Return to Volatile Shipping Markets
After a tumultuous market for much of 2020, we enjoyed significant gains across most of our shipping positions during Q4, with particularly exceptional returns from the containership segment. This momentum continued throughout the first two weeks of 2021 where the broad industry surged, and our Model Portfolios at Value Investor’s Edge outperformed the Russell 2000 by over 10% in just 11 days of trading (16%+ average returns).
Although these steady gains are more desirable, we are used to volatile stock markets and the second half of January was a return to more familiar seas for many names. We saw a peaking in seasonal LNG rates, a decline in LPG arbitrage spreads, and the inevitable seasonal drop in Capesize dry bulk spot rates. Naturally, most of the shipping stocks responded in kind. The broad market volatility simply added to the roller coaster effects.
However, one segment stands clearly above the others in performance and has seen rates rise steady, with multi-year charter extensions currently being signed. This is the containership sector, which posted yet another 13-year high in last Friday’s Harpex update (see 5y chart below):
Clear Buying Opportunity in Containerships
Longer-term focused investors can take advantage of recent market volatility by acquiring shares in containership companies which have pulled back alongside their peers in more spot-focused sectors such as dry bulk and LNG shipping. The selloff might make sense in those areas, but in containerships it was simply a case of the baby getting thrown out with the bath water.
We took advantage of this selloff last week to increase our long exposure to Navios Containers (NMCI) and Partners (NMM) as well as with fresh long positions in MPC Containers (MPCC) and Danaos (DAC). I have been adding more exposure to many of these names alongside the recent pullback. Rates are stronger than ever, and we are also seeing some remarkable duration.
Just in the past week, we saw a 1-year Panamax charter signed at $27,500/day along with a 2-year Panamax charter signed at $22,750/day. Costamare (CMRE) was the beneficiary of the 2-year deal and we are especially excited about their upcoming earnings report later this afternoon.
Rates are now expected to last longer than most pundits and investors hoped in their most bullish scenarios. Customers are stepping up to sign ships even several months before the charters start. For instance, Navios Containers (NMCI) was reportedly able to sign the “Navios Unite,” a 8k TEU vessel, on a 3-year charter for $29k/day, which doesn’t even start until July! The “Unite” was already a solid charter at $23,160/day, but now we’re adding nearly $6,000/day and pushing the charter duration out by another full 3.5 years from today- wow!
I’m long pretty much everything I can find in the sector and I believe this is yet another opportunity for savvy investors to take advantage of an ill-focused market.