Shorts target shipping amid rate collapse
The shipping industry dynamics have gone from bad to worse as freight rates, oil and dry, continue to plummet; attracting short sellers to ship fleet operators.
- Maersk sees short interest double to levels not seen since financial crisis
- Short sellers most active in energy exposed names as contango trade loses steam
- North American Tanker sees record high short interest despite better than expected results
Chinese data adds to shipping woes
Weak trading data out of China this week highlights continued falling demand within and from the most important nation in global trade. Weak demand from China has seen freight rates continue to hit new lows, something which is starting to take a toll on ship owners.
The bad news is also starting to seep into oil tanker firms, which have been sheltered from the worst of the industry's slump due to demand to charter ships as floating storage in contango trades. However sustained weaker commodities and energy markets has created volatility in rates, squeezing margins on the one industry bright spot.
This worsening industry outlook has seen short sellers circle with short interest across the sector surging to new recent highs.
More ships due, d"j" vu
The world's largest shipping group Maersk stands as a good example of the industry's current woes. Its fleet represents ~15% of the world's shipping fleet - almost 600 ships and 3Mn twenty-foot equivalent units (TEU). The firm recently reported that the conditions it currently faces are worsethan during the financial crisis. Maersk shares are down 45% over the last 12 months and short interest is at the highest levels seen since 2009 with 2.5% of shares out on loan, rising 200% year to date.
Maersk's container shipping business is expected to perform "significantly below last year as a consequence of the significantly lower freight rates into 2016" - however the company still expects "seaborne container transportation to increase by 1-3%". The firm's recent quarterly loss of $2.5bn was heavily impacted by write downs in its oil assets. The downturn looks to have caught the firm off guard as it has yet to take delivery of 27 new ships on order.
Energy shipping shorts breakout
The surge in Maersk short interest is representative of the wider demand to sell shipping firms short across the world. The ~140 global shippers with a market cap greater than $100m cap have seen average short interest rise to new highs.
Most of the recent surge has been driven by shipping firms in the energy sector as these firms have seen demand to borrow their shares rise to 3.6% on average, twice the levels seen before oil prices started to collapse 18 months ago. 'Industrial' shippers have however seen average short interest rise to just above 2% of shares outstanding on loan, below the average for global shippers of 2.5% despite the fact that the collapse in shipping rates predated that of the contango trade.
Most shorted shippers
Hornbeck Offshore Services was among the most shorted ahead of earnings last week with almost a quarter of its shares sold short, and is due to report fourth quarter results on the February 17th 2015. The company has 'stacked' (temporarily decommissioned) half its fleet as these served the oil and gas exploration activities, which have been curtailed.
With a high cost to borrow, short sellers are currently prepared to pay more than 10% to short Nordic American Tanker which has 17% of its shares outstanding on loan. This is despite the company, which benefited from increased transport of oil, posting its strongest full year cash flow to date.
Reporting an extraordinary loss for the fourth quarter of 2015, Japanese shipper Mitsui Osk has seen short seller's double positions in the shipper over the last 12 months as freight rates continue to dive.
Year to date short interest has risen almost fourfold in Kirby Corp with 8% of shares outstanding on loan. The operator of the largest inland and offshore tanker barge fleet in the US has seen shares sell off by a third as the firm posted its first revenue decline since the financial crisis.
David Weisberger, Managing Director, Trading Services at Markit
Posted 17 February 2016
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