Hidden beneath the surface of d'Amico International Shipping's latest earnings call lies a subtle shift in

strategy that could propel the company to even greater heights. While analysts focus on the obvious market

disruptions like the Suez Canal blockage and the Panama Canal restrictions, a more profound change is brewing

within d'Amico's own fleet: a strategic pivot towards LR1 tankers.

On the surface, d'Amico's decision to order four new LR1 tankers, representing an investment of over $220

million, seems like a straightforward move to capitalize on the current robust market. After all, the product

tanker market is riding a wave of historically high freight rates and vessel values, fueled by a combination

of structural and exogenous factors.

However, a closer look reveals that d'Amico is not simply chasing the current market boom. They're making a

calculated bet on the long-term outperformance of LR1 tankers, a segment currently experiencing a remarkable

scarcity of modern, eco-designed vessels.

This scarcity is evident in the stark age profile of the LR1 fleet. A staggering 62.6% of LR1 tankers are over

15 years old, compared to only 42% for MR2s, the workhorse of the product tanker market. This aging fleet

faces increasing regulatory pressures, higher maintenance costs, and limited access to terminals, all

contributing to reduced productivity and potential for higher freight rates.

Furthermore, d'Amico is not alone in recognizing the potential of LR1 tankers. The recent surge in LR2 tankers

operating in clean trades, with 62% currently serving the product market, highlights the growing demand for

larger vessels in this segment. This trend, coupled with a robust outlook for the crude tanker market, suggests

that a significant portion of LR2s could shift back to dirty trades, further tightening the supply of LR1

tankers.

D'Amico's strategic shift is a shrewd play on these underlying dynamics. By focusing on LR1 tankers, the

company gains a distinct advantage in a segment poised for exceptional growth and profitability. The larger

carrying capacity of LR1s, combined with their favorable operating costs and suitability for long-distance

voyages, positions d'Amico to capitalize on the burgeoning ton-mile demand driven by the ongoing trade

disruptions and the geographical shift in refining capacity towards Asia and the Middle East.

But d'Amico's strategic brilliance doesn't stop there. The company is simultaneously rejuvenating its fleet

by divesting older vessels like the Glenda Melanie, sold for a remarkable $27.4 million, a testament to the

current strength of the secondhand market. This astute move allows d'Amico to reinvest in modern,

eco-designed LR1 tankers, lowering their overall breakeven rates and maximizing their profit potential.

Financial Performance

The financial implications of this strategy are compelling. D'Amico's latest earnings call indicates a

remarkable first quarter, with a blended average TCE of nearly $34,000 per day, exceeding Q1 last year

despite a higher proportion of spot exposure. This strong performance, coupled with a solid coverage for

the remainder of 2024, virtually guarantees a stellar year for the company, with potential profits soaring

to $184 million if spot rates average $30,000 per day.

Furthermore, d'Amico's commitment to increasing shareholder returns, as evidenced by the proposed dividend of

$30 million, significantly higher than last year's distribution, underscores the company's confidence in

its future earnings potential.

Fleet Composition and Coverage

Reference: https://seekingalpha.com/symbol/DMCOF

Conclusion

In conclusion, d'Amico's strategic pivot towards LR1 tankers, a segment characterized by high demand, limited

supply, and favorable economics, positions the company for a potentially explosive surge in profitability.

While the market fixates on temporary disruptions, d'Amico is quietly building a powerful fleet of modern,

eco-designed LR1 tankers, a secret weapon that could unleash a tsunami of profits in the years to come. This

under-the-radar strategy, combined with the company's astute financial management and commitment to shareholder

value, makes d'Amico International Shipping a compelling investment opportunity, offering both immediate and

long-term potential for exceptional returns.

"Fun Fact: The d'Amico Group, d'Amico International Shipping's parent company, has a long and illustrious history in shipping, dating back to 1936. The company's roots lie in the transport of agricultural products, eventually evolving into a global leader in product tanker operations. Today, the d'Amico Group operates a diverse fleet of vessels, serving a wide range of customers across the globe, a testament to its enduring legacy of maritime expertise and adaptability."