Navios Partners (NYSE: NMM), an owner of dry bulk and container ships, swung to a loss in the latest quarter as rates were pressured by fallout from the Brazil iron-ore dam tragedy in January.
The company reported a net loss of $9.5 million for the first quarter of 2019, versus net income of $5.5 million in the same period last year. The earnings reversal was driven by an 18 percent year-on-year decline in the average daily rate obtained by the company’s fleet.
Navios Partners is part of the Navios Group, which is led by Greek ship owner Angeliki Frangou. Parent company Navios Holdings (NYSE: NM) owns 18.3 percent of Navios Partners, while Navios Partners owns 33.5 percent of Navios Containers (NASDAQ: NMCI), which went public through a direct listing in December 2018 after its initial public offering failed to price. Another public company, Navios Acquisition (NYSE: NNA) owns the group’s tanker assets.
Navios Partners’ quarterly announcement is likely to be just one of many that reveal how the Brazilian dam accident reverberated through the global shipping charter market.
On January 25, a dam collapsed above the town of Brumadinho in southeastern Brazil, unleashing a flood of tailings (ore residue) and killing an estimated 300 people. The tragedy forced the temporary closure of the Brucutu mine operated by Vale; the mine reopened in April.
Iron ore is transported from Brazil aboard bulkers in the Capesize (100,000 or more deadweight tons or DWT) segment, as well by much larger Valemax (400,000 DWT) vessels. Because the voyage is three times longer between Brazil and China than between Australia and China – and thus requires three times the ships to carry the same volume – events that curb iron-ore exports from Brazil have an outsized negative effect on Capesize spot rates.
Navios Partners has a fleet of 31 bulkers, including 14 Capesizes, and five 6,800 TEU (twenty-foot equivalent unit) container ships.
“Charter rates in the dry bulk sector were adversely affected by January’s tragic dam collapse in Brazil, which removed a significant amount of iron ore from the longest trading route to China,” commented Frangou in Navios Partners’ earnings announcement, released after market close on May 3.
“Despite this challenging environment, NMM earned a TCE [time charter equivalent] rate of $13,209 per day in the first quarter,” she noted. The company’s ships earned an average of $16,108 per day in the same period last year.
While Capesize rates are still weak, they are now off historic lows seen in the aftermath of the Brazilian dam accident and concurrent weather issues affecting Australian bulk exports. According to Frangou, “We have seen material rate improvements since the first quarter. The current spot rate for Capesize vessels of $11,182 per day has increased about 90 percent from the average spot rate for the months of February and March.”
Navios Partners exemplifies a common challenge in the public ocean-shipping space – once-prominent players are facing severe pressure on their stock prices. The Frangou-led partnership is just the latest in a long string of ship owners forced to conduct a reverse stock split to maintain their listing.
When stock prices fall under $1 per day for too many consecutive days, public companies are notified that they must raise their pricing or be delisted, prompting reverse stock splits.
To get back over the $1 threshold, Navios Partners will combine each 15 of its shares into a single share on May 21, 2019. Navios Partners’ common units were trading at just $0.96 as of the market close on May 3.