Seaspan reaffirms it will not reduce Hanjin charter rates

Gerry Wang, chief executive officer of Seaspan, expressed how he believes the industry will gradually improve if scrapping remains high and new ship orders remain low.    Seaspan, the world’s largest independent containership lessor, reiterated Wednesday it will not reduce rates on ships it charters to South Korean ocean carrier Hanjin Shipping, which is pursuing a financial restructuring with its creditors.
   “We’ve made it very clear. We’ll not entertain the rate reduction,” Seaspan CEO Gerry Wang said on a phone call with investment analysts on Tuesday after reporting its second quarter earnings. “We believe that is the violation of contract in the spirit of a major OECD country having $1.5 trillion of GDP with almost 50 percent driven, derived from exports. That is not a good action. We do not support that. We have never had such a situation before with any of our other customers and Hanjin Shipping has been the only one.
   “On the positive side, we only have three vessels on charter to Hanjin Shipping, so the exposure to Hanjin Shipping is limited,” he added.
   In addition, Seaspan provides technical management to Greater China Intermodal Investments (GCI). Various board members of Seaspan also have direct or indirect interest in GCI, including Wang, Graham Porter and Kyle Washington. GCI also has four ships on charter to Hanjin.
   Wang said, “The position taken from GCI, from Carlyle is exactly the same as Seaspan. We work together. Seaspan would lead the whole discussion with the Hanjin Shipping.
   “We’ll see how things go. But we believe our Korean friends, the Korean government and the shareholders there and Hanjin Shipping will become more rational. They will soon realize honoring contractual obligations at the international stage is very important practice they need to follow in order to be internationally reputable. I believe South Korea has become a powerhouse in the world and I believe and I hope the Hanjin Shipping handling will be conducted accordingly.”
   Seaspan Chief Financial Officer David Spivak said Hanjin charters three 10,000-TEU ships from Seaspan at a cost of $43,000 per day per ship.
   The ocean carrier’s third quarter revenues is expected to total around $11.9 million.
   “We have been approached by Hanjin for a reduction in time charter rates for three and a half years in exchange for securities in Hanjin, we have declined this offer,” Spivak said. ” As of June 30, 2016 we had accounts receivable outstanding from Hanjin of approximately $11.6 million. We have not taken an allowance against this receivable.” He expressed that, “It is highly uncertain how the situation with Hanjin will evolve,” adding this may impact the earnings guidance it provided.
   Spivak said other carriers are current with charter payments.
   “We’ve been carrying receivables from Hanjin for a while. If you go back sort of several quarters, particularly, there’s been a bit of a build up. I guess honestly the way we look at it is – we have a $6 billion plus balance sheet. It’s $11.6 million receivable,” he said. “In the whole scheme of things, it’s bit of a rounding error. but it is something is a receivable we have from a charterer. They are going through voluntary restructuring. It is three out of 89 vessels, soon to be three out of 90 vessels. So, it is something sort of we’re monitoring.”
   Talking about the general outlook for the container shipping industry, Wang said, “Overall, we expect market conditions to gradually return to more balanced levels overtime. However, we expect the industry to remain challenging during 2016 and do not expect material change in time charter rates in the near term, which l remain at historically low levels.”
   He believes industry consolidation is a positive development. Wang said the mergers of COSCO and China Shipping, CMA CGM and NOL/APL, the planned merger of Hapag-Lloyd and UASC, as well as the plan for Hyundai Merchant Marine to join the 2M alliance, “all point to a more coordinated industry environment.
   Year-to-date, 87 containerships representing approximately 290,000 TEUs have been sold for scrap, which is more than the 200,000 TEUs scrapped during all of the 2015, Wang said. He expects the number of ships to be scrapped to remain high throughout 2016.
   Wang also noted orders for new ships is very limited, and that the number of ships on order represents about approximately 17.5 percent of effective loading capacity or about six percent per annum on average.
   “Over time, we believe the combination of elevated scrapping and a limited newbuilding ordering should help improve the industry’s supply and demand factors,” Wang said. “The industry’s idle capacity has dropped to approximately 4.6 percent driven lower as we head into the typically busier summer period. In terms of overall demand, we expect container trade volume measured in TEUs to grow modestly for the year 2016 and 2017.
   “Overall, we expect market conditions to gradually return to more balanced levels overtime. However, we expect the industry to remain challenging during 2016 and do not expect the material change in time charter rates in the near term, which will remain at historical low levels,” he added.