Danaos Reports Lower Profit But Is Upbeat About 2020

Danaos Corp. DAC said operating revenues and net income in the third quarter ending Sept. 30 were lower than in the same period last year, but that the market for chartering containerships "has strengthened considerably" the past six months.

Danaos reported net income of $33.9 million in the three months ending Sept. 30, 2019, compared with $127.2 million in the third quarter last year. Operating revenue was $111.8 million in the third quarter of 2019, compared with $117.8 million in the same 2018 period. Adjusted net income in the third quarter this year was $37.9 million, while in the third quarter of 2018 it was $37.5 million.

John Coustas, CEO of Athens-based Danaos, said the charter market for containerships has been stronger "particularly for vessels larger than 5,500 TEU, although we have also seen an improvement in charter rates for Panamax vessels." Panamax containerships, the largest able to transit the old locks at the Panama Canal, commonly have a capacity of around 4,500 TEU.

Coustas said the improvement in the charter market "may be partially due to a decrease in fleet capacity as vessels are being temporarily removed from the fleet to be retrofitted with scrubbers in preparation for IMO 2020 sulfur emissions regulations. Larger vessel classes have seen the greatest downtime, and we expect this to continue through 2020 and help contribute to a healthy charter market. This coincides with improving underlying market demand supply fundamentals.

"For 2020, we are aligned with the shipping analyst reports and our expectation is that container trade demand growth will outpace supply growth for the first time in almost 10 years," Coustas added.

He pointed to an International Monetary Fund forecast that world GDP will grow 3.5% in 2020, and he said Danaos expects container traffic growth will slightly exceed that level and "grow by up to 4% in 2020. On the supply side, capacity growth is not expected to exceed 3% in 2020."

Participants in the container shipping industry, "mainly liner companies, have generally remained reluctant to place newbuilding orders until the U.S.-China trade talks are settled and the IMO regulations come into effect, also taking the opportunity from the favorable demand/supply balance to gain pricing power on freight rates. The combined result of these factors should support the strengthening of the charter market going forward."

Danaos said that during the third quarter of 2019, the average size of its fleet was 55 ships and that fleet utilization for the three months ended Sept. 30, 2019, was 98.7%, compared with 97.4% for the three months ended Sept. 30, 2018.

The company said its fleet has 328,000 TEUs of capacity, making it the third largest of the publicly traded pure-play containership charterers after Seaspan and Costamare. Danaos customers include CMA CGM, Hyundai Merchant Marine, Mediterranean Shipping Co., Yang Ming, Hapag-Lloyd, Zim and other carriers.

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