London-listed owner Tufton Oceanic Assets believes the strong product tanker market will lead to longer charters at higher rates.
But the shipping fund, managed by Tufton Investment Management, believes the hot container ship sector will weaken over the coming 12 months.
The company said in its second-quarter update that operating earnings were $0.044 per share, or $13.6m, up from $0.028 in the same period of 2021.
The rise in charter-free values for tankers and bulkers was partially offset by the fall in tanker charter values as benchmark rates rose.
The company’s net asset value (NAV) total return was 6.2%.
Tufton will have 21 ships when its latest sale-and-purchase deals are completed.
The fund has sold all but one of its container vessels and acquired bulkers and tankers.
Tufton has declared a second-quarter dividend of $0.02 per share.
The company believes the shipping market is in a multi-year up-cycle that offers investors “inflation protection”.
The Clarksons newbuilding price index has risen about 29% since the end of 2020, Tufton pointed out.
Shifting market sands
The product tanker market has benefited from the increasing demand for long-haul cargoes with more Russian exports to Asia, notably India, and higher European imports from other suppliers including the Middle East, the US and Asia, Tufton said.
Beyond the near-term strength, Tufton believes the sector has strong supply-side fundamentals with the orderbook at only 5% of the fleet.
“This will likely result in opportunities to charter several ships longer term at higher rates,” the fund said.
The container ship market remained strong during the quarter despite lower demand growth as supply chain bottlenecks continued to be influential, Tufton said.
Too many ships on order
But the owner expects this sector to weaken over the next 12 months because the orderbook has risen to 27% of the fleet.
Tufton’s exposure to container vessels is now only 5% of its portfolio.
Bulkers continue to offer strong yields of 17% on average and have supportive supply fundamentals as well, the fund said, with the orderbook at only 7% of the fleet.
Tufton said it is scheduled to complete retrofits of energy-saving devices on at least eight vessels by early 2023.
The company is fully invested but continues to evaluate opportunities for “further upside” in a strong market, the fund added.
