Clarksons profit down, but bullish on shipping outlook

Clarksons profit down, but bullish on shipping outlook

Clarksons believes it is well positioned to benefit from the nascent recovery in global shipping markets.

Clarksons’ profit dipped in 2016 on significantly lower freight rates and asset values, but the world’s largest shipbroker said it’s well positioned to cash in on improving shipping and offshore markets.

The London-based broker and shipping services company’s underlying pre-tax profit slid to 44.8 million pounds ($54.7 million) from 50.5 million pounds a year earlier on revenue up slightly at 306.1 million pounds against 301.8 million pounds last time.

Reported pre-tax profit declined to 47.3 million pounds from 31.8 million pounds, but the company raised its dividend for the 14th consecutive year.

“Clarksons remains cash generative and highly profitable, allowing us to deliver continued dividend growth to our shareholders despite the challenging shipping markets,” said CEO Andi Case.

“A number of indicators suggest that the shipping and offshore markets are beginning to recalibrate and we are well positioned to capitalize on the opportunities this presents in 2017 and beyond.”

The broking division posted an underlying profit of 40.2 million pounds, down from 49.1 million pounds in 2015, and revenue dipped to 233.6 million pounds from 239.5 million pounds.

The container charter market remained extremely challenging, with the one year daily rate for a ship of 2,750 twenty-foot-equivalent units averaging $6,000 in 2016, 27 percent lower than the average since the beginning of 2009. Old Panamax vessels fared worse, averaging $4,979 per day, down 56 percent from 2009, with the opening of the new Panama Canal locks impacting vessel deployment patterns.

Container ship capacity slowed significantly in 2016, rising not much more than 1 percent, while deliveries slowed dramatically to 900,000 TEUs and demolition hit a new yearly high of 700,000 TEUs.

Looking further ahead, more improvements in fundamentals still appear necessary to generate improved market conditions. “However, pressurized earnings, financial distress, and regulatory requirements are all expected to drive further recycling, and the ordering of newbuild capacity dropped to just 200,000 TEUs in 2016, a dramatic slowdown compared to recent years; the order book fell to 16 percent of fleet capacity.”

Meanwhile, further significant steps in the consolidation of the sector have been taken in the form of merger and acquisition involving major operators.

“We have made considerable progress in the last 12 months with a number of key clients and, as a result of the consolidation within the sector, significantly increased volumes.”

The dry cargo sector experienced an “extraordinary” year that began with the weakest rates in recorded history as the Baltic Dry Index (BDI) bottomed out at 290 in February, Clarksons said. Ships moved between idleness and lay-ups as older tonnage was rushed to demolition yards. Cash flow pressures led many owners to cancel or defer newbuilds, resulting in less than half of the 2016 orderbook being delivered on time.

The market recovered through the year with the BDI hitting a year high of 1,257 on Nov. 18.

Although the demand outlook remains positive for 2017, the market still face challenges, with relatively firmer rates likely to slow scrapping while a still substantial number of yet-to-be delivered newbuilds will push net fleet growth higher and likely result in “uninspiring” earnings.

Contact Bruce Barnard at brucebarnard47@hotmail.com.