Monday was a rough day all around on Wall Street but particularly painful for owners of ocean shipping stocks, which fell much more sharply than the broader market. Concerns over China’s economy, oil demand, Fed tightening and inflation added up to one of the worst trading sessions of the year for shipping names. From tankers to dry bulk to containers, double-digit plunges were widespread.
Even so, ocean shipping stocks — generally micro-cap equities traded by retail investors — are still outperforming the broader equity indexes and domestic transport stocks year to date (YTD).
Container shipping shares
Container lines remain on track for their best year ever in 2022, given much higher contract rates and still strong (albeit moderating) spot rates. Lessors of container ships are also on track for a banner year, locking in virtually all of their vessels on charters at historically high rates.
On Monday, shares of container line operator Zim (NYSE: ZIM) sank 10%. Zim’s share price is now back to where it started the year. Across the container sector, much of 2022’s gains have been lost.
Global Ship Lease (NYSE: GSL), one of the companies that rent container ships to liners, reported Monday that its Q1 2021 net income was up 1,571% year on year. It now has $1.67 billion in revenue locked in through charters. And yet, following Monday’s decline, GSL’s stock is down 7% year to date.
Crude tanker stocks
The price of crude oil sank 6% Monday on news that producer Saudi Aramco is cutting its prices.
Among crude tanker owners, share pricing of Tsakos Energy Navigation (NYSE: TNP) fell 16%, Nordic American Tankers (NYSE: NAT) 15%, Frontline (NYSE: FRO) and Teekay Tankers (NYSE: TNK) 13%, Euronav (NYSE: EURN) 12%, International Seaways (NYSE: INSW) 11%, and DHT (NYSE: DHT) 10%.
Crude tanker spot rates remain extremely low, particularly for larger vessel sizes.
Clarksons Platou Securities assessed Monday’s spot rate for modern very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude) at just $8,500 per day — less than a third of Clarksons’ estimated breakeven rate for a five-year-old VLCC of $33,000 per day.
Crude tanker stocks saw gains earlier this year despite rate weakness, driven by optimism on a future recovery. But with Monday’s slide, most crude tanker names have given up much (and in some cases all) of their YTD gains. VLCC owner DHT is now down 3% YTD.
Product tanker stocks
The rate environment for tankers carrying petroleum products such as diesel, gasoline and jet fuel is completely different than for crude tankers. As buyers scramble for refined products, rates for product carriers are surging to multiples above breakeven. “Earnings upside from here is immense,” maintained Evercore ISI shipping analyst Jon Chappell.
Clarksons put spot rates for modern LR2 product tankers — which are around half the size of VLCCs — at $65,000 per day as of Monday, over seven times VLCC earnings.
However, some of the strongest spot rates of the past decade didn’t protect product tanker stocks on Monday. Shares of Ardmore Shipping (NYSE: ASC) plunged 15%, with Torm (NASDAQ: TRMD) falling 11% and Scorpio Tankers (NYSE: STNG) 10%.
YTD gains for product tanker equities remain very high: Even with Monday’s pullback, Scorpio is still up 87% since the beginning of the year, Ardmore 77%.
To put that in perspective, the Dow Jones Transportation Average is down 10% YTD, the Dow Jones Industrial Average 11%, the S&P 500 16% and the Nasdaq Composite Index 22%.
LNG shipping shares
The Ukraine-Russia war has increased demand for seaborne volumes of liquefied natural gas (LNG). As Europe seeks to wean itself from Russian pipeline gas, it must replace lost pipeline volumes with seaborne imports, to the extent possible. The promise of higher future European demand is helping new export liquefaction projects secure financing.
Dry bulk stocks
Dry bulk spot shipping rates are rising. According to Clarksons, spot rates for Panamaxes (bulkers with capacity of 65,000-99,999 deadweight tons or DWT) were $28,600 per day as of Monday. Rates for Supramaxes (60,000-64,999 DWT) were $30,000 per day. Panamax and Supramax are at decade highs for this time of year. Rates for larger bulkers known as Capesizes (180,000 DWT) have lagged YTD but jumped 17% on Monday to $26,400 per day.
Despite rising spot rates, shares of Eagle Bulk (NASDAQ: EGLE) fell 13% on Monday, with Grindrod (NASDAQ: GRIN) down 11% and Globus Maritime (NASDAQ: GLBS) down 10%. Other dry bulk shares were down mid- to high single-digits.
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