Seacor Holdings, Inc. (CKH), Kirby Corporation (KEX)- Shipping Companies: All Aboard or Jump Ship

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Despite a 4% rise in demand in 2012, container shipping outlook has been negative since 2011.

Seacor Holdings, Inc. (NYSE:CKH)

This was due to a supply-demand mismatch; the supply of new vessels exceeded the demand for the same. This outlook will continue in 2013, where demand will rise 6%, while container capacity will grow 7%. This will affect freight rates in the coming months. A decrease in U.S oil imports, low European demand, and lower oil production from Organization of the Petroleum Exporting Countries, or OPEC, all contributed to the slowdown. This outlook is expected to improve in 2014, as there will be a slowdown in growth of new vessels thus affecting supply.

Let’s analyze three shipping companies, which are implementing various strategies to reduce the negative impact of the industry and bring new prospects for 2014.

Focus towards core businesses

Seacor Holdings, Inc. (NYSE:CKH) is betting big on growth in the U.S. Liquified Petroleum Gas (LPG) export, which posted growth of 33% year-over-year to 71.9 million barrels in 2012. This growth was mainly contributed to shale gas discoveries. The contribution of shale gas was 35% of the total U.S. gas output reported in April 2013. Therefore, in May 2013, the company announced the purchase of two very large gas carriers (VLGCs) for transporting LPG in bulk. Hyundai Heavy Industries will build the two VLGCs and will deliver them in 2014. Moreover, the company intends to buy three additional VLGC in 2015. Seacor Holdings, Inc. (NYSE:CKH) expects this purchase will improve revenue from its shipping service division from $125.8 million in 2012 to $214 million in 2014.

The company completed the spin-off of its aviation business, Era group, in the beginning of the current year. This spin-off was completed as an all-stock deal; each share of Seacor Holdings, Inc. (NYSE:CKH) received one share of Era group, thus 19.9 million shares were distributed to Seacor Holdings, Inc. (NYSE:CKH)’s shareholders. This spin-off will help the company focus on its core businesses of providing equipment and services for offshore oil and gas exploration. It will also free up capital up to $134.8 million, which was previously meant for investment in Era group. The company will now use these funds for its expansion project. Therefore, it placed an order for six fast supply vehicles (FSVs), to be delivered by 2015. Seacor Holdings, Inc. (NYSE:CKH) uses FSVs to provide support activities in deep water oil drilling and production. With rise in demand expected from exploration activities in the Gulf of Mexico, this investment will definitely add value to the company’s core business.

Growth in the LPG export, and investment in core business will boost the earnings of Seacor Holdings, Inc. (NYSE:CKH), and hence the EPS is expected to improve from $1.66 in 2012 to $2.2 in 2013.

Marine segment expected to benefit from growth in other industries

Kirby Corporation (NYSE:KEX) is the biggest maritime transport company and has 26% market share of total inland barges and 30% market share of total coastal barges. Barge refers to a flat bottom boat used to transport heavy materials. Inland barges cater to petrochemical companies. The company is expecting good growth in revenue from this business since petrochemical companies are announcing expansion projects. One of Kirby Corporation (NYSE:KEX)’s biggest clients, Dow Chemical, announced a $4 billion investment in the Gulf Coast. According to the American Chemistry Council, as of March 2013, companies had announced nearly 100 projects worth $71 billion for expansion in U.S. production capacity. This expansion is expected to grow demand for inland barges, and it will add significant growth in overall marine segment of Kirby Corporation (NYSE:KEX).

The company is feeling confident about its coastal barges used to transport oil.

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