CHISWICK, WEST LONDON – A shocking piece of news came out last week…
A container ship called CSL Santa Maria has been chartered for $160,000 per day for three months.
From Lodestar, a freight and supply chain news outlet:
Its owners will therefore receive a massive $14.5 million in charter hire for the 90 days of employment – almost twice the value of the vessel just six months ago.
Unsurprisingly, given its current earning power, Vesselsvalue has upgraded its valuation of the 16-year-old panamax to $49 million, a substantial bonus for the Greek owners who purchased the CSL Santa Maria in 2017 for just $7.6 million.
And it’s not just the Santa Maria. Container ship day rates have gone parabolic across the board.
The best measure of this is the Harpex. The Harpex is the index that shows how much it costs to rent a container ship for a day. It’s published by the shipbroker Harper Petersen every Friday.
Last week, the Harpex jumped 12%. It was the largest nominal jump in the index’s 17-year history. And it followed a 12% jump the week before and a 9% jump the week before that.
Take a look at the chart below. It shows the Harpex going back a decade, and its recent parabolic rise.
Going back even further, last week’s rates are nearly 60% higher than the previous all-time highest container shipping rates set in 2004-2005.
“It’s the craziest market I have ever seen,” said a veteran Hamburg shipbroker. More below…
Stuck in a Holding Pattern
Greetings from London…
We’re a traveling family from the U.S.
We’ve spent the last three years living out of a suitcase and traveling around the world. Then, my mother died unexpectedly in London at Christmas, so we’ve come to the U.K. to sort out her affairs and deal with her estate. (She named me the executor of her will.)
We arrived in London three months ago. We planned to quickly sell her possessions, sell her house, throw everything else away, and then return to the U.S. by the end of the summer (and pick up our car, which is parked at an airport in Idaho).
It turns out, I had a greater sentimental attachment to my mother’s possessions and her house than I realized (I spent much of my childhood here).
And we love the area she lives in because there are so many families and so many activities for the kids to participate in. We’ve tried cricket, rowing, gymnastics, art, karate, cycling, soccer, bridge, and lots of London sightseeing.
We’ve been having such a good time here, we’ve even talked about settling down and making London our permanent residence.
On the other hand, we’ll be far away from our parents. Kate’s parents live in Florida. My father lives by himself in New York. (My father has Parkinson’s Disease, the same disease my mother just died from. He is also battling cancer.)
If there’s one lesson I’ve learned from my mother’s death, it’s that I was taking my parents for granted.
As crazy as it sounds, I thought they’d live forever. And I acted like that. The reality “check” has been very painful. So being close to our parents is really important to us now.
What will we do? We don’t know. And COVID-19 complicates everything. We feel like an airplane circling the airport, stuck in a holding pattern…
Raining Money
Turning back to the container ship industry…
“This is too good to be true,” I told Dusty about the container trade I’ve been following in these Postcards. “I’m nervous I’m being a sucker here.”
Kate and I are using our investments to finance our lifestyle.
We’ve put 85% of our savings into gold and silver, to protect our purchasing power. And we have about 15% in shipping stocks, for income and higher returns.
Recently, we’ve added to our position in container shipping…
I must admit, these container ship investments seem a little “too good to be true.”
On the one hand, container ship leasing firms – like the private company that owns the CSL Santa Maria – are making so much money, you could say they’ve won the lottery.
Drewry, a shipping consultancy and research service, is forecasting the global container shipping industry could generate profits of up to $100 billion this year. That’s more than three times the previous annual record.
How long can this last? Perhaps container ship lease rates are about to collapse?
They probably are. I won’t deny it’s a bubble. But I’m not worried about this in the long-term. Here’s why…
Most of the deals being done in the container ship market at extraordinary rates are for the next three to five years. This is different from oil tankers, which only capture the spot rate for however long the voyage is (say, 60 days).
In other words, these deals should rain money on container shippers for years to come, regardless of what happens to container shipping rates next.
And I’m not the only one who’s noticed this crazy market. Profits are so high, it’s even started attracting attention from the politicians. They’re concerned about shortages in the industry.
President Joe Biden announced his office is looking into ocean shipping rates. He’s even created a “Supply Chain Disruptions Task Force.” And next month, Congress will debate amendments to the U.S. Shipping Act, which regulates certain aspects of ocean commerce between the U.S. and other countries.
It’s not clear to me what they can do about the shortages. None of the big container shipping firms are based in the U.S. or pay taxes to the U.S. government.
Besides, it’s economics 101…
If they regulate container shipping prices, they’ll only create less supply and more demand, exacerbating the shortages… and sending prices even higher. The best solution is to let the free market clear the shortages naturally, with high prices.
Either way, for shipping investors, it’s a win-win setup.
But despite these tailwinds, the stocks of the container shipping companies have not been rising yet. They’re trading below the price levels they were at two months ago.
Container ship leasing stocks now have such low price-to-earnings (P/E) ratios and such high dividend yields, they look like deep value investments.
Using the latest quarterly and annual earnings estimates from the shipping analysts and brokers I follow, many of the container shipping firms are trading at one or two times the profits they’ll make in 2021… and some will pay dividends as high as 20% over the next 12 months.
What to make of it all? Am I being a sucker?
I don’t think so. As I wrote in a buy alert to my Tom’s Portfolio subscribers last week, I think a huge trade has presented itself in the shipping world.
This is one of those times when we must get greedy.
So we’re not selling. In fact, we’re buying more…
– Tom Dyson
P.S. I’ve recommended a model portfolio of shipping stocks to readers of my elite service, Tom’s Portfolio. Shipping is a notoriously volatile industry. To minimize risk and volatility, we’ve spread out our investments equally over all the shipping sectors, including tankers, dry bulk, natural gas, propane, containers, and refined energy products. To get the list of my 14 favorite names – including the four buys I recommended last week – find out more about a Tom’s Portfolio subscription right here.
FROM THE MAILBAG
Readers offer help with Tom’s “Hero Trade” worries…
Reader comment: I hope you and your family get to feeling better very soon. As for losing sleep over the “Hero Trade,” perhaps my father’s advice from a lifetime of betting on the ponies is helpful: “Bet a little to win a lot!”
Reader comment: I’m a follower of your Postcards and I’d like to help you with your Hero Trade worries. No. 1 rule of trading: If you are stressed with your trades, you are trading too big. Reduce your position sizes until you don’t care.
While another has kind words for Tom about his “do-over” as a dad…
Reader comment: You are a very fortunate “father.” Many of us, probably “most” of us, have regrets about our lives. Most are not as fortunate as you have been and are. Rarely does anyone get “another chance” at any “do-overs.” Our families tend to get lost in the shuffle, when we should be there for the important things, like our kids.
Tom’s note: As always, thanks for writing in! I read every note you send us. Please keep them coming at [email protected], and I’ll do my best to address your questions in a future Friday mailbag edition.