8 Maritime Shippers to Keep in Mind

Includes: DSX, NAT, NMM, SB, SSW, TGP, TK, TNK
by: Zvi Bar
Shipping is an important segment of global transportation. Over time, a growing number of products and materials are moving back and forth between locations consuming products, those producing them and the locations that harvest resources for the producing industry.
Shipping can undergo significant volume reductions and increases. Many shippers expanded their fleet prior to the recent collapse in real estate production. Shipping volumes have since declined and then stabilized, where the industry is left with the present overcapacity and concern over future demand. Moreover, much of this overcapacity was leveraged, leaving several competitors with problematic levels of debt and an aging unused fleet.
This downturn to the shippers pushed the index down and now several competitors within maritime shipping are trading well below book value, with fear of bankruptcy and/or selling off ships. Selling of ships may only occur after some bankruptcies, should would-be buyers be current bondholders.
Shipping will be sensitive to future events in various ways. For example, the recent Japanese earthquake, tsunami and nuclear problems will cancel/modify expected shipping orders for products and require new shipments for rebuilding.
The shipping business is fragmented and the overcapacity could keep margins low. Many issues could affect shipping, including potential European failures, Asian recessions and further Middle East instability, among other risks. Shipping demand can also eventually grow to where present capacity cannot satisfy it.
This business cycle is common and usually results in some companies failing while others survive, stronger and/or with greater market share. The survivors are still unknown, which creates uncertainty and potentially undervalued equities.
Several Shippers Are Priced With Expectations of Survival
Though several shippers are now trading well below book value, some sizable members of the maritime shipment business are presently valued near or above book value. Several of these businesses also provide reasonably high yields. Eight shippers near or above book value with market capitalizations of at least $500 million are listed below, many with significant dividends.
Market Cap
Diana Shipping
$892 M
$356.7 M
$1.1 B
$2.77 B
Teekay Tankers Ltd.
$565.5 M
$367.46 M
Nordic American Tanker Shipping
$1.08 B
$80 M
Teekay Corp
$2.35 B
$5.6 B
Navios Maritime Partners
$1.01 B
$314.2 M
Safe Bulkers
$533.7 M
$486.37 M
Teekay LNG Partners
$1.93 B
$2.33 B
It appears highly probable that some shipping competitors will exit the market and that the remaining survivors will absorb their capacity. Additionally, competitors may begin to merge or acquire others where value or need is seen.
Those shippers that have a low level of debt compared to their equity, such as Diana Shipping, Nordic American Tanker and Navios Maritime, appear more secure in the short-term. Additionally, though carrying higher levels of debt, some of these companies have reasonably secure contracts for oil and/or gas distribution (not unlike an MLP pipeline), such as several of the Teekay entities, and they are expected to have cash flows that assure adequate money for debt payments. Nonetheless, instances of political instability and/or economic weakness can affect these seemingly secure oil & gas shippers as well.
While these shippers appear unlikely to file for bankruptcy in the near term, these companies still have significant risk. Their ownership should be limited in most fiduciary accounts, though exposure to shipping and transportation broadly is generally appropriate.
Disclosure: I am long NAT.

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