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Containers Container shipping continued to set multiple records in July, with all-time spot and charter rate highs knocked off on a weekly basis. The peak season is in full swing, boxports are under intense pressure and liners are printing cash while coming up with novel names for new, ever more creative surcharges for their severely late containers. The Shanghai Containerized Freight Index (SCFI) – the benchmark liner spot reference – crossed the 4,000 point for the first time earlier this month, quadruple its historical average with liners now firmly on course to record their most profitable year in history. Drewry is now forecasting the container shipping industry will post a record $80bn profit in 2021, up from earlier forecasts of $35bn. If freight rates surpass expectations in the remainder of the year, Drewry said an annual profit line in the region of $100bn is not out of the question, more than three times the all-time liner record. Prices for sought after panamax boxships have more than doubled in the space of just three months, one of the sharpest vessel appreciations recorded in the history of shipping. As a result of the increased S&P market and soaring freight and charter rates, 15-year-old 4,250 teu tonnage has leapt from $20m at the end of March to be worth around $48m today, data from VesselsValue shows. Splash Extra expects to be writing the words ‘record’ and ‘unprecedented’ in relation to the liner sector deep into Q2 next year. Dry Bulk The dry bulk run is gathering in intensity. A summer lull has not materialised with Q3 fundamentals now looking extremely strong across the four main segments. Cleaves believes the current run could be one the best during peacetime on records going all the way back to 1741, , spurred on by the lowest orderbook versus fleet since 1996 at least. “With period rates now sustainable at levels 1.5-2.0x above cash break-evens, asset prices are playing catch-up as would-be owners can actually lock in one-year ROEs of ~39-72% on their investments,” Cleaves pointed out in a report published this week. The impressive trend with dry bulk is how uniformly strong earnings are across the board, something pointed out by Jefferies in a report from Monday. Last week, for example, average spot rates for capesize, kamsarmax, supramax, and handysize dry bulk carriers all remained above $30,000 a day while also being extremely compressed with the spread between all asset classes within $1,230 a day, marking the first time ever that all four spot rates are within 4% of each other while also being above $30,000 a day. Like in the container space, dry bulk carriers are increasingly getting caught up in queues around the world, with hundreds tied up in China alone, taking out capacity and building the rates base. “If delays start to increase and port congestion picks up, spot rates could be positively impacted. Such a scenario will happen during the seasonal strengthening in demand for dry bulk transportation,” Breakwave Advisors noted. Tankers If we take the uncertainty regarding Covid variants aside (a massive 'if' that divides analysts), many incremental data points on demand, supply, and asset values point to an imminent, though likely measured at first, inflection point off the bottom for the beleaguered tanker sector. Scrapping has accelerated and is now up 200+% year to date on 2019 and 2020 levels, the orderbook remains at mid-1990s lows, and asset values are up 10-27% from the start of the year. Research from Evercore ISI shows that price-to-net asset value discounts for Euronav and DHT, which serve as proxies for the VLCC sector, are now at the steepest levels seen in decades. “Typically, equity prices have a positive correlation to ship prices as the fallback valuation metric remains price-to-net asset value (P/NAV), for better or for worse,” Evercore ISI explained in a note to clients last week. The analysts have noted not only a renewal of sale and purchase activity for tanker assets, but also an uplift in values that far exceeds any improvement – or lack thereof – in underlying spot rates. Tanker equities, by contrast, have reacted to these rising asset values by taking a nosedive. “We completely acknowledge that investors will need to see the whites of the eyes of an actual improvement in rates to buy into our newfound favorable thesis on the equities, but asset values can be a predictive factor in calling market inflection points. It will certainly take nerves of steel to buy these violent dips in tanker (or any shipping) shares today, but with the market bouncing along the bottom, oil demand and supply on the mend, and asset values providing a solid floor to current valuations, the risk/reward tradeoff is skewing meaningfully to the latter,” Evercore ISI stated. However, providing a dampener to this positive outlook are the soaring cases of Covid. “With many countries around the world experiencing a sharp increase in Covid cases and several going into strict lockdown the demand for gasoline, diesel, and especially jet fuel will remain muted going forward. A Q3 recovery is now looking unlikely and if this extends into Q4 this could see weakness on spot and period markets continue for the balance of the year,” Braemar ACM warned in a recent report.

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