Long-term charter coverage
Navios Maritime Partners’ (NMM) strategy is to generate stable cash flows through long-term charters. Long-term charter contracts provide visibility to revenues and cash flows. However, there’s always a risk involved if these contracts roll off in a weaker spot market.
For Navios Maritime Partners, 99% of its 2015 operating days and 63.3% of its 2016 operating days are covered at average expected daily charter-out rates of $21,098 and $26,966, respectively.
During the second quarter of 2015, Navios Partners chartered out two Capesize vessels coming off charter.
Navios Fulvia was chartered out at $13,443 per day for 16–21 months (through December 2016–May 2017). This vessel was earlier chartered out at $50,588 per day until September 2015. The rolling off of the charter in a weaker market could lead to a negative impact of $37,145 per day, or $13.4 million per year, on a gross basis.
Navios Fantastiks was chartered out at $12,500 per day through April 2016, with 50% sharing based on actual results. From April 2016 onward, the vessel will be chartered out at $12,825 per day for six to ten months. This vessel was chartered out at similar rates earlier, so the rollover shouldn’t impact the company much.
NMM’s strategy of long-term charters is in contrast to peers like Safe Bulkers (SB) and DryShips (DRYS), which operate on short-term charters, or spot rates. While Safe Bulkers has more spot exposure with ~57% of days not covered by time-charter contracts for 2015, DryShips’ spot exposure for 2016 and 2017 is about 71%. Diana Shipping (DSX), on the other hand, has longer-term charters, with 79% days covered for 2015 and 22% for 2016.
The Guggenheim Shipping ETF (SEA) has 2.9% holdings in NMM. Investors interested in a broader industry exposure should consider the SPDR S&P 500 Trust ETF (SPY). The SPDR S&P Metals and Mining ETF (XME) provides exposure to the broader materials space.
In the next part of this series, we’ll talk about the risk NMM is facing as 16 of its contracts go off-charter during 2015–2016.