Shipping’s new imperative: continual crisis management

Analysis | Earnings up in turbulent times for Vancouver’s Seaspan Corp. and other major marine cargo players

Vancouver-based Seaspan’s containership fleet now includes 125 vessels and has an overall capacity of more than one million containers | Submitted

Another year, another crisis. Get used to it.

 

That’s the 21st century market mantra for marine container carriers, shippers and other global cargo movers.

It threatens to sink weaker links in the logistics chain on the transpacific and other major trade loops.

Vancouver-based Seaspan Corp., however, does not appear to be one of those weaker links.

Second-quarter 2020 financial results for the world’s largest containership leasing company speak to that.

During a COVID-19 quarter that could have been a disaster for companies all across the international shipping sector, Seaspan posted containership leasing earnings of US$77.5 million on revenue of US$303.8 million. That was a 10% increase compared with the same period in 2019. The company, which now operates under corporate parent Atlas Corp. (NYSE:ATCO), also raised the low end of its 2020 revenue guidance to US$1.19 billion from its previous outlook of US$1.18 billion.

All this in a year in which cancelled containership sailings on the lucrative Asia to North American West Coast route have thus far jumped 151% compared with the same period in 2019 and container shipping capacity between Asia and northern Europe fell 24% in April and 17% in May.

The Port of Vancouver’s cargo stats for 2020’s first six months show a 7.7% overall drop in container traffic.

The COVID-19 crisis has also raised the spectre of financial failure among major shipping lines around the world.

In a May 14 container shipping market update, Drewry, a U.K.-based shipping consultancy, estimated that second-quarter container port throughput dropped 16% compared with 2019’s second quarter, and that 2020 containerized marine cargo movement through major ports overall was shaping up to record its worst performance since the 2009 financial collapse.

Drewry’s Z score financial metrics, which assess how close a container carrier company is to slipping into bankruptcy, showed that eight of the 11 global container carriers assessed were in the Z score’s financial distress zone.

Drewry also noted that the COVID-19 pandemic is the latest in a shipping industry crises cycle whose frequency – starting with the 2016 bankruptcy of South Korea’s Hanjin Shipping Co. – has increased to one marketplace catastrophe per year rather than one every five or 10 years, as was previously the case.

So what is Seaspan’s secret? And more broadly, what is the secret of Maersk (CPH:MAERSK-B) and other major container shipping lines that have also posted robust 2020 Q2 revenue numbers?

“It’s incredibly impressive how well the industry is performing,” Ryan Courson, chief financial officer for Atlas and Seaspan, told BIV. “And a big part of that, I think, is a misperception that there isn’t rationality in the shipping industry.”

Courson added that, especially in the last five years, global shipping lines have adhered to a more disciplined approach to rationality that has helped address containership overcapacity on major trade routes and consequently reduced the negative impact of COVID-19 on the shipping sector.

The result is reflected in their surprising financial results in dire economic times, Courson said, “because I think most people would find it counterintuitive that [during this] pandemic, the financial results were as strong as they were for the liners.”

Ocean carrier bottom lines have also benefited from dramatic drops in bunker fuel prices caused by the pandemic.

But, as the Drewry numbers point out, COVID-19 has hammered the container cargo business hard.

Orders for new containerships consequently hit historic lows in July, according to international shipping data company Alphaliner.

Meanwhile, Maersk CEO Søren Skou noted in the company’s 2020 Q2 financial report that revenue had dropped 6.5% to US$9 billion, driven in large part by a 16% decrease in container cargo volume. Still, Maersk posted a 25% increase in profit compared with the same quarter a year earlier.

Courson said Seaspan’s decision in late 2019 to bring the company under the Atlas umbrella was focused on providing Seaspan’s management with more flexibility to invest in assets outside the container shipping sector while preserving investor interests in Seaspan’s containership business.

And it has enthusiastically embraced asset acquisition.

Since 2018, the company has deployed US$3.4 billion on that front.

Major acquisitions include 2018’s US$1.6 billion deal to buy Greater China Intermodal Investments LLC and its 18 containerships. Last November, it acquired APR Energy Ltd. in an all stock transaction valued at US$750 million. APR is the world’s largest lessor of mobile gas turbines. Courson described it as a leading provider of “fast-track power solutions.”

Those solutions include temporary power generation in jurisdictions where a grid has been knocked out by hurricanes or other disasters. Courson said APR’s technology also offers governments interim power generation to supplement energy needs while a region’s power grid is being expanded or modified.

In Q2 2020, Seaspan added another two containerships to its fleet, which now totals 125. Seaspan’s container-carrying capacity crossed the one million 20-foot-equivalent units (TEU) mark last year.

The company’s relative stability in the midst of the pandemic storm has helped it secure an investment grade rating from Kroll Bond Rating Agency.

Kroll, which has industrial transportation company expertise, based its BBB- rating on “Seaspan’s revenue and customer relationships within the shipping industry” and its “position as a global leader in containership leasing.”

However, Kroll cautioned that Seaspan and its group of containership lessees continue to face potential negative impacts from COVID-19.

And while Seaspan, with an 8% share of the global containership market, has US$4.5 billion in contracted future revenue primarily in long-term charters, Kroll noted that “uncertainty surrounding the duration of the pandemic can lead to continual downward pressure and have lasting impact on global trade.”

Its Seaspan note added that “while Seaspan itself is viewed more as an equipment leasing company than a shipping company, it remains subject to shipping industry volatility due to the customer base it serves.”

But Courson said Seaspan’s outlook remains upbeat.

“We have a very positive view on the long-term supply and demand dynamics of the container shipping space. … We own the largest global fleet of containerships [and believe] it is going to be a key component of that supply and demand equilibrium going forward.” •

trenshaw@biv.com

@timothyrenshaw