Time to buy dry bulk bargains, says chief

Head of Pacific Basin Shipping says prices for secondhand cargo vessels have bottomed out, after falling up to 50pc over the past two years

PUBLISHED : Wednesday, 06 March, 2013, 12:00am
UPDATED : Wednesday, 06 March, 2013, 5:05am

With prices of secondhand dry cargo ships falling 30 to 50 per cent in the past two years, now is the time to start buying again, said the head of dry bulk ship operator Pacific Basin Shipping.

Chief executive Mats Berglund said prices had bottomed out and were "definitely not going down". Prices were "on the low side, which is why we see more upside in [ship] values".

Other shipping experts cautiously agreed.

Tim Huxley, the chief executive of tanker and dry bulk operator Wah Kwong Maritime Transport, said "we are certainly in the zone" to buy.

"There is a lot more interest from potential buyers, and volumes in the secondhand market, particularly for bulk carriers, are running at quite high levels," Huxley said. "Even at today's much lower prices though, current charter rates don't really make sense and of course the lack of debt finance available means the number of people who can actually go out and buy is limited to those with cash or access to equity.

"Finding the right deal is proving challenging - there are a lot of pretty poor quality ships on the market, so you have to dig around for the good ones."

Martin Rowe, the managing director of Clarkson Asia, said there were "pockets of sunshine only".

"Quality modern Japanese Handysizes, for example, continue to attract a premium" but there was a "challenging market for Chinese tonnage due to vessels having higher fuel consumption at normal speeds", Rowe said. "Since finance remains tight, [the] freight market [is] tough and with plenty of new ships for delivery in 2013, it is still hard to imagine prices rising across the board."

Current prices for a five-year-old 32,000-deadweight-tonne Handysize dry bulk ship are about US$15.5 million to US$17 million, against an average of US$25 million in 2010.

Pacific Basin has spent US$122 million since September last year buying eight Handysize and larger Handymax ships, an average of US$15.25 million per vessel. The firm has US$753 million for buying more vessels.

Berglund said the firm would continue "buying more secondhand ships at good prices. We are very particular about the ships we buy". Seven of the eight ships were fitted with equipment to handle logs, which accounted for 15 per cent of the firm's 40.9 million tonnes of cargo that it transported last year.

All eight were built in Japan and acquired from Japanese owners. Japanese shipyards have traditionally built better quality bulk carriers than Chinese yards.

Berglund said secondhand vessels also offered a "better return on capital" than new vessels, even though they were more fuel-efficient. The reduction in fuel consumption from the so-called eco-ships would generate US$360,000 a year in cost savings, but the ships would cost an extra US$10 million to buy.

Berglund said Pacific Basin was mulling plans to order 38,000-39,000 dwt bulk carriers direct from a shipyard because secondhand tonnage of this size did not exist in the market.

He said the firm was starting to take delivery of its second batch of dry bulk carriers built by Jiangmen Nanyang Ship Engineering near Zhuhai. The first, Jiangmen Trader, was delivered in January.

Pacific Basin first ordered a series of 32,500 dwt bulkers from Jiangmen Nanyang in 2005 and then signed a deal for six larger 37,000 dwt vessels in 2010. Pacific Basin worked with the yard during design and construction of the ships and Berglund said they had delivered the highest returns of any ship in the firm's fleet.

The firm made US$39.3 million in net profit from its dry bulk operation last year with a further US$37.7 million from its towage business. But these results were offset by a US$199 million write-off on its roll-on/roll-off ferry business, which has been discontinued. Pacific Basin will still receive lease payments on the ships from Grimaldi Group until the Italian ferry operator buys the ships between now and 2015.

Berglund said overall Pacific Basin made an underlying net profit of US$3 million in the first six months and US$45 million in the second half of last year.