The shipping industry is under a lot of stress right now. Slowing global trade growth and elevated leverage are weighing on the profitability of shippers, causing some to seek restructuring transactions to stay afloat. That said, despite all this turmoil, Seaspan Corporation (NYSE:SSW) continues to sail along rather smoothly. That was clear from comments made by CEO Gerry Wang on the company's second-quarter conference call.
On the call Wang detailed the ongoing progress the company has made on its strategic plans, specifically addressing three areas of importance.
1. We "continued to access capital on a global basis"
One of Seaspan Corporation's top priorities this year was to secure an ample supply of capital. It needed the money to fund its newbuild program, address some looming capital maturities, and provide it with funds to make acquisitions. The company made excellent progress on that goal during the second quarter, with Wang noting that:
We strengthened our balance sheet while expanding our sources of capital. We secured over $1 billion in capital through multiple financial transactions. We raised over $350 million of equity in three financings. We sourced over $700 million of capital from Asia, demonstrating our strong global access.
The company put that capital to immediate use. It redeemed its Series C Cumulative Redeemable Perpetual Preferred Shares, which were about to get much more expensive due to an escalation clause, and it acquired two newbuild vessels from its joint venture. Furthermore, it retained plenty of capital to meet its future newbuild requirements.
Seaspan's ability to secure funding put it ahead of its rivals, which are focusing their efforts on deleveraging. Danaos Corporation (NYSE:DAC), for example, "remain[s] singularly focused on ... de-levering our balance sheet," according to CEO Dr. John Coustas. Meanwhile, Costamare's (NYSE:CMRE) "main goal is to preserve liquidity and strengthen our balance sheet" during the challenging market environment, according to CEO Gregory Zikos.
2. We achieved "strong control of operating costs"
Another of Seaspan Corporation's prominent accomplishments this quarter was its ability to cut costs. According to Wang:
During Q2, we saw the benefits of the implementation of our cost controls. We were able to hold our operating cost constant while our vessel ownership days increased over 10%.
By keeping a lid on costs, Seaspan Corporation was able to grow normalized earnings by 25.1% on just 12.6% revenue growth. Overall, cost-containment efforts were an important driver of second-quarter earnings growth for the containership leasing sector. Danaos, for example, reduced its daily operating costs to $5,800 per day during the quarter, enabling the company to grow adjusted net income by 25.5% while its revenue decreased by 3.2%.
3. We "delivered on [our] growth strategy"
The final thing Seaspan Corporation's CEO wanted investors to know was that it was still growing despite the slowdown in the shipping sector. Wang noted that:
We added three vessels: the 10,000-TEU MOL Beyond, the 14,000-TEU YM Window and the 14,000-TEU YM Width, all SAVER design vessels. We also acquired two 11,000-TEU newbuild vessels from GCI which will begin 17-year bareboat charters with MSC when they're delivered in 2017. These vessels will be sister vessels to three vessels we already own.
Not only did the company take delivery of three newbuilds during the quarter, but it acquired two more from its joint-venture partner. Even better, all five vessels are currently under long-term time charters and are therefore generating cash flow right now, or will be once delivered. These long-term charters insulate Seaspan Corporation from the currently weak market conditions.
While Seapan Corporation ceased ordering newbuilds due to current market conditions, acquisitions could become an important growth driver for the company going forward. That's because now is an excellent time to be in the market for acquisitions, as "asset values have fallen to historical lows," according to Danaos's CEO Coustas. Further, given the funding needs and balance-sheet pressures of Danaos, Costamare, and other shipping lines, Seaspan Corporation doesn't have a lot of competition for vessel acquisitions.
While times are tough in the containership sector, Seapan Corporation continues to rise above the challenges. It was able to raise a boatload of capital last quarter, which gives it enough funding for the bulk of its newbuild fleet, upcoming maturities, and acquisitions. While it still faces several headwinds, the company's progress puts it in a position to weather the current storm and come out of the other side much stronger.