Shipping company seeks opportunities in market weakness
Surging new ship deliveries and fewer cargoes are exerting downward pressure on freight rates, and with the dry bulk cargo market left in the doldrums as a result, now might not be thought of as the best time to consider fleet expansion.
But with a war chest of around US$1 billion to spend on ship acquisitions, Pacific Basin Shipping's Klaus Nyborg believes adversity could bring opportunity for the group.
The chief executive of one of Hong Kong's largest shipowners, Nyborg says owners who ordered vessels in the last two or three years at relatively high prices may not have the same cash reserves to weather the present poorer market conditions.
'They don't have the same cash balances as they did in 2008-2009, which followed six or seven years of high earnings,' Nyborg said.
As a result they could be forced to sell their vessels at a discount while the ships are still under construction at shipyards. Or they could forfeit their initial deposits, allowing shipyards to deliver to cashed-up owners willing to take delivery 12-24 months ahead of the normal length of time between placing an order for a ship and delivery.
'We'll see more opportunities this year,' Nyborg predicted.
With a fleet of 113 'handysize' and 'handymax' dry cargo ships (ranging between 25,000 and 64,999 deadweight tonnes or DWT, a measure of total carrying capacity), Pacific Basin Shipping is already the world's largest operator of modern handysize tonnage. These ships provide the backbone of the firm's fleet, which includes post-panamax bulk carriers, tugs, barges and roll-on/roll-off truck and trailer vessels.
While there is no official definition in terms of exact tonnages, handysize typically refers to a dry bulk vessel of about 15,000 to 35,000 DWT. Handymax bulkers are typically 35,000 to 58,000 DWT and a panamax cargo ship would typically be 65,000 to 80,000 tonnes DWT.
Pacific Basin also has 22 dry cargo vessels on order, including six 35,000 DWT handysize bulk carriers to be built by mainland yard Jiangmen Nanyang Ship Engineering at a total cost of US$153 million; and four 58,100 DWT handymax ships from Tsuneishi Group (Zhoushan) Shipbuilding at US$131.4 million.
Altogether Pacific Basin has capital commitments totalling US$411 million for these and other ships already on order. This compares with US$703 million in cash, future operating cash flows, and new borrowings, along with around US$300 million in bank borrowings that have yet to be fully drawn down. And unlike other dry bulk companies, Pacific Basin has seen no charterers walk away from existing ship lease agreements.
'We are well positioned with no counterparty defaults, a very robust business model and one of the strongest balance sheets. This has set us up for significant expansion in 2012 (when the new vessels are delivered) and corresponds with the excessive order book [of new vessels] tapering off,' Nyborg said.
Nyborg thought owners of older, less fuel efficient handysize ships, would be more likely to scrap tonnage as their operating costs were now equal to or higher than charter rates of around US$10,000-US$13,500 per day.