Pacific Basin's fleet strategy pays off

PUBLISHED : Friday, 02 August, 2013, 12:00am
UPDATED : Friday, 02 August, 2013, 5:02am

Pacific Basin Shipping's strategy to expand its fleet at a time when the market was down is paying off as its earnings from Handysize ships outperformed its peers by 32 per cent and helped the dry bulk operator to turn around in the first half.

Thanks to lower vessel costs and strong Chinese imports, the world's largest Handysize operator posted a net profit of US$300,000 in the six months to June, after a loss of US$195.9 million a year ago. The dry bulk ship owner's underlying profit jumped by four times to US$13.6 million year on year, despite a 12 per cent drop in rates for its Handysize ships.

Globally, major bulk trade volumes expanded 4 per cent over the period, driven by growth in Chinese imports of iron ore and coal. Chinese minor bulk imports such as logs, soybeans and fertilisers rose 13 per cent, but continued oversupply of vessels somewhat offset the benefits of stronger demand.

The group's chief executive Mats Berglund said he expected the dry bulk market to remain weak this year. In a filing to the Hong Kong stock exchange, he said the firm would continue to expand its fleet. An increase in new capacity peaked last year, when a large number of vessels were delivered, and freight rates and ship values were bottoming out, he said in the filing.

The group has already leased out 21 per cent of its Handysize capacity for next year at an average rate of US$10,500 per day - an increase from an average charter rate of US$9,350 on bookings in the second half of this year.

The group said it was tendering for several natural gas-related projects in Australia as growth in Australian bulk exports and new mining and port infrastructure projects is set to boost demand for harbour towage services.

Since Pacific Basin returned to the ship acquisitions market in September, it has committed to purchase 21 second-hand ships and ordered six new buildings from Japanese yards.

The group has cash and deposits of US$442 million and net borrowings of US$415 million. It is expected to settle US$298 million of debt in the next three years for orders of 19 dry bulk ships. Pacific Basin shares closed 1.9 per cent higher at HK$4.27 yesterday. It offered no interim dividend.