You don’t need to know the latest quarterly results to know how shipping stocks are doing. It’s all about the present and future rates, not what happened months ago. And when it comes to rates, container-ship owners are doing much better. Tanker and dry bulk owners are still doing poorly.
Ocean shipping stocks report quarterly results later than many other business segments. In some cases, a shipping company won’t report its prior quarter until nearly the end of the current quarter. Given how fast freight markets can move, quarterly shipping results often read like ancient history. What investors look for is color on the current and coming quarters.
Now that Q4 2020 is coming to a close and all of the shipping results for Q3 2020 are finally in the books, how did shipowner stocks fare?
The answer depends almost entirely on the underlying market for the cargo that ships carry, whether that’s containerized goods, oil or refined products, iron ore, coal or grains. Outside of larger owner/operator container liners boasting globe-spanning logistics operations, there’s virtually no “management premium” in shipping equities (although some would argue that there are one or more cases of management discount).
Container shipping stocks on the ascent
Stocks of container-ship lessors that rent vessels to liners are driven by two main factors: counterparty risk and charter rates. With the trans-Pacific and other trade lanes booming, the counterparty risk that spiked back in March is now completely off the table. Meanwhile, charter rates are at decade highs and still rising. The only thing holding them back now is that there are very few ships left to lease.
Among the larger ship lessors, Atlas (owner of Seaspan, NYSE: ATCO) reported Q3 2020 net income of $84.1 million, Danaos (NYSE: DAC) $42.8 million, Costamare (NYSE: CMRE) $25.2 million and Global Ship Lease (NYSE: GSL) $13.6 million.
As existing charter deals expire, these owners are rebooking vessels at much higher rates. Their stocks are now back to pre-COVID levels or better. Danaos’ stock is back to levels last seen in March 2019. GSL is back up to levels last seen in August 2018.
Container liners are doing even better than ship lessors. The only U.S.-listed liner, Matson (NYSE: MATX), is by far the biggest winner in America’s public shipping arena. It posted Q3 2020 net income of $70.9 million. Its stock is up 50% year-to-date, to the highest level since the company was spun off from Alexander & Baldwin back in 2011.
Among the non-U.S.-listed liners, Denmark’s Maersk, Germany’s Hapag-Lloyd and France’s CMA CGM all posted big third-quarter numbers. But the most important revelation by liners during Q3 calls was not about profits. It was about forward container-transport demand.
Importantly, Matson, Maersk, Hapag-Lloyd and CMA CGM all cited continued demand strength through Q4.
Tanker shipping stocks languish
Among the largest crude, products and mixed-fleet tanker owners, Frontline (NYSE: FRO) posted Q3 2020 net income of $57.1 million, DHT (NYSE: DHT) $50.7 million, and Euronav (NYSE: EURN) $46.2 million.
Not everyone was in the black, however. Scorpio Tankers (NYSE: STNG) reported a net loss of $20 million, Nordic American Tankers (NYSE: NAT) $10 million and Diamond S (NYSE: DSSI) $9.7 million.
Even stocks of tanker companies that reported big profits aren’t faring well. Tanker equities are down significantly year-to-date. Investors are focused on forward rates — which are very low — not the prior quarter’s earnings.
The most valuable comments from tanker owners’ Q3 2020 conference calls related to forward demand and the fate of the floating storage overhang. Until floating storage is drawn down, demand for transport will be muted (because floating cargoes are already in position). Executive commentary was generally not positive. Hopes for the traditional winter demand boost are low. Executives expect the floating-storage overhang to be lengthy.
Dividends are another key quarterly-results focus of investors. NAT reduced its dividend to 4 cents a share from 20 cents the previous quarter. Navios Acquisition (NASDAQ: NNA) slashed its dividend to 5 cents a share from 30 cents the previous quarter. On the day of the dividend announcement, Navios Acquisition’s share price plunged 15%.
In general, the big 2020 loser among tanker names with larger market caps is Scorpio Tankers, led by the management team of CEO Emanuele Lauro and President Robert Bugbee. Scorpio Tankers’ stock price is down 68% year-to-date.
No big catalysts for dry bulk
For dry bulk shipping stocks, 2020 has been yet another year to forget. Rates have been generally weak, with little in the way of material upside catalysts.
Among the larger bulk-fleet owners, Golden Ocean (NASDAQ: GOGL) reported Q2 2020 net income of $39.1 million, Star Bulk (NYSE: SBLK) $23.3 million and Safe Bulkers (NYSE: SB) $3.3 million.
On the red side of the ledger, Genco Shipping & Trading (NYSE: GNK) reported a loss of $21.1 million, Diana Shipping (NYSE: DSX) $13.2 million and Eagle Bulk (NASDAQ: EGLE) $11.2 million. A formerly major player, Scorpio Bulkers (NYSE: SALT), is in the process of divesting its entire dry-cargo fleet and refocusing on wind-farm equipment carriers. It posted a net loss of $36.6 million in the third quarter.
For owners of larger Capesize-class bulkers, a big drag this year has been tepid iron-ore volumes from Brazil to China. Weak output of Brazilian miner Vale (NYSE: VALE) is to blame. Vale disappointed the marketplace once more last week when it lowered its full-year 2020 production forecast yet again.
The first quarter of each year is traditionally the weakest period for dry bulk demand, so there’s little in the coming months to energize the U.S.-listed dry bulk shipping stocks, all of which are down substantially this year.
The biggest loser by far in the sector is Scorpio Bulkers. Its stock is down 74% year-to-date — even more than the Lauro-Bugbee management team’s loss on the product-tanker front. Click for more FreightWaves/American Shipper articles by Greg Miller
MORE ON SHIPPING STOCKS: Wall Street’s incredible shrinking shipping stocks: see story here. lost decade for shipping shares: see story here. Shipowners with shares worth pennies rake in millions: see story here. Robinhood’s topsy-turvy Top 10 shipping stocks: see story here.
