Danaos' profits soar as charter market tightens

Greek containership chartering company Danaos Corp. said a capacity squeeze in the charter market helped it achieve strong profit gains for the fourth quarter and full year, adding that concerns over the U.S. economy will likely see a contraction in the number of newbuilds ordered.

The New York-listed company's fourth quarter net income gained 46.1 percent to $44.6 million from $30.6 million in the same period in 2006. Quarterly revenue increased 23.5 percent year on year to $71.3 million from $57.7 million. For the year, Danaos' net income jumped 113 percent to $258 million, helped by the sale of the company's bulk vessel fleet. Revenue gained 26.2 percent to $258.8 million.

The lack of available vessels for new charters, especially in the 3,000-TEU and above sizes, explains our success in rechartering all but one of our older vessels, said John Coustas, Danaos' chief executive officer.

Danaos owns a fleet of 36 containerships aggregating 145,318 TEUs and has a further 36 vessels scheduled for delivery through 2001 with a combined capacity of 247,868 TEUs. The company's contracted revenues have increased to about $7.3 billion, with charters extending as far as 2028.

Coustas said strong fourth quarter demand in the Far East/Europe and Middle East/India/Far East trades counterbalanced a decline in the rate of growth in the transpacific trades.

The weakness in the U.S. housing market, which contributed to slow growth in the transatlantic and transpacific trades is likely to persist throughout the first half of 2008, he said. However, vessel demand will keep strong due to the slow steaming that is increasingly becoming a practice due to the sustainable high oil price. The credit crunch has not significantly impacted our industry mainly as a result of the asset backed borrowing and long charter terms that characterize containership leasing.

Vessel prices during the fourth quarter of 2007 have further strengthened as a result of strong new building demand for large containerships. The slowdown of the U.S. economy will likely have a spillover effect triggering some caution in the ordering of additional containerships.

Such is the demand for containerships right now that Danaos has even managed to arrange charters for its oldest fully depreciated vessels. MCC, a subsidiary of A.P. Moller - Maersk, in December time-chartered the 30-year-old, 3,100-TEU S.A. Helderberg for a period of 12 months at fixed daily rates, while CMA CGM time-chartered its sister ship, the S.A. Sederberg at a fixed one year accretive rate. The company also sold another of the sister ships, the S.A Winterberd, to an undisclosed and unrelated third party for about $11 million, booking profits in excess of $5.5 million.

Further, Danaos announced that it has rechartered the 1,700-TEU Eagle Express, built in 1978, to Mediterranean Shipping Co., and the 2,130-TEU Pacific Bridge, built 1984, to Senator Lines, both for two years at accretive rates.

We are very pleased to have managed to arrange these charters, Coustas said. The specific charters are very important to Danaos as they demonstrate that well-maintained containership vessels can secure accretive charter arrangements for periods beyond their depreciable life when market conditions permit.