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Containerships Set Fresh Records: Market Insights From MPC Container Ships (Podcast Transcript)


  • Value Investor's Edge Live continues with this latest episode focused on the small-sized containership segment of the shipping industry.
  • MPC Containers is one of the largest publicly-traded containership companies by vessel count and they have recently expanded their fleet.
  • MPCC is primarily listed on the Oslo markets, but they may consider a dual-listing "IPO" into the US markets soon.
  • MPC Containers is benefitting from surging containership rates and has recently fixed more than a dozen ships on record-high charters.
  • Is a dividend coming soon? Management suggests we could start to see significant payouts in late 2021.
  • Looking for a portfolio of ideas like this one? Members of Value Investor's Edge get exclusive access to our model portfolio. Learn More »
Cargo containers ship logistics transportation Container Ship Vessel Cargo Carrier. import export logistic international export and import services export products worldwide
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More Marketplace Roundtable Podcasts

Constantin Baack, CEO of MPC Containers (OTCPK:MPZZF), a leading small-sized containership lessor, joined J Mintzmyer's Value Investor's Edge Live in June 2021 to discuss the surging containership markets and company strategy to benefit from these elevated market levels.

Although MPCC is not currently listed in the US markets, there's sufficient trading liquidity on the Oslo Exchange under the stock symbol "MPCC" and they're considering a potential US-listing if market conditions remain favorable and their market capitalization exceeds $1B.

For more particular information on MPC Containers, I highly recommend reviewing their latest investor presentation, which was updated on June 22. MPCC is set to publish Q2-21 earnings results on Aug. 19.

For readers and listeners primarily interested in US-listed names, the primary comps include Atlas Corp. (ATCO), Costamare (CMRE), Danaos Corp (DAC), Euroseas (ESEA), Global Ship Lease (GSL), and Navios Maritime Partners (NMM). Included market content should be relevant for investors in all of these names.

Topics Covered

  • (1:45) What is primarily driving the market strength? How long can it last?
  • (4:15) What are the primary risks for investors to watch?
  • (10:45) How large is the discount for 2-3 year charters versus 1y quotes?
  • (12:45) The Harpex index is due for a massive upward revision?!
  • (15:15) How far in advance are you fixing your vessels?
  • (18:00) Are there any opportunities to acquire more secondhand tonnage?
  • (21:00) Any clear negatives to recent containership transactions?
  • (23:45) Plans for a dividend? Expected timeline for first payout?
  • (26:15) Current economics for newbuild tonnage for feeders/midsize?
  • (30:30) Upcoming impact from 2023 EEXI and/or bunker fuel tax?
  • (34:30) Any impact/concern due to the increased focus on ‘green recycling?’
  • (37:15) Current economics from scrubbers? Any plans to add more?
  • (41:15) What differentiates MPCC? Why choose this stock over others?
  • (44:00) Future plans for a US listing?

Full Transcript:

J Mintzmyer: Good morning, everyone. Welcome to another iteration of Value Investors Edge Live, recording on June 10, 2021, at about 8 am Eastern Time. Today we are hosting Constantin Baack, CEO of MPC Container Ships. MPCC is an Oslo listed container ship firm focused on the smaller feeder and midsized containership assets. They trade on the Oslo Exchange under the symbol, MPCC.

As a reminder, nothing on the conference call today constitutes official company guidance or any sort of investment recommendations on my part. We're just talking about the industry and trying to gather some facts. Constantin, welcome. Thanks for joining us today. Appreciate having you here.

Constantin Baack: Sure. Thanks for having me, J.

JM: Yes, absolutely. So we spoke a few months ago, and we've just been watching MPCs charter book evolve over each couple of months, you've issued a new update showing these larger and larger charters. And every time we look at the rates, I mean, every Tuesday and Thursday for the new context, every Friday for the HARPEX, the rates just keep getting stronger and stronger and the durations of charters are getting longer and longer. What's primarily driving this strength and how long do you think this can last?

CB: Yes, I'd say it's a diverse set of elements that is contributing to the current situation in the market. Obviously, we have seen quite a V shaped recovery since the end of the COVID crisis, and the container vessel market has since experienced, I would say historic supply demand tightness. And this has obviously come along with severe impact on the time charter market, as you have just alluded to rates and periods have increased significantly. And they are basically surging to unexplored territory week by week. So we are at an all-time high that is obviously very positive. And it's the mix of longer periods and then higher rates, which makes the markets historically unique, I would say.

So what have led to this, there's obviously a few elements. One, as I said, is the tightness of demand and supply. Obviously, the supply side has been very low for a few years. So we see a very, let's say moderate order book and a moderate supply growth and have seen that actually over the last few years. But it was always distorted that picture by demand disruptions. So there is trade war, there was the COVID crisis and now we're obviously in a situation where growth comes in big time and we see very tight supply. So I think this is a very relevant factor and that will also dictate the path forward.

And in terms of sustainability of this recovery, I think, one is the momentum and there are some acceleration caused by, especially growth in U.S. imports. We'll get to that, I'm sure in course of the discussion, but there's the fundamental side of things, and that is supply demand. And if your order a ship today, you will not get it until 2024 if you're lucky. So we have a very good visibility on the supply side. So in the end, the supply side is so positive that I think this will drive sustainable market recovery.

JM: Yes, it was, it's certainly been nice to see the rising rates, I mean, every week over week dating back to, I think last July, so we're on a 11 month run of week over week increases. And there doesn't seem to be any near term derailments to that yet. But what are the primary risks? What should investors be watching out for? What is something that could derail the momentum you're talking about?

CB: Well, I guess it's -- it always boils down to demand and supply again. I mean, on the demand side, we have experienced -- we all have experienced quite some surprises over the last let's say 36 months trade war I alluded to. First of all the constraints caused by COVID on global trade and then the support caused by COVID in terms of change consumer behavior, shift from services to goods, there are various elements that are positive.

So on the flip side, the risks related to that would be another demand disruption, which is obviously something you can never rule out. History has shown that, but from the fundamentals and from the different data points in terms of also financial stimulus, et cetera, I think that is a risk that is very difficult to quantify. But the demand disruption clearly is a risk in the short term, as always, I'd say. But I would expect the likelihood of that materializing fairly limited.

Now the second element is the supply side. And on the supply side, I mentioned that earlier, we have an order book that stands -- the order book has increased quite significantly over the last six to eight months clearly. However it's still at a very low ratio compared to the fleet on the water and in particular looking at required fleet renewal.

And then I think that is, on the supply side, I think this is more something for 2025 onwards, where I expect a risk to arise. But that's the key issues I would see going forward in combination with, and that, again, is a bit of a wildcard or a question mark. Obviously, the regulatory framework that will potentially affect shipping. But that is not only a risk, it's also an opportunity, because I definitely expect ships to go slower over the next couple of years. And that, in turn, will be positive for tonnage providers like us.

JM: Yes, it's certainly a lot of things to watch out for. And we're looking at the 2023 EXI regulations in Europe and some of the IMO proposals as well. And I'm hoping we'll see a little bit of slow steaming, it just makes sense. I mean, at this point, we do not have a new viable technology that's carbon free, ammonia or hydrogen and slow steaming significantly reduces emissions. And it's good for investors, too. So I've got talk in my book [ph] here.

But there's a lot of folks, a lot of pundits out there who look at containership rate chart, and they see that it's been going ballistic for nine or ten months straight. And they say, well this is only due to COVID. It's only due to a port disruption, it's only temporary. It's going to be gone tomorrow. How would you address that that viewpoint of folks who say, well this is only due to like Long Beach in LA being backed up?

CB: Well, I mean, if you look at the -- as I said, if you look at the fundamentals and vessel availability going forward, it is clear that even with a much lower demand growth, then anticipated for this year demand growth, in terms of containerized volumes is anticipated to be 6% to 7% on the global market, even if it's only 2% to 3%, on the back of the order book and the deliveries for the next 24 to 36 months, we will see a strong market, especially in light of the long periods that are being fixed.

So the availability of charter vessels to the market is very limited. And then I obviously would take a bit of the charter view on things because this is what drives our business in terms of providing vessels to charterers. And I mean, at the same time, look at who are the buyers of assets today. It's the liner companies. So everyone expects a shortage in tonnage, people have been looking at container shortages, constraints of boxes being available, or being not available rather.

And then I would argue it clearly will be a shortage of tonnage going forward. And that is documented by a few things, longer periods, higher rates and line operators being the ones who acquire assets throughout the bench from 900 TEU upwards. So there is a very clear dynamics. And that they do because they believe it's a better deal for them to buy a ship now than to charter it for longer periods, because they see the periods are getting longer.

And at the same time because it basically transfers the spot risk from our fleet, for example, to more of a counterparty risk. And there I'm pretty comfortable because obviously of the earnings that the lineup also are able to generate at this very moment and also for the foreseeable future. So my answer to that question is, rates will continue to go up, because it's just by nature of demand and supply. It is in the overall context, not a super significant part of the P&L of the liner companies, the charter rate as such. And as a result, I do expect a continuously strong market and we have seen periods stretching out.

I think in Q4, last year, we saw the very small ships up to one year, maybe 1.5 year. The slightly larger ships at two years and now we're looking at least two years for any given ship and we're even looking at three to four years for the -- let’s say vessels between two and four or 5000 TEU. So very positive and that will document again, asset value stability and charter market stability going forward, in my view, because the asset prices are backed by secured cash flows at this point in time. And that is a very comforting view when looking at asset values, although they are significantly higher than they were in the last 10 years. They are backed by contracts.

JM: It's certainly interesting to see all the liner companies agreeing to these three and four year charters. We even saw a five year charter, a couple of them last week in some of the larger sizes, I think, a little bit larger vessels then you operate. But still, I mean, even in your sizes, 2,000 to 3,000, 4,000 TUs as you said, we're seeing two and three year duration. So clearly the liner companies are interested in this sector for at least the medium, if not the longer term.

What sort of discount is there if you wanted to go with a two or three year charter versus a one year charter? Because a lot of investors look at the hard backs or the new context, and they see the one year quote. So if you're ascribing that to a two or three year deal, what sort of discount is there?

CB: I would actually argue that all the index -- indices Clarkson, HARPEX, you name it, they refer to one year contract. But in reality, the rates they quote are for multiple year periods, because the standard discussion you have with the charterer let's say on a 2800 TEU ship is more -- will it be three or two years and you actually get a premium for shorter periods.

Just an example, we fixed the 1,700 TEU vessels for 14 months at $33,000. So that gives you an idea. And this is because we decided to go a bit shorter on that vessel that was linked also to the docking cycle, et cetera. And we obtained a significant premium, a two year deal for that type of vessel you probably get 23, and three year is probably around 18 to 20. So if you look at the HARPEX, you would very much need to consider that this is really more a not a one year TC, but it's actually two year plus TC that is quoted there.

So when you go shorter, you even get a premium to that, and I'm sure you have seen this crazy fixture of 5,000 TEU, they are called sea snakes. So they were pretty out of fashion a while back, these vessels and they earned more than $100,000 per day for a short trip. So that gives you an idea that the HARPEX figure it’s not necessarily a one year figure. It's a figure of what current market is in terms of period and that's more two to three years.

JM: Yes, that's a super important color. So I appreciate you saying that. And I imagine that the Harper Petersen brokers are doing their best to compile the index. But there just are not any one year charters. So it's really hard to kind of figure out what that rate would be. Do you mind just stating the fixture again, the one that you mentioned, I just want to make sure we get those numbers out there.

CB: Yes, we fixed the 1,700 TEU, for 12 to 14 months at $33,000. So that is one example. And currently, I mean, nothing concluded. But if you look at a three year contract for 2,800 TEU containership, it's clearly north of 30,000 per day. And that gives you an EBITDA of somewhat say above $25 million, plus $4.5 million in scrap. And if you compare that with the assets -- indices that are usually used as a reference, you will see that there is a significant premium to these indices.

So the asset prices are still lagging behind and for sure they will follow because they are backed with cash flow, as I said, and this is the strength of the market. It's not just a perceived strength it's really backed by cash flows. And that has not been the case especially in the smaller sizes for the last 13 years.

JM: Yes, that's phenomenal. And we're recording because we'll have a recording up later and it might be public later as well. So this is -- we're recording on the June 10 of 2021. And I have the HARPEX in front of me. And of course it's last Friday. So it was June 4 reading. But yes, you mentioned the 1,700 TEU vessel fixed, I think I heard 33,000 that the HARPEX is 26500. So a massive premium on the HARPEX. And then you mentioned I think you said 2,700 TEUs for three years would be in the 30,000 range, and the HARPEX is at 35. So basically that 2,700 quote from the HARPEX is actually more like a 2.5 or 3 year rate. And that 1,700 figure is obviously super low.

So if anything, obviously we don't know what's going to happen. They bring up this thing every Friday, but if anything it looks like the HARPEX is about to blow the top off even further. That's very interesting.

CB: Yeah, and to your point earlier on, it's difficult to put one year TCs down because really people, there's hardly any one year charter. People might get might go very short to benefit from the market or because they have a docking position or anything or they want to go long. That's why really grasping at one year TC references is not an easy one.

JM: Yes, certainly, it's just a different type of market here and of course, it's very lucrative for you. We've seen a couple of companies start to fix vessels as far out as March and April of 2022. Like the ship doesn't even deliver to the customer until next year, the market is that strong. I know you have a lot of charter rolls coming up in Q3 this year, Q4, this year, Q1 next year. How soon or how far in advance are you fixing those? Is it just a month or two in advances or is it further?

CB: I would say in general, the small ships will be between three to six weeks, mid-size maybe four to eight weeks and usually Panamax from two to three months. However, the situation is no different. And in particular, with existing charterers, that dialogue starts early. It's always more difficult if you have a position for a new charterer, because you don't really know when exactly you will be redelivered because there's usually a window that makes negotiations a bit more challenging with new charterers.

But if you just extend with the existing charterer, they're certainly potential to do that one quarter or more even in advance. But that obviously comes at a price for agreeing to that. So that might not be the best thing to do as an owner, in my view, at least, because vessel availability -- and that is the key will rather get tighter towards the end of this year, because all vessels are now fixed and you probably in our key segment 2,800, you probably have, let's say 35 to 50 vessels still to be fixed this year.

So it's very limited vessel availability, and the competition is high. And that's why fixing forwards is something to consider and to do occasionally, but throughout the bench. I don't think that, that is necessary, especially when looking at our charter book. We have quite a staggered charter book by virtue of the number of vessels that we have open. And I think that also differentiates us quite a bit from many, many other tonnage providers who have more long term charters as well. They probably have some short term charters in their book.

But we have really been able to roll the whole fleet 64 ships over the last six months, plus the next six months. So we will have a pretty staggered charter book and can also play that somewhat.

JM: Yes, it's been certainly fascinating to watch each investor presentation update you've put out and to see all those new charters and we're looking forward to the next one. I imagine it'll probably be the Q3 results then in August or September. But we're looking forward to the next update and seeing how those look. Are there any opportunities to grow a little bit here?

Are there some secondhand tonnage that's available, that -- because I know we've been looking at the vessel valuations, as they've been quoted from brokers and vessels value and such, and it seems like the vessel valuations are still kind of out of whack, like they're only like three or four times EBITDA based on current charter rates. So is there any opportunity to grow the fleet here? Or are owners getting tighter and tighter with their tonnage?

CB: No, I think that definitely is an opportunity. There's an opportunity for both secondhand acquisitions and potentially M&A. I mean, I'm sure you have seen the GSL announcement earlier this week, who bought 12 ships from Borealis. I think it's a good price, you see that the seller Borealis, or rather KKR is a limited lifetime capital platform. So they need to exit at some stage. And they got the price that is -- they’re in the money. On the other hand, they allow the buyer to leave some ships on the table because as you rightly said, it's scrapped plus two years EBITDA, maybe three years. And you can immediately fix all these vessels, not all of them are immediately available. So there comes a discount attached.

But I think that there are opportunities for secondhand acquisitions, especially because there are some sellers that might want to use the opportunity and might even be willing to accept a small discount. So I think there is quite some interesting dynamics still in the market. However, you need to make sure that because the asset values are high that you are actually able to lock in the cash flow. Because if that is not possible, then you pay a price in anticipation of a continuously strong market.

So I would probably be a bit more careful with forward positions that go into 2023 because you will probably pay a premium compared to the discounted value of the charters due to the momentum. And your market exposure is then in 2023, you don't know what the market will be then. But everything that is, let's say 2021 2022 positions, I would be much more comfortable. And that is definitely something to explore and consider.

JM: Yes, certainly. And I'm glad you brought up the Borealis sale, because we've been kind of watching that one closely and looking at the economics of that transaction. And the economics, I'm biased I should mention, I have a long position in Global Ship Lease. So I'm talking my book here a little bit, but the economics on the deal -- look, I would say almost phenomenal like it's basically immediately massively accretive to earnings per share. It's very accretive to EBITDA, it's a slightly accretive to NAV.

Do you think there’s more of this sort of fleet transactions, because this was 12 vessels? And I know you said Borealis has a few more ships. There's a lot of German legacy like KG outfits out there. Is there potential because this would be phenomenal? If MPC could buy another fleet of you know, 12, or 15, or 20 ships? Is there any sort of negatives to a deal? I know you mentioned '23 exposure was did this deal come across your desk and you had some maybe some caution about it or anything like that?

CB: I mean, there is -- you always have to consider also what does that do? I mean, and I'm not privileged to talk on behalf of GSL. I think the deal is a good deal. However, you obviously need to also consider are you trading at a premium or a discount to NAV. So sometimes the cheapest assets you can buy is your own stock. So I think this is just something to consider as well on that part.

And that's obviously very important when looking at acquisitions that you do, that you take a sound capital allocation decision. And I'm not suggesting we will buy back stock tomorrow, but I mean we were always there to consider the options. And the options range around accretive acquisitions. And I think the Borealis deal wasn't a bad deal at all. It required a lot of cash investments. But I think it's an interest, it has been -- it is an interesting deal.

At the same time, I think we at least also considered to further de-lever a bit as this probably something that not a lot of people would expect in this market. But we believe that at least to bring down the leverage somewhat, let's say, reorganize the balance sheet puts us into a position to do potentially even more accretive deals down the road.

So we would still think that acquisitions are attractive, if the deal is right. And certainly fleet deals, there are more potentially to be developed. But the S&P market is also pretty liquid. So if you look at kind of ship for share related transactions, which are possible, there's also always a competition of a very liquid S&P market. So it really then needs to be a fleet. There are few deals potentially available but the market is so dynamic and that applies to both buyers and sellers, which makes it a bit more challenging.

JM: Certainly makes sense. And you mentioned, I'm glad first of all that you mentioned repurchasing stock as an option that shipping CEOs and executives need to consider, because we have seen lot of actual container companies now trading at discounts to NAV and there haven't been a lot of repurchases yet. We hope we'll start to see those as deleverage comes down. Or ideally, right, the stock trades up correctly. And then we're not really talking about repurchases because you already had NAV or above NAV, and we can start talking about dividends.

So for MPC, I know you want to delever you've talked about that a lot. But you're delevering rapidly. And you're going to turn that corner soon. And I know after you turn that corner, you've talked about paying out dividends. What's sort of the update on the timeline on that? Is that something we can expect by the end of this year? Or is that more of a 2022 type thing? When can we expect dividends?

CB: I mean, we still have a pretty solid charter book to cover over the next four to five months. If rates and periods stay where they are, we will not only have obviously full visibility for this year, but we will also have a very, very good visibility for next year and to quite some extent on 2023. Once that is kind of cleared and that is probably by end of Q3 because then we assume we fixed the vessels at two or three years, we will have a quite a number of fixtures open still until then. We will then have a very, very good visibility and that's the point in time when we will decide what's the best capital allocation for us.

And of course return to capital to investors is a very key pillar in the considerations. But we agreed also with the board to let's look at the charter book work our way through because of the significant exposure that we can -- and charter book that we can actually build upon and then take the final decision. And that is probably something end of Q3 early Q4, when we will be ready for that.

JM: Okay, certainly that I think that makes sense, make sure that you get those roles first. And that way what your base is, how large of a payout you can afford. Do you think -- I know it's speculative at this point, you haven't had the board discussions. We're just having a conversation theoretically. But do you think it's more of a, like a fixed quarterly dividend? Or do you think it'll be more so variable based on the market and their earnings?

CB: I think to give them kind of direction is a bit premature. I think there are different schemes out there in the market and all -- they have their pros and cons. And I think one important factor is to, as I said to see, to have the visibility beyond basically 2022 even into 2023 to take some stance on that, and that would be our position.

JM: Okay. Yes, certainly prudent. We know Q3, of course, ends in September that the report is probably to be expected early November. My birthday is actually in November. So I'm expecting a dividend for my birthday Constantine, hold you to it.

CB: Sounds promising.

JM: So we talked a little bit about new build, and how the order book has increased, but the order book hasn't really increased for the smaller and medium sized tonnage, if somebody wanted to go out there today, and buy a new build of say 3,500 TEUs or 2,700 TEU or whatever, how soon could that vessel be delivered if you ordered it today, June 2021. And what are the sort of economics, what are the sort of returns on that vessel? What's kind of the tradeoff between buying that vessel now and buying a secondary tonnage or leasing a secondary vessel?

CB: Yes, I think the first of all, secondhand prices have increased quite substantially year-on-year 20%, if not more, so that's just the pricing aspect of things. Obviously, rates have improved as well. So that should cater for it. If you were to order a vessel in that size category that you mentioned today, you can probably still get very selective and that means maybe a few vessels, one or two to be delivered in 2023. If at all, so then your 2024 positions. And in fact, the larger you go in terms of vessels the longer the lead times, because simply there are less shipyards available to actually build the ships. So there's more, more competition, or definitely tighter shipyard capacity. So maybe still 2023 if you're lucky on that size, but more 2024.

In terms of the dynamics, the situation is such that the question is would you be willing to order on speculation? Because there's not a lot of it will come in my view, and it should come actually, there's not a lot of charter backed ordering activity in the smaller sizes, as we have, for example, seen Seaspan has done over the last couple of months right, Seaspan on the larger container vessels has done quite a number of let's say, longer leasing deals with the liners 13,000 TEU and above.

I think on those deals, the liners are willing to provide 12-15, if not longer, 18 year of contract coverage. But then you're basically locked in at a 6% coupon with operational risk and reward, so to say, but on the top line, you're pretty capped. So I think that is a decision to take, depending on your capital allocation strategy. I think for us, obviously, we will not go into the larger segments anyway. And on the smaller segments, you would not get enough charter cover to justify a new build at this point in time, given also the technology risk.

Shipping is all about if you're on the owner side, it's all about managing residual value risk. So you need to consider how you de-risk your investment, especially in times of technology change. And over the next five to ten years, there will be a significant shift, maybe more ten years then five. And that means if you only have a seven year charter, you probably run a bit of a technology risk. So I think this is at least our stance. The dynamics is that to get a charter for a smaller vessel for a long enough period is not easy. And then to get that at a yield that is more than 6% and 6% means your equity return at that point, the rest should come out of the residual value. And then I'm a bit uncertain, I must say to take that decision at this point in time.

JM: Yes, I think that certainly makes sense, especially from your perspective, but it also reflects what we're seeing in the market. There's none of the tonnage providers are really lining up to order anything. I then think Atlas Co, Seaspan what the stock is, is Atlas Corp. I think they're the only ones that are out there buying new builds at least that have been announced. So it's very interesting. And as you mentioned, those are 12, 15, 18 year deals.

So those are very industrial like almost like equipment leases, they're not even really classic shipping. It's almost like a completely different business model. So excellent. Let's hope it stays that way. Because the order book, as you mentioned, looks great for smaller and midsize vessels. You mentioned kind of 2023 and 2024, and technology risk and that sort of thing.

So let's talk about those EEXI standards in 2023 and future potential bunker tonnage tax, what does that mean for MPCC. Do you need to do any CapEx upgrades or slow steaming or anything like that?

CB: Well, first of all, I mean we obviously analyze our fleet prior to the final result of the MEPC 76 meeting, which will take place in June actually. But we will be able to comply with the regulation, for EEXI example, by applying so called engine power limitation measures on our vessels. So this is basically limiting the capacity of your main engine to go fast. I mean, effectively, in most of our trades, we're not going full speed.

I mean, remember, our vessels are somewhere between 10 and 15 years of age, on average, and so they most of them are actually designed for speeds above 20 knots. But they don't go that fast, with very, very few exceptions. So just to apply an engine power limitation is 50k investment per vessel, and you would be compliant with that regulation. That's obviously there will be more regulations coming and we're looking at some other aspects, smaller retrofits, propeller, retrofits, et cetera. But this is all investments that are not super significant.

So there is a CapEx item on each vessel that we foresee. But it's not that it's kind of in the seven digit territory at all. It's probably a couple of hundred-thousands in total. And that would make us kind of in compliance with the new standard. So it's in our book it's not a super significant aspect. And again, that in turn means on some of our vessels, because they trade some trade -- in trades where they only go 30 knots. So any power limitation does not have any effect whatsoever on the trading profile. But there are other vessels that go at larger speeds, higher speeds, and they would obviously have to reduce their speed as a result of that, meaning more capacity is bound actually good for the supply demand balance in our view.

JM: What's sort of, I'm just curious, because I haven't really delved into this before in some of our discussions, but what sort of routes tend to have the longer the higher speeds? Is that more of like cross Atlantic cross specific routes or those more regional routes, where you're just going from port to port really fast?

CB: It really the answer it depends. I mean, there are some regional routes where vessels go a bit faster if they are for example -- and we have a few vessels in the in the Caribbean, Latin America, where they go on fruit trades and have the stopover in port every day. So they need to make the schedule on a day by day basis. So they sometimes go a bit faster. The large vessels have obviously speeded up over the last six to eight months. So on the large long haul trades.

So, it is I mean that is data I can provide you with really details on that, especially how that has changed. But in general as far as our fleet is concerned, none of our ships go 21, 22 knots which they are, by design capable of doing. But they are -- rather the faster ships go around 18 and the slower ones go around 12 to 13 knots.

JM: Yes, certainly interesting. It sounds like the EEXI limitations are primarily going to impact some of the mid-size to larger container ships and maybe some of the tankers and larger bulkers and stuff. It sounds like the small if I'm hearing you correctly, the smaller container ships like the feeders and baby Panamaxes, they don't really operate near max speed anyways, is that is that a correct summary?

CB: Yes, pretty much.

JM: Okay, that makes sense. Because I know I know some of like some of the bulker owners, for example, the cape size owners and larger eco tonnage are pretty excited about this thing. But I guess it really just depends what segment of the market you're in. Is there any other sort of regulatory risk upcoming? I know one of the items that that we talked about a little bit is green scrapping or green recycling. Is that a risk for you when you divest some of your older tonnage?

CB: Well, we don't plan to scrap any of our vessels anytime soon. So of course, stricter regulation imposes certain limitations. Having said that, we would in any event only scrap green to start with. That is an obligation that we have put on ourselves very early. So we would not go any other route by virtue of in our view, sound governance and sound behavior. So there is talks about these things, but this is I think, more applicable to smaller private owners who have done maybe things that one should have considered before doing.

So for us, it's clear, yes, there's more restrictive catalogue of things to consider. But there's also more and more shipyards to be white listed as being able to scrubbering. So there's also an incentive for a lot of shipyards to improve their footprint, so to say. So I think that actually helps increases the optionality going forward. But for us this is this is a key element of our DNA anyway.

JM: Yes, I mean, I think that's important from a corporate governance standpoint, especially with the increasing focus on ESG, you want to be responsible, and you don't want to have bad press on something like that? What's the sort of like tail risk if you were to sell an asset to a third party? And you thought they were going to trade it and you thought they were going to operate it, and then the market turned and suddenly it's on the beach in Pakistan, like what is the risk there?

CB: Well, that's a pretty complex legal question. Usually, you would, you would sell it only to parties where you can yourself ensure that they treat the vessel properly. And they also adhere to the rules and regulations. So that would be the starting point, you usually also incorporate clauses of that type of nature in into the sales contract. So that's how we will deal with it. Others might do differently with it. But this is how we would address this issue.

JM: Certainly makes sense. It's just something we're watching as investors and keeping in mind as a risk factor, both from if you get bad press for which you wanted MPCC, but just, you know, potentially ESG risk factor, and then also on the legal aspect of tail risk. Let's one more question on sort of the environmental economics. You've installed some scrubbers on your ships, some legacy deals you did a couple years ago. What are the economics on those ships how much sort of cost savings per day are you seeing? And then secondly, as you bring some of your ships through dry dock is there any appetite to add more scrubbers?

CB: No, at this stage, I mean, the scrubber situation for us was also a bit of a hedge. I mean, we did not go all in on all ships back then we did 10 scrubbers on a fleet of about 60 vessels. So we intentionally selected vessels where the trading profile fitted well with a let's say economic consideration and the hatch to go for scrubbers. So that was our rational.

I know a lot of other companies saw this as an almost religious topic to go either all in all out, we decided to do a balanced approach. And we back then did is also because we were able back then to secure long term charters against it, and that long term charter had a significant value back then, obviously, with today's rates, these contracts are below market right. But they have produced EBITDA backlog two years ago, which we have been benefiting as well the crisis from last year in particular.

So we actually had two benefits, one benefit was have prolonged charter coverage at back then above market rates and having a profit sharing mechanism or saving sharing mechanism rather. That saving sharing mechanism obviously was very attractive early 2020 when the spread was a 250 plus up to 300. But now we're looking at around 100 depending on the region. So now it's really not a significantly attractive payback.

But as I said for us it was a hatch and we probably on the savings depending on the trade and the vessel but as in rough figures, we probably own up to a million per annum so far for one ship. So overall with some smaller vessels where we have scrubbers I think our expectation as a scrubber savings across the fleet is probably around 8 million for this year.

JM: Okay, so sounds like a pretty decent return on investment from that limited scrubber program. But at this point in time, you're happy with the fleet the way it is no additional CapEx planned. So final question, as we wrap this up. There's a lot of containership stocks out there. You're one of the only ones in the Oslo market MPCC on the Oslo, but there's a lot of U.S. listed containership stocks is about seven of them. Why should investors consider MPCC over the rest? What differentiates you and makes you a little bit more attractive?

CB: Well, I think I touched on a few points in our discussion, what I think what differentiates us is that we have certainly, I would argue, the lowest residual a risk from all these companies, in terms of what's the risk at the end of the charter and how do we trade compared to that. And I think this is a big Pro.

In addition, and I think that's important, we have a pretty much geared towards continuously benefiting from the charter market for the next six months. So given the staggered fleet profile in terms of charter renewals that makes us certainly unique. So to benefit from continuously strong markets, I think we are best positioned to actually do that. And that in combination with the strongest operational leverage, I think of all companies out there, because we have the lowest cash breakeven. And I think this is a very, very important factor.

So we will definitely differentiate us on that part, obviously, and also listing versus the U.S. listing is, for some investors a different situation, we do have quite a number of U.S. investors in fact, and we currently have a market cap of around $860 million U.S. So I think we're getting into a territory where among the larger vessels or vessel tonnage providers, Atlas, or C Span, customer and analysis in terms of market cap, we are number four, and we have a very specific focus on the intra-regional market, market where I feel supply, order book, et cetera is much more favorable. And the demand side in terms of growth of intra-regional trade is also favorable.

So I think there are a lot of ingredients in our DNA that I think investors should look at if they interested in the space. And I think that makes us special compared to some of the others.

JM: So it's certainly a solid sales pitch, Constantine, I can tell you practice before you came on this morning. You're only missing two things you're missing a dividend. But we talked about that, and we're going to get a dividend on my birthday in November. Hopefully.

CB: What's the date of your birthday, J? Just put it down here on my note.

JM: November 12. That's the ex-dividend date. Is that we're going to get.

CB: Now that I don't guarantee but I just took note of the date at least it's good.

JM: All right, let's make it happen. And then the second thing, U.S. listing. Is that on the table at all, is that still a thing or are we shelve that for now?

CB: No, I mean, we touched on it on a few occasions already. And obviously, for us to be valued according to a peer group is very important. We have built our company on the Oslo market and we feel very comfortable there. Having said that we obviously aware of the U.S. market being offering some additional dynamics. So it's, as I said last time, it's something that we really look into, I think, maybe if we have a market cap of more to 1 billion, which I wouldn't rule out, will be achievable in the not too distant future. I think that that would actually then bring a lot of benefits.

But if you were a too small company, I think it's something that might not actually benefit you. But we are now in a territory that I think it could make sense, as we discussed last time, and it is something that is discussed on the board level, how to deal with it. But there's clearly -- I mean there's no commitment to do it, but there's also no commitment not to do it. So that's probably where we stand.

JM: All right, Constantin, well, we just got a new rate update and it's even higher yet for the new context and you got Q3 charter rolls coming up, you got dividends coming up. So $1 billion market cap might just be right around the corner, fingers crossed.

CB: On the dividends, I stick to my proposal that we will revisit that by the end of Q3. But I took note of your birthday, and that's the date when we should at least touch base again.

JM: Absolutely. Well, thanks again for joining us, Constantin. I think it was very useful for everybody.

CB: All right, J. Many thanks. Take care everyone. Bye-bye.

JM: This concludes another iteration of Value Investors Edge live recording on the morning of June 10 2021, at about 8:00 am Eastern time. We just hosted MPC Container Ships CEO Constantin Baack. This is an Oslo listed company stock symbol MPCC focus on the smaller and midsize containership firms. As a reminder, nothing on the call today constitutes official company guidance or investment recommendations of any sort. I have several containership investments across the sector. Please see the latest public post for those latest disclosures.

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This article was written by

J Mintzmyer profile picture
The ultimate shipping and logistics platform.
BS in Economics, MA in Public Policy (International Economics), pursuing Doctoral in Public Policy (Intl Relations). J is an established independent research provider and hedge fund consultant in the maritime shipping sector.

Mintzmyer founded Value Investor's Edge, a top-ranked deep value research service in May 2015, with the goal of establishing a top-tier community of deep value investors and activists. Value Investor's Edge subscribers leverage exclusive in-depth analytic reports and community investment experience to discover disconnects in global shipping and a variety of other beaten down sectors.

As part of directing Value Investor's Edge, Mintzmyer works with a team of five analysts and data technicians to deliver quality research and analytics to over 500 members. He has interviewed numerous management teams at public maritime firms, and has worked with a multitude of investors. Mintzmyer's exclusive analysis has received frequent 'Top Idea,' 'Must Read,' and 'Small Cap Insight' awards at Seeking Alpha and he is commonly cited in industry news such as TradeWinds and Splash 24/7.

Pursuing a Doctorate in Public Policy (Intl Relations) from Harvard University. M.A. in Public Policy, with focus on International Security & Economic Policy from the University of Maryland. Distinguished Graduate of the United States Air Force Academy with a B.S. in Economics. Extensive background in financial analysis, equity research, accounting, portfolio management, and customized asset allocation through nearly a decade of formalized education, personal studies, and practical experience. Avid reader of business/investments and biographies.

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