Seaspan CEO: US-China trade spat will not rock boat

Hong Kong container shipping firm has amassed $1b of investment from Fairfax Financial for acquisitions in a sector ripe for consolidation; signalling confidence even as trade tensions ramp up.

The world’s largest independent containership owner-operator, Seaspan Corp., is upgrading its fleet and plotting acquisitions, a sign of confidence the sector can ride out the US’s renewed trade offensive against China.

Shipping companies’ share prices have been roiled by rising tensions between the superpowers. On March 22 the White House moved ahead with tariffs against China, less than two weeks after both sides agreed a truce.

The move could escalate into a global trade war. “A contraction in global trade would likely result in reduced container throughput that would lower demand for container and containership leasing,” said credit rating agency Fitch in a March report on the sector.

However Bing Chen, Seaspan’s chief executive officer was upbeat during an interview with FinanceAsia: “Demand is still there. So far we have not experienced any effect on our forward bookings [from rising US-China trade tensions].”

US-China trade is only about 4% of total global trade of $16 trillion, he noted. Chen is calling full-steam ahead for the firm as he sees swelling North-South trade flows and intra-Asia trade picking up. He also noted that Seaspan is also benefitting from China’s trade policy which excludes the US: its 21st Century Maritime Silk Road initiative.

China’s largest state-owned shipping conglomerate, China Ocean Shipping Company, known as Cosco, is Seaspan’s largest client. Trade between the US and China makes up about 15% of Cosco’s cargo revenues.

Seaspan’s clients have also been consolidating other shippers as well as along the supply chain.

The containership leasing industry is more fragmented than the container leasing industry. Market leaders in 2017 were: Seaspan, Shoei Kisen Kaisha, Costamare, Dohle Group and Danaos Shipping Co., according to Alphaliner Monthly Monitor.

Seaspan has an 8% market share of cargo-carrying capacity, its nearest competitor has 4% while the next in line only has a 1% share, Chen said.

Containerships require significantly more capital investment than containers, and excess capacity pushed down containership values in 2015 and 2016, leading to substantial impairments. However, since the downturn, lower containership orders, coupled with higher scrapping levels, have driven up asset values and charter rates, according to Fitch.

“We are cautiously optimistic about the industry,” said Chen.

Containership charter rates for 4,000 TEU (20-foot equivalent unit) panamax vessels improved to $9,000 per day in January, compared to an annual average rate of $7,700 per day in 2017 and below $5,000 per day in 2016. “Right now it is $13,000,” Chen said.

Cosco said in October it was buying Orient Overseas International Ltd (OOIL), the world’s seventh-largest container shipping company, for HK$49.23 billion ($6.30 billion). Cosco is still in talks with US foreign acquisitions watchdog Cfius, and people familiar with the matter expect OOIL to sell US ports to win clearance for the merger.

Cosco said in April that it expects to complete the acquisition in June.

Chen declined to comment on whether Seaspan would buy any of OOIL’s assets but said the deal would be positive for the industry and for Seaspan.

$1 BILLION OF FIREPOWER
NYSE-listed Seaspan said on Thursday that Toronto-headquartered Fairfax Financial Holdings has agreed to invest an additional $500 million of equity in Seaspan through the exercise of two tranches of warrants, increasing Fairfax’s total investment in Seaspan over the past five months to $1 billion.

Billionaire Prem Watsa, Fairfax's CEO, said in a statement that: “As the global containership industry continues to consolidate, we believe owner-operators like Seaspan, with financially sound balance sheets, will have excellent growth prospects.”

Fairfax agreed to buy Toys 'R' Us in April. Seaspan is its only investment in shipping. 

Some equity analysts have voiced concern about Hong Kong-headquartered Seaspan’s relatively high leverage in such a volatile sector as container shipping.

Despite promises to reduce leverage Seaspan’s newly appointed management team completed the acquisition of the shares in Greater China Intermodal Investments (GCI) that it did not already own from Carlyle and other investors in March.

“As a new management team we are focusing on capital allocation. This is very critical in any industry but particularly important in the shipping industry,” said Chen, who was named CEO in October.

Chen who was previously BNP Paribas’ head of China said it was a better use of capital to buy GCI than pay down debt, which would almost been an admission that the firm did not believe in the growth of the sector.

Seaspan has also been using capital to upgrade its fleet so clients can better meet the challenge of the ecommerce boom. It is customising the design of its vessels to be more fuel efficient and to more efficiently load cargo.

It is also upgrading the communications of its vessels, transferring its fleet to a new satellite system so its ships will have unlimited data usage and improved wifi coverage. Its team of support staff in Hong Kong can work with the crew to localise any glitch in software, such as navigation systems, by connecting with the bridge computer.

“Clients try to move the goods in the fastest, most cost effective and informative way,” Chen said.
 

¬ Haymarket Media Limited. All rights reserved.