NYSE: DAC 1.43 +0.03 +1.79% Volume: 27,532
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December 15, 2017

Dear Shareholders,

The efficacy of our business strategy was evident in 2014, a year that saw overcapacity, tough competition, and the beginning of new alliances after the Chinese authorities rejected the P3 alliance among Maersk Line, CMA CGM, and MSC, which would have allowed the carriers to effectively control the industry.  Danaos Corporation remained protected from market volatility with our strong charter coverage and efficient, cost-effective operations. Additionally, we continued to deleverage and improve our balance sheet and to tactically upgrade our fleet.

Significantly, this year our legacy interest rate swaps began to expire. These have been negatively impacting our profitability for several years. With no imminent dramatic increase in interest rates and with an international deflationary outlook, our financial performance will continue to improve as the interest rate swaps expire.  We have also managed to keep our expenses among the lowest in the industry and have also benefited from the strong dollar as our euro denominated costs improve significantly.

In 2012, Danaos completed an extensive newbuilding program, in which we received delivery of 5 modern vessels with aggregate capacity of 65,500 TEU from Hyundai Samho Heavy Industries. Each of these vessels was backed by a long-term time charter to a major liner company. We are managing our fleet very conservatively and have invested in some smaller much younger vessels to replace vessels built prior to 1990 that we sold for scrap. Following our 2012 deliveries, we decided to retire some older tonnage and sold 14 vessels, all built prior to 1993 and we replaced them with 6 newer mostly post 2001 built vessels in sizes ranging between 2500 – 6500 TEU.  These vessels operate in niche markets where we expect to see good demand / supply dynamics. 

Now that all the “old guard” went for scraping, we are left with a very modern fleet to which we have applied state of the art technology to optimize performance.  We are actively engaged in research on the optimization of the fuel consumption on our existing fleet as well as several other exciting technological innovations that will allow us to maintain our competitive edge in the containership market.

The container charter market saw a significant increase in panamax rates during the first quarter of 2015 due to increased demand resulting from port congestion in the US West Coast and the continued shrinkage of the world panamax fleet. The delay in the opening of the new Panama Canal will further help to absorb panamax tonnage in the short term, while delays caused by port congestion in the US West Coast have resulted in increased demand in the Asia to US East Coast all water service. These factors have positively affected TEU mile demand in the industry. Additionally niche markets have begun to show signs of strength.  In particular, demand in north south markets was relatively healthy and there was growth in Intra-Asia markets driven by new production in lower cost Asian countries that created a trade multiplier with China.

We believe that “containerization” will continue to grow as a multiple to world GDP over the long term.  In addition we have seen more and more heavy cargoes, such as steel products, bagged cement and grain shipped in containers. The increasing carrying capacity of containerships has encouraged shippers to “containerize” more heavy cargoes in order to reduce shipping costs.

Danaos Corporation’s strategy has always been to secure long-term commitments from top tier charterers. We seek to obtain charters of greater than 5 years for our panamax vessels and greater than 8 years for post-panamax vessels. This allows Danaos to limit its downside revenue risk and maintain good cash flow visibility. As of the date of this writing, our diverse portfolio of customers includes 10 out of the 20 major liner companies. We have forged these strong relationships over decades by providing outstanding customer service, always pursuing operational excellence, and developing leading-edge expertise in the technology that serves the industry. We have also remained committed to rigorous operational standards and a steadfast commitment to the safety of our crews and environmental protection.

The current market dynamic presents Danaos with an opportunity to consolidate our business and concentrate on what we are best at: operating our vessels safely and efficiently.  Part of our ability to manage our business has always been our significant understanding of ship technology.  For the past two decades, we have put a great deal of emphasis on the technology aspects of our business and have taken part in various research and development projects that have made us more efficient and have benefited our industry. I strongly believe that technology will continue to be a competitive advantage for years to come.

Last year was undeniably challenging for the containership market, but as a company we have come through stronger and have already begun to reap the benefits in the firming charter market in 2015.  Having prospered through multiple growth cycles of the shipping industry, we believe we are very well positioned to continue our growth plan as market conditions present compelling opportunities.

Respectfully,

signature Dr. John Coustas
President & CEO