-net asset value basis, Genco had been near the top of the dry bulk pack through last summer. “After July that broke down…when most of our peers initiated their large dividend policies in the third quarter, and even in the second quarter in some cases. And I think that’s been a big driver,” Wobensmith said.

Genco did gradually increase its dividend from $0.02 per share to $0.15 over the course of 2021, but bigger numbers await. Mintzmyer did not publicly disclose his internal valuation metrics for the dry bulk group. However, investment bank Jefferies recently pegged Genco at 70% of its net asset value. This was well behind Star Bulk Carriers’ 82%. It also trailed Grindrod Shipping at 73%, but the number was slightly better than Eagle Bulk Shipping’s 69%. In any case, Wobensmith went out to make the case that Genco aspires not just to close any gap with peers, but to itself establish a sector-leading trading premium. “We’ve looked at 15 years of data, public shipping companies across all sectors. And there’s no doubt that dividend-paying companies trade at a higher valuation than non-dividend-paying companies,” Wobensmith said.

Genco has not yet tipped what its enhanced payout for the fourth quarter will be. Jefferies analyst Randy Giveans recently told TradeWinds not to expect too much, noting that Genco used the quarter to bring down its debt to a year-end target of $245m. Depending on hire rates, the bigger payouts should follow this one, he projected.

Mintzmyer speculated in his dialogue with Wobensmith that Genco could pay close to $4 per share for the full year. “Which is massive,” he said. “If that happens, wow, I’m not going to be complaining as a shareholder.”

Wobensmith harkened back to the last time Genco paid large dividends in the peak market between 2006 and 2008, saying the payouts reflected a double-digit yield for the first four quarters before the stock price responded strongly and the yield dropped to single digits. “It took four quarters to season before you really got that yield where we believe it should be trading,” Wobensmith said.

The difference: this time Genco has minimal debt, in the range of 20% leverage.

Shipping is about to close the books on the year that was 2021, and the numbers presented for the year’s fourth quarter in the coming earnings season are likely to tell quite different stories depending on the operating sector. Maybe not quite “The Good, the Bad and the Ugly”, but something along those lines. Streetwise caught up with Jefferies analyst Randy Giveans, who covers a broad range of 30 US-listed shipowners across these segments, for a preview of the earnings reports to unfold over February and into March. What is he looking for in the three biggest operating sectors, and which are the individual companies he’s most eager to hear from over the period?

The last months of 2021 were still a good time to own a container ship or a bulker, and Giveans expects earnings season to reflect that. “It’s a very good time for the container guys, whether it’s the lessors like Danaos, Global Ship Lease, Atlas, Capital Product Partners or liner operator Zim,” Giveans said. “The numbers are going to be bonkers. We expect the fourth quarter to be better than the third. We’ll be looking at guidance’s for full-year 2022, but we expect the outlook to be very good.” Some of that guidance already has surfaced, with Danaos on 20 January announcing multi-year charters on 11 vessels slated to fetch $870m, bringing its revenue backlog to $2.8bn.

With that update, Jefferies’ focus will be on new information from Zim, the liner giant that went public in New York just over one year ago. “Zim is certainly the focus stock for containers,” Giveans said. “We don’t have the visibility or transparency we do with Danaos. Their earnings call in early March will certainly be the most dynamic and highly anticipated in a very long time, just because there are so many variables.” One is the size of Zim’s annual dividend declaration, which Giveans said could range between $8 and $15. “My guess is $10 to $12,” he said. “I’d be surprised if it’s below that. I wouldn’t be surprised if it’s above that.”

Also joining the party will be dry bulk owners, even though by the fourth quarter the market came off highs seen earlier in 2021. Jefferies already has trimmed fourth-quarter earnings estimates because of that drop, but Giveans stresses that he still expects good numbers from the peer group. The analyst will also be looking hard at any guidance’s on booking for the current quarter, which he expects to be choppy but nonetheless profit-making. “Cape rates are going to be volatile for January and February, but I’m very confident this quarter is going to be the bottom for 2022. Everything is saying rates will improve. It’s all about how transient the China impact is along with weather delays,” he said. For individual names, Giveans finds it hard to choose among Star Bulk, Genco Shipping & Trading and Eagle Bulk Shipping, all of which are expected to dole out substantial shareholder dividends. Genco may stand out because it is the first distribution to be paid out under its new “high payout” model, but Giveans cautions not to expect too much, as the New York shipowner has signaled it would aggressively pay down debt in the quarter.

In many years, tanker owners would be champing at the bit to talk about the winter rates rally that started in the fourth quarter. Not this year. It was a tough end to 2021 and an equally bad start to 2022. “Pretty much all the tanker companies, crude and clean products, lost money in the quarter. The big question will be current guidance, but it’s probably going to be just as bad,” Giveans said.  Giveans’ counterpart at Evercore ISI, Jonathan Chappell has headlined the tanker earnings season thusly: “Move along, nothing to see here.” Still, Jefferies thinks that any further cash burn by the peer group will be offset by evidence of rising vessel valuations in the private market, lending support to net asset values. Most interesting to Giveans are International Seaways on the crude side – “anything around asset sales, shares buybacks and their two jointly-owned FSOs” – and Scorpio Tankers, which could shed light on the quarter’s cash burn and any stock buyback plans.

Containership charter rates have stormed to new record highs with analysts warning that the scarce tonnage available could see prices remain at extraordinary levels for much of the year. Broking reports yesterday that busy Pasha Group had taken the 2,756 teu X-Press Mekong for 50 days from the end of February for a stunning $175,000 a day have been confirmed today by liner data provider Linerlytica, the highest rate ever paid for a containership of this capacity. Details of the charter stipulate that the price escalates if it is redelivered late. The prompt delivery of the vessel is understood to have pushed prices higher, with very few vessels now available for swift charter.

The one-year-old vessel is a sister ship of the ill-fated X-Press Pearl, which caught fire and became one of the most high-profile shipping casualties of 2021. X-Press Feeders and its parent Sea Consortium have played the markets well during container shipping’s boom era. Alphaliner this week suggested the company was behind the boxship S&P deal of the year for 2021 with the sale of the 4,896 teu X-Press Jersey to Mediterranean Shipping Co (MSC) for $105m, a ship the Singapore-based company had picked up in 2019 for just $26.9m. Pasha Group, and its Jones Act liner Pasha Hawaii, have been sending charter rates northwards repeatedly in the opening weeks of 2022. Splash reported last month how Pasha had teamed with wholesaler Costco to make some big plays in the charter market, taking seven charters for ships ranging in size from 2,100 to 3,500 teu with most taken on a three-year basis.

Among other eye-catching recent charter deals concluded, Alphaliner is reporting the 2,452 teu, 1997-built Messini has been fixed to Wan Hai at what the liner consultancy described as a “mind-blowing” $80,000 a day for 12 months. “This rate is an absolute all-time high for a standard and relatively basic ship of this age, and for this duration,” Alphaliner said of the 25-year-old ship in its latest weekly report.

There are also reports circulating of a 4,300 teu panamax being taken for a short period at $230,000 a day. As well as the overall congestion picture tying up a considerable swathe of the global container fleet, broker Clarksons pointed out in its most recent weekly report that the purchase of ships by many liner companies has been another reason for the extremely limited availability of tonnage on the charter market. “In the larger sizes, it is only a matter of time before 2023 becomes the focus, with almost no ships available for the rest of 2022. These staggering market conditions look set to continue for some time, especially with significant newbuild deliveries still some way away,” Clarksons pointed out.

Looking at today’s market conditions compared to a year ago, container analysts at Braemar ACM observed this week that 12 months ago the market still offered alternative supply, but now some operators may not be able to cover their requirements. “The year of the Ox saw the biggest Bull market in container living memory, but the year of the Tiger is set to eat all of the existing charter rate records, all of the existing freight rate records, all of the SNP price records, and all of the 2024 and possibly 2025 newbuilding berths,” Braemar ACM predicted in its most recent container briefing.

Second-quarter futures contracts in the dry bulk spot market moved higher on Wednesday even as the spot market slid amid the sluggish Lunar New Year break. Forward pricing for supramax bulker spot rates jumped 3.6% during the day to top $23,600 per day, which represents a 12% leap on second-quarter contracts traded a week earlier. The second quarter FFA contracts point to improvement from prevailing spot rates, with the supramax 10TC average of time-charter equivalent rates slipping less than a percentage point to on Wednesday to $17,300 per day. Supramax spot rates have been sliding since mid-December when they peaked at just above $28,000 per day.

That came even as the Baltic Exchange pointed to quiet markets across the bulker sizes, as many countries in Asia celebrate a week-long holiday.

Still, in supramaxes, the mood was sanguine on Wednesday. “Whilst fresh activity remained scarce from Asia brokers said that sentiment generally remained positive,” the exchange’s analysts said of the sector. Among a handful of fixtures in the sector was a charter of Noma Kaiun’s 63,500-dwt HSL Chicago (built 2020) for a voyage from Turkey to the Far East at $30,000 per day. With little to compare it to, Baltic Exchange analysts said some in the market described the ultramax charter as “strong”.

Elsewhere, next-quarter futures for the capesize market saw a similar gain, rising 2.8% during the day to $27,900 per day. That represented a 7.2% improvement on the price of second-quarter contracts a week earlier. The capesize 5TC, an average of spot rates across key routes, dipped 1.3% on Wednesday to $10,616 per day.

There were few fixtures to speak of in the sector, with Fortescue Metals Group taking an unnamed capesize to move a 160,000-tonne cargo from Western Australia to China at $7.60 per tonne. That is better than the last done fixture of $6.50 on 27 January, but it’s below the Baltic Exchange’s $7.88 per tonne assessment for the route on Tuesday. “The capesize market slipped back today slightly, with little fresh activity being reported, with most players waiting for many in Asia to return to their desks,” the exchange said in its daily report. “There was limited fixing in the Pacific and sentiment remained flat overall.”

A tribunal in England has ruled that a US-style class action lawsuit can go ahead against five car carrier operators that broke European Union competition laws. The lawsuit seeks compensation for millions of UK motorists, who claim they were overcharged for vehicle deliveries because of price fixing. In 2018, the European Commission imposed a €395m fine on vehicle carriers MOL, K Line, NYK Line, Compania Sud Americana de Vapores (CSAV), Wallenius Wilhelmsen Logistics and its sister company, Eukor. The EC found the carriers had fixed prices, allocated business, coordinated capacity reductions, and exchanged commercially sensitive information — breaking EU competition law. Now the UK’s Competition Appeal Tribunal has ruled that the class action can proceed against the carriers, following a hearing in November last year.

The class action lawsuit is one of the first of its kind to be filed in the UK and is estimated to be worth around £150m ($204m) in damages for car buyers. Mark McLaren, currently on the consumer panel of the UK’s Legal Services Board, is bringing the group action on behalf of consumers and businesses under the Consumer Rights Act 2015.

UK motorists and companies who bought or leased new cars affected by the price-fixing activity between October 2006 and September 2015 are automatically included in the class and would be eligible for compensation — if the claim is successful. Law firm Scott + Scott has been instructed by the claimant, as well as barristers from Brick Court Chambers in London. The collective action is being funded by Woodsford Litigation Funding, a third-party legal action financier. Steven Friel, chief executive of Woodsford, said the tribunal’s decision to allow the lawsuit to proceed was “a huge success for consumer redress in the UK. My only regret is that big corporate defendants, even after they have been found to have acted unlawfully, continue to use their significant legal and financial resource to fight technical arguments, with the goal of delaying compensation payments to consumers. The cartelists in this case should not have objected to certification of this class action. Now that the court has thrown out their futile objections, they should settle the case and allow UK consumers to receive the compensation they are owed.”

Car carrier owners that engaged in the price-fixing activity are facing several claims worldwide by other parties, who say they were overcharged as a result. Wallenius Wilhelmsen is facing a UK trial for claims brought by German car maker Daimler. The manufacturer has already settled claims against NYK Line, CSAV and K Line. Volvo and Jaguar Land Rover have been given approval to pursue class-action lawsuit in the UK against MOL, K Line, NYK Line, CSAV, Wallenius Wilhelmsen Logistics and Eukor.

German car maker BMW is pursuing damages claims in South Africa against car carrier owners including MOL, Wallenius Wilhelmsen Logistics and K Line, which it claims engaged in fixing prices.

In January, India imposed fines on NYK Line, K Line, Mitsui OSK Lines and Nissan Motor Car Carrier Co for colluding on car carrier rates.

A group of leading nations is to cooperate to keep watch on any potential anti-competitive behavior in soaring container markets. The US, UK, Australia, Canada, and New Zealand — collectively known as Five Eyes — said they will monitor shipowners worldwide in the light of disruption in supply chains. Competition authorities in the countries will focus on “illegal conduct, including collusion,” they said. They are concerned that disruption has led to much higher freight rates and more expensive goods for consumers.

“The global freight supply chain is a complex network involving many jurisdictions, so naturally detecting anti-competitive conduct requires strong international partnerships,” said Australia Competition and Consumer Commission (ACCC) chair Rod Sims. “Covid-19 has caused the supply chain disruptions the world is currently experiencing, but the purpose of this working group is to detect any attempts by businesses to use these conditions as a cover to work together and fix prices,” he added. He pledged to share intelligence to identify any behavior that restricts or distorts competition. “Companies are now on notice that the ACCC and its international counterparts will be ready to act,” Sims said.

Freight rates on key global trade routes are currently about seven times higher than they were two years ago. “Australia is an open, trade-exposed economy, and like the other international agencies in this working group, we have a very strong interest in preserving strong competitive markets for global trade,” Sims added. The working group will be watching for any cartel-like behavior, or “exclusionary arrangements by firms with market power,” the ACCC said. The deal complements several existing formal and informal cooperation agreements with competition agencies in the five countries.

In April 2019, the ACCC signed a cooperation agreement with the FBI in the US to combat cartels and other anti-competitive behavior. In September 2020, the Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities (MMAC) was established by the US Department of Justice, US Federal Trade Commission, the UK Competition and Markets Authority, the New Zealand Commerce Commission, the Competition Bureau Canada, and the ACCC. In recent years it has been car carrier owners under the price-fixing spotlight, with several fines imposed around the world for historic abuses of competition law.

Last week the Shanghai Containerized Freight Index (SCFI) eased a further 0.7%, its fifth straight weekly reading of declines. Each of these falls has been less than 1%, however. And Clarksons Platou Securities said charter markets remain active. The group’s container desk has noted that demand continues to outstrip available ship supply across all sizes. The investment bank is assessing 12-month rates for 4,400-teu vessels at a record $120,000 per day, up from $116,500 last week.