Lean times offer new bargains for ship buyers

PUBLISHED : Monday, 21 May, 2012, 12:00am
UPDATED : Monday, 21 May, 2012, 12:00am


After one of the worst downturns in more than 30 years that has caused a slump in freight and charter rates and a rise in corporate casualties, optimism is slowly returning to the dry-cargo shipping industry.

'One of the things that has materialised over the last few weeks is the end of the fear factor. The shipping industry is more willing to talk about growth and take advantage of opportunities which are coming available,' said Tim Huxley, chief executive of Hong Kong's Wah Kwong Maritime Transport.

'Everybody is now looking to take advantage of the recession,' Huxley said, citing an increasing number of distressed ship sales as troubled shipowners sought to raise capital by selling vessels. An example was the recent acquisition by Bocimar, a major Belgian shipowner, of two 176,000 deadweight tonne (dwt) Capesize vessels for about US$36.5 million each that are due to be delivered next month by Zhoushan Jinhaiwan Shipyard.

The ships were originally ordered by Grand China Logistics, a subsidiary of HNA, the mainland shipping, airline and property group, but the firm was unable to take delivery. At the height of the dry bulk market four years ago the price of a new similar Capesize ship was nearly US$100 million.

Huxley said higher fuel prices, which have averaged more than US$700 per tonne this year, had led to increased insistence from shipowners that fuel efficiency gains promised by shipyards about their vessels 'were actually delivered'.

Lessons had also been learned by shipowners and charterers about the quality of their counter-parties in vessel leasing agreements, Huxley told a group of shipping executives at a breakfast seminar organised by SinoShip late last week. This followed a string of defaults by China Cosco, Grand China Logistics, and other firms which chartered vessels from other owners but then refused to make charter payments when freight rates collapsed.

Grand China Logistics and affiliated companies including Grand China Shipping (Hong Kong) and parent HNA Group are embroiled in several legal cases in the United States and Europe over the non-payment of ship rental.

'I'm more optimistic,' Huxley said, adding that a turnaround could occur 'earlier than we expect'.

Evan Cohen, global head of dry bulk shipping at DVB Bank, agreed that there was reason to be optimistic, noting that finance for ship owners to buy ships was still available. 'By the end of this year we will finance US$3 billion of dry bulk shipping,' he said.

Cohen forecast growth in the dry cargo fleet and the rise in cargo volumes would be balanced in 2014, easing the crash in ship charter rates. The massive oversupply of ships in the dry bulk sector has caused freight rates to slump from US$170,000 per day for a Capesize ship to about US$6,000 now.

Clarkson, a British shipbroking house, said dry bulk cargo ships totalling 186.7 million dwt were due to be delivered over the next few years, equivalent to 29.1 per cent of the existing fleet. By comparison, global seaborne dry cargo volumes are predicted to rise by 7-8 per cent per year in 2012 and 2013.

But sounding a note of caution Raghu Raghunath, senior executive vice-president at Noble Chartering, said China was financing ships coming out of mainland shipyards that would then operate the vessels if they could not find buyers. He said the extra tonnage created by this speculative shipbuilding 'might add longevity to the downturn'.

A raft of companies including Sanko Steamship, Japan's fourth-largest shipowner; General Maritime; and the Marco Polo Seatrade group, have sought bankruptcy protection or restructuring help since the start of the shipping downturn in 2008. Sanko was also a casualty in the last significant slump in 1984.