Why Navios’ Revenues Have Still More Downside

Default by the charterer

One of Navios Maritime Partners’ (NMM) counterparties, Samsun Logix, has defaulted on its contract. NMM has one vessel, Navios Aurora II, chartered to Samsun Logix, which is expected to be redelivered. The Capesize vessel Navios Aurora II was on contract until November 2019 for $41,325 per day. This is quite high when compared with the current one-year Capesize time charter rate of $16,000 per day.

The charter is covered by a $20 million credit insurance policy through the sponsor. However, the company maintained that it could have a possible liability of $5 million in excess of the insurance claim.

Why Navios’ Revenues Have Still More Downside

Contract schedule

A significant number of Navios Maritime Partners’ contracts are expiring over the next year. Sixteen dry bulk vessels are coming off charter in 2015–2016, including the one to be redelivered by Samsun Logix.

Coming off charter in June 2016 are three Ultra-Handymax with average rate of $12,250 per day, ten Panamax with average rate of $10,939 per day (ignoring profit sharing), and three Capesize with average rate of $22,500 per day.

Rollover risk

These contracts are lucratively priced compared with the current spot rates or one-year forward charter rates. According to Alibra estimates, one-year forward time charter rates for Capesize are $16,000 per day, and the rates for Panamax were $8,750 per day as of August 5. This difference could mean a significant downside for NMM’s revenues going forward. We also note that some of this downside should be offset with the recent acquisition of a container vessel by the company. However, the offset should be lower than what we noted in Will Navios Partners Have Clear Sailing When Contracts Roll Over? The reason for this is that NMM did not exercise the option to acquire another container vessel in June.

For Diana Shipping (DSX), contract rollover is a near- to medium-term risk. Some of its recent contract resets were at lower prices than the previous rates. As we’ve already seen, fixed-rate exposure is quite low for Safe Bulkers (SB), DryShips (DRYS), and Navios Maritime Holdings (NM). Safe Bulkers’ long-term contracts are not coming up for renewal anytime soon.

NMM forms 2.9% of the Guggenheim Shipping ETF (SEA), which generally follows the Dow Jones Shipping Index. In contrast, the SPDR S&P Metals and Mining Index (XME) gives investors exposure to the diversified metals and mining space.

Apart from lower rates, financial leverage is one of the big investor worries during an industry downturn. In the next part, we’ll see how NMM is doing on the financial leverage front.