News / Bullish Danaos reports hike in revenue and healthier charter market for larger ships

© Khunaspix Dreamstime.

Greek non-operating containership owner Danaos Corporation has reported a “significant improvement” in the charter market for vessels over 5,500 teu.

It also noted a “slight” improvement for smaller ships.

Danaos owns a fleet of 55 containerships, mostly on long-term charters to ocean carriers, ranging in size from 2,200 teu to 13,100 teu.

Net income in the first quarter was $38.6m, compared with $28m in Q1 2018, mostly attributed to a $7.7m decrease in its net finance expenses as it paid down debt, but also helped by a $1m hike in operating revenues as a result of improved fleet utilisation and higher rates.

“The charter market for vessels over 5,500 teu has seen significant improvement, compared with the recent lows of the fourth quarter of 2018,” said chief executive John Coustas.

“In general, the market for larger vessels has improved considerably, which is notable as more than 70% of our fleet in terms of capacity, is comprised of such vessels.”

And Alphaliner’s latest charter market update confirms the bullish charter market for larger tonnage. The consultant said: “Large tonnage [5,500 teu units and over] remains in strong demand, with a high number of fixtures, often for long-term employment. Charter rates in these sizes remain on a rising trajectory.”

It added that the availability of tonnage in the larger sizes remained “very limited, with zero spot vessels”.

During an earnings call, Dr Coustas advised that Danaos had allocated some $50m of capex for exhaust gas cleaning scrubber systems to be installed on 10 vessels, although he did not reveal which had been selected and who the charterers were.

However, in the case of its containership owning peers, significant hikes in daily hire rates in the charter parties have been agreed, which could see the scrubber investment recovered in as little as two years.

Danaos’s five 13,100 teu vessels are fixed on long-term charter to MSC and Maersk, with the earliest expiry date of February 2024.

Since the IMO 2020 0.5% sulphur cap was announced, MSC has been a big advocate of scrubbers, while its 2M partner, Maersk, originally said it believed that “having onboard mini-refineries is not the answer”. But it has since been pressured by the attractive cost savings to have some of its fleet retrofitted.

Notwithstanding a tightening of capacity due to vessels leaving service for the installation of scrubbers, Danaos expects charter market benefits to accrue from the increase in slow-steaming, both from a cost and political perspective, that will see a demand spike for tonnage.

Last June, Danaos said it had reached an agreement with its lenders to refinance $2.2bn of debt which was due to be repaid at the end of the year. The debt-for-equity swap saw indebtedness reduced by $551m, with the maturity of the loan extended until the end of 2023.

Danaos’s financial troubles were attributed largely to the 2016 bankruptcy of Hanjin Shipping, which had several vessels on long-term fixed-rate charter parties at the time. The shipowner submitted a $597m claim to the Seoul bankruptcy court for lost earnings and breach of contract although creditors are unlikely to receive more than a few cents in the dollar when matters are eventually finalised.

During the call, Dr Coustas confirmed that Danaos had concluded a $150m sale and leaseback transaction for two of its 13,100 teu vessels, the proceeds of which were used to prepay credit facilities attached to the ships.

Disregarding the sale and leaseback agreement, Danaos’s 55-ship fleet has a current market value of $1.4bn, compared with $1.16bn a year ago, according to vesselsvalue data.