Diana’s contracts are below the market
Looking ahead, the majority of Diana Shipping Inc.’s (DSX) contracts are chartered out at rates below the current 12-month time charter rates (see below). Under time charter contracts, shipping companies lend their vessels out for specific period at a pre-negotiated fee per day to a charterer. The shipowner will operate the vessels, but the charterer will pay for fuel, port, and canal costs.
The chart above uses data from Diana’s current fleet employment table. Essentially, it shows when the time charter contracts will expire, and whether current contract rates are at a premium or discount to current market rates. Because we simply took RS Platou’s time charter rate for Panamax and Capesize, these are rough value estimates.
Expirations at the end of 2014 and start of 2015
As we mentioned earlier in this series, the majority of Diana’s contracts are priced at a discount to current market rates. But most of them are set to expire towards the end of 2014 or the start of 2015. This means that if market rates rise, Diana won’t be able to take much advantage of them compared to companies like DryShips Inc. (DRYS) and Navios Maritime Holdings Inc. (NM), which have greater exposure to the spot market or use shorter-term contracts.
The impact on Diana’s share prices
But at what price would Diana be able to recharter its ships out when their contracts expire in late 2014 or early 2015? In part, that will depend on how fundamentals and rates change in 2014. Investors will be watching short-to-medium-term movements to get a sense of where rates are long-term. So if the current market rate rises or falls, Diana’s shares would also be affected—though to a lesser extent, as investors focus on the more medium-to-long-term outlook.