Contracts purchase of eight platform supply vessels
SEACOR Marine Holdings Inc. (, a leading provider of global marine and support transportation services to offshore oil and gas exploration, development and production facilities worldwide, today announced the final formation of SEACOSCO Offshore LLC, a jointly owned Marshall Islands company (“SEACOSCO”) with affiliates of COSCO SHIPPING GROUP, the world’s largest ship owner.
SEACOSCO entered into contracts for the purchase of eight Rolls-Royce designed new construction platform supply vessels (“PSVs”) from COSCO SHIPPING HEAVY INDUSTRY (GUANGDONG) CO., LTD (the “Shipyard”). Six of the PSVs are of UT 771WP design (4,400 tons deadweight) and two are of UT 771CD design (3,800 tons deadweight).
SEACOSCO will take title to seven of the PSVs in 2018 and one in 2019. Thereafter, the Shipyard, at their cost, will store the PSVs at their facility for periods ranging from six to 18 months. The storage period can be shortened by mutual agreement.
Image: SEACOR Marine LLC. Inc.
Separately, SEACOSCO contracted with Rolls-Royce Marine AS to outfit six of the PSVs with a state-of-the-art battery energy storage system designed to reduce fuel consumption and enhance the safety and redundancy of the vessels’ systems. This follows SEACOR Marine’s recent order for battery energy storage systems on four large PSVs in Mexico.
John Gellert, SEACOR Marine’s Chief Executive Officer, commented: “We are excited to partner with COSCO SHIPPING GROUP. We are confident that we have structured a transaction that meets the needs of the Shipyard while also managing the cash outlay from the equity owners. The acquired vessels will modernize our operating fleet and expand our offerings to our customers. Combining a proven and advanced design, best in category accommodations, and the innovative Rolls-Royce battery system, these vessels will be highly marketable across all major offshore energy regions worldwide.”
SEACOSCO will be funded 30% with equity and 70% with debt financing secured by the PSVs on a non-recourse basis to the equity owners. Aggregate total consideration for the eight PSVs, including the battery system, is approximately $161.1 million. SEACOR Marine’s total cash outlay is approximately $22.4 million, with approximately $20.0 million payable in the first quarter of 2018 and the balance due over the next 14 months as vessels and the Rolls Royce battery equipment are delivered.
SEACOR Marine will be responsible for full commercial, operational, and technical management of the vessels on a worldwide basis under a separate management agreement with SEACOSCO.
Tonnage Oversupply to Remain an Issue during 2018
Those who predicted that 2018 would be yet another challenging year for the tanker market, after a dismal 2017 as well, haven’t been far off. In fact, as shipbroker Charles R. Weber reiterated in its latest weekly report, things could very well stay that way for quite some time. In its latest analysis, the shipbroker said that “crude tanker earnings have commenced 2018 at seasonal lows not observed in decades as a large, ongoing newbuilding program continues to undermine fundamentals. Crude tanker earnings declined during 2017 by an average of 45% from 2016, led by a 46% decline in VLCC earnings to ~$25,309/day while Suezmaxes shed 45% to ~$13,838/day and Aframaxes fell 44% to ~$13,101/day. The annual averages in each segment were heavily supported by seasonal strength during 1Q17 which appears to elude the market presently, implying a potentially horrendous year for average earnings during 2018. Our base expectation is that VLCC earnings will conclude the year with a 30% y/y decline to under $18,000/day. We project a 40% y/y decline for Suezmax earnings to $8,250/day and a 12% y/y decline in Aframax earnings to ~$11,500/day”.
According to CR Weber, “supply Fleet growth remains the key catalyst to the prevailing earnings environment with a long list of units ordered between 2013 and 2014 delivering during 2016 boosting capacity. A subsequent wave of orders penned during the strong earnings environment of 2015 extended high levels of newbuilding deliveries during 2017 – and is ongoing. Phase‐outs concluded 2017 considerably above expectations as stronger $/ldt values against poor earnings incentivized a surge in demolition sales activity across all size classes while an improving offshore market saw conversion works progress on a number of units held for conversion in the VLCC space. All told, some 23 VLCCs were phased out during 2017 – a considerable increase from the just two and three units phased‐out during 2015 and 2016, respectively, and the most since 2011. Twelve Suezmax units were phased out, up from zero and one during 2015 and 2016, respectively and the most since 2012. Thirty‐three units were phased‐out from the Aframax/LR2 asset class, up from 6 and 9 during 2015 and 2016, respectively and also the most since 2012”.
The shipbroker added that “despite the stronger phase‐outs, net fleet growth was still high during the year (if lower than the more extreme levels observed during 2016), clocking in at 4.0% for VLCCs, 8.4% for Suezmaxes and 3.2% for Aframax/LR2s. For 2018, we project net fleet growth of 3.9% for VLCCs, 3.2% for Suezmaxes and 3.3% for Aframax/LR2s. While these levels are broadly within range of historical annual averages, coming on the back of the past two years’ fleet growth levels, any positive net supply growth would only serve to delay a progression into earnings recovery”. In terms of demand, CR Weber says that “collectively, crude tanker demand rose by 4.0%, though a secular look shows that only VLCCs concluded in positive y/y territory. Demand for VLCCs returned to growth during 2017, posting an increase of 11% after a contraction of 4% during 2016. The gains were supported, in part, by an increase in voyages to Asia from the Atlantic basin, particularly during 1H17 due to OPEC supply cuts heavily distributed to Middle East producers and during September and October as US crude exports surged amid long‐lasting US Gulf Coast‐area refining outages after Hurricane Harvey and other storm systems”. “Inversely to VLCCs, Suezmax demand was undermined during 1H17 due to OPEC supply cuts as more voyages from the Atlantic Basin to Asia oriented to VLCCs reduced cargo availability for the smaller class. These losses were partly offset by rising US crude exports (28% of which were serviced by Suezmaxes), but overall demand for the class concluded with a 1.3% y/y contraction. Aframax demand was the hardest hit among its crude tanker counterparts. Like Suezmaxes, demand losses on key routes were partly offset by gains in ex‐USG crude cargoes (for which the class serviced the lion’s share of 42%), but these did little to stem contraction in intraregional Caribbean voyages, and contractions in nearly all other markets. Overall, the class saw demand decline by 10.8%”, CR Weber concluded.
VLCC Surplus in the Middle East Set for Reduction in the Coming
A looming fall in VLCCs’ availability in the Middle East over the coming weeks could help boost the freight rate market in the weeks to come. According to the latest weekly report from shipbroker Charles R. Weber, “VLCC rates moved broadly higher this week as participants reacted to a narrowing Middle East availability surplus that materialized during January’s last decade loading program. The gains came despite a slowing of demand in the Middle East as draws on the region’s positions to service West Africa demand rose for a third consecutive week. The Middle East market observed 20 fresh fixtures, representing a 46% w/w decline. Meanwhile, demand in the West Africa market inched up by one fixture to a one‐month high of ten. Average earnings on AG‐FEAST routes surged 93% y/y to ~$20,411/day”.
According to CR Weber, “the supply/demand positioning appears set for successive further narrowing during the first half of the February program. We presently project that, net of draws to the Atlantic basin, Middle East availability will decline from January’s end‐month surplus of 16 units to 14 units at the conclusion of February’s first decade. Looking further ahead, the surplus could drop to 9‐11 units by mid‐February (though we note that there is greater uncertainty around mid‐month availability given the potential for “hidden” positions and/or a weakening of West Africa demand). Nevertheless, the 14 surplus units projected at February 10th represents the lowest surplus since November, when AG‐FEAST TCEs averaged ~$27,698/day, implying that there is further upside potential. Indeed, based on the first decade’s supply/demand positioning, our model suggest an AG‐FEAST TCE of around $25,000/day. An expected increase in Middle East demand during the upcoming week should allow owners to capitalize on the improving fundamentals, though it remains to be seen how a high presence of commercially disadvantaged units will influence rate progression. These units represent 29% of the position list through February 10th and 24% of the position list through February 15th. A most likely scenario is for a wider rate differential between competitive and disadvantaged units, though this is subject to a normal distribution of inquiry between requirements that can and cannot work disadvantaged tonnage”, said the shipbroker.
In the Middle East, CR Weber noted that “rates to the on the AG‐JPN route surged 10.9 points to conclude at ws48.5 with corresponding TCEs rallying 91% to ~$21,921/day. Rates to the USG via the Cape added 2.5 points to conclude at ws22.4. Triangulated Westbound trade earnings rose by 17% to ~$20,340/day. In the Atlantic Basin, rates in the West Africa market were stronger in line with the trend in the Middle East. Rates on WAFR‐FEAST routes added 4.6 points to conclude at ws48.4. Corresponding TCEs rose by 30% to ~$18,572/day. Rates in the Atlantic Americas market continued to pare early‐month losses in line with last week’s improvement in demand and improving overall VLCC sentiment. The CBS‐SPORE route added $100k to conclude at $3.50m lump sum. Round‐trip TCEs on the route rose 9% w/w to ~$16,385/day”, the shipbroker concluded.
Meanwhile, in other tanker segments, “the West Africa Suezmax market was modestly stronger this week a charterers were busy working cargoes in January’s final decade, during which the spot cargo availability for Suezmaxes was at a one‐month high. Rates on the WAFR‐UKC route added 2.5 points to conclude at ws57.5. The positive direction of rates appears to have been arrested by a progression into early February dates, within which availability levels appear to have inched up slightly. Rates in the Caribbean/USG market were slightly softer at the close of the week after regional demand declined 25% w/w and the class’ $/mt premium to regional Aframaxes undermined demand for intraregional Suezmax voyages. The CBS‐USG route shed 5 points to 150 x ws60 while the USG‐UKC route was unchanged at 130 x ws52.5”, CR Weber said.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
JPMorgan Turns Selective On Dry Bulk Carriers
The outlook for dry bulk carriers appears strong, with a cycle peak expected later this year or in early 2019, according to JPMorgan.
JP Morgan analyst Noah Parquette downgraded shares of Diana Shipping Inc. and Navios Maritime Partners L.P. from Overweight to Neutral. The analyst lowered his price target for Diana Shipping from $6 to $5.
With the cycle peak imminent, JP Morgan said it is becoming more selective on stocks in the space, hence the downgrade of Diana Shipping and Navios Maritime Partners.
Diana Shipping has low risk exposure within the firm’s dry bulk coverage universe due to its relatively low leverage, small new-build program and high charter coverage, Parquette said in a Wednesday note. (See the analyst’s track record here.)
The low risk profile limits upside potential vis-à-vis more spot-oriented companies, the analyst said.
The analyst said he’s concerned about Diana Shipping’s economic exposure to container shipping through its loans to Diana Containerships Inc.
JP Morgan downgraded Navios Maritime Partners primarily on valuation. Navios does have substantial positives such as low leverage, relatively higher charter coverage, low cost basis and diversification into the containership sector through long-term charters, Parquette said.
“At this point, we anticipate a cycle peak around 12-18 months out, and assuming investors are forward looking six to nine months, we see a dry bulk investment having an exit potentially in the back half of 2018,” the analyst said.
The Price Action
Over the past year, Navios Maritime shares climbed about 42 percent compared to a more modest 9-percent advance by Diana Shipping.
At the time of writing, shares of Navios were sliding 3.2 percent to $2.27, while Diana Shipping stock was plunging 5.91 percent to $4.06.