News Abstracts

Dry Bulk Terminals Group – December 2016 – Issue 163

For your personal interest and information.These News Abstracts are compiled by the DBTG Secretariat from direct sources. Publications including Fairplay (FP),and various international agencies, as well as the research division of Clarkson and Fearnleys. They cover a wide range of issues of direct and indirect relevance to dry bulk terminal operators as well as the aims and activities of the DBTG.

Happy New Year and welcome to the selection of news extracts for December 2016. By now all the Christmas festivities and New Year celebrations will be a distant memory and we will all be looking forward to the credit card bills coming in!

In the last issue I advised that I would be travelling for all of December. I first attended the AAPA Congress in Merida Mexico and then visited some DBTG Members up and down the Mississippi from New Orleans.

The AAPA Congress was attended by over 440 delegates and was most informative about trade and investment in our industry across North, central and South America. If anyone is considering a visit to Mexico, the Yucatan peninsula is quite stunning.

The Mississippi is an amazing river and without doubt, the lungs of central and the Southern United States. Although trade on the river is not currently as vibrant as it has been, 1,000’s of vessels and over 120,000 barges use the river every year.

As previously stated, the DBTG Spring meeting will be in Gijon, Northern Spain from Tuesday 28th to Thursday 30th of March 2017. I expect to get more details to you all in the next few days and reservation forms will be available on the website later this month.

On the 12th December I sent my paper on the Ballast Water Management Convention to you all. This appears to have generated a lot of discussion amongst you all and I would like to thank you for your many responses to it. There are a few more articles relating to the BWM in this Newsletter but I feel it is an important enough subject to include it as an agenda item at the Spring meeting and have already engaged a speaker.

Finally, as always, if there is anything contained in this Newsletter that you would like to discuss further, please don’t hesitate to contact me.

Nic Ingle - Executive Director

DIARY DATES

  • Executive Committee meeting, 12tJanuary
  • Ship Recycling Congress, 25 January
  • Euromaritime 2017, 31 January

IN THIS ISSUE

Shipping Matters

Economy/Finance/Trade

Commodities

Terminals/Ports

Ballast Water Management

Freight Market

SHIPPING MATTERS

All’s well that ends well for dry bulk freight – SMN 2nd Dec

As the year draws to a close, the final chapter for freight market remains unfinished - whether it will end as a success story or wrap up like a Greek tragedy after a tumultuous start in 2016.

In tracking freight rates for 2016, the graph has traversed crests and valleys, bust and boom, sometimes rationally on fundamentals but more often on speculation and sheer euphoria.

The latest evidence from the chart indicates that the Baltic Dry Index (BDI) is progressing forward in race of the tortoise and the hare. By this Wednesday, the BDI inched slowly and steadily forward by two points to 1,204, a great improvement considering its climb from the nadir of 290 points in February.

“The supply/demand picture is favouring capesize owners in the Atlantic, although the sheer lack of activity is giving charterers’ confidence to hold out,” commented a FIS FFA broker on the capesize market this week.

“It’s going to be interesting for sure with the December FFA trading still below index levels and December starting to price later this week.”

Indeed, with just one month to go before the end of 2016, the BDI looks promising at current levels and may even suggest that a structural upturn in the cycle is just ahead. But wait - pragmatism needs to prevail over blind optimism in this case - the recent market movement may be disguised as calm before the storm.

Iron ore, one of the main drivers that has set dry bulk shipping rates soaring has until very recently performed gravity-defying acts that surpassed market expectation. This rally stemmed from the China’s determination in clamping down domestic steel and iron overcapacity.

However, the rally appears to be waning with spot prices scaling back toward $D70 per mt from a 31-month high of over $80 per mt on Monday. This week has seen a massive sell-off on the Dalian Commodity Exchange (DCE) where iron ore futures plunged by 8%, while the Shanghai Futures Exchange (SHFE) recorded its biggest one day fall with steel futures for May delivery contracts slashed by 7.5%.

This means that rather than cling on to the iron ore demand trend, the dry bulk market must look to the ongoing scrapping programme that has helped to bring some much needed equilibrium to supply and demand.

Going forward, a few wildcards are expected to affect the market toward the end of the year and for 2017, namely China’s appetite for steel making materials, as well as whether a Trump-led government infrastructure stimulus spending comes to fruition.

As such, the freight market for 2016 contains all the ingredients of good comeback story – a rags to riches tale or a quintessential underdog plot. Owners will be hoping that it stays that way and that nothing drastic pops up on the home stretch.

Is it really the right time to buy ships? – SMN 29th Nov

The dry bulk freight market has put an impressive performance of late; the Baltic Dry Index (BDI) has tripled since bottoming out in February. Now, dry bulkers are in cash-flow positive territory, sufficient to cover daily operating expenses (OpEx) and, partially, the financial cost.

On the other hand, for tankers, it’s a different story, as tanker freight rates have dropped significantly with primarily shale oil being the game changer.

On the sale & purchase front, there has been very strong demand by buyers for bulker vessels; demand for tankers has been lackluster on the other hand. Prices for bulkers have improved in the last several months, by as much as 30% for certain types of vessels. Prices for tankers have been softening. All along, shipping finance is getting all more difficult to source; and more expensive.

Buying interest for vessels earlier this year had been dominated by a handful of big players who either had raised funds or had their own deep pockets to depend on. Such buyers have bought most of the quality, modern expensive (in absolute terms) ships that owners were forced to sell when the market was abysmal and cash flows were negative. Now, we see a great deal of buying interest from smaller shipowner who have to depend on expensive financing to acquire vessels and who actually will have to stretch themselves for acquisitions, even for still cheap at today’s prices – by historical levels. We have seen buyers putting all the resources together tightly to buy one or two vessels but with little cash reserves on the side for a rainy day. These are the typical speculative buyers who try to time the market by buying low and selling high, and who trade their vessels on the spot market in the interim.

If one were to “grade” buying interest, the strong buying interest at present is definitely of low quality. Earlier in the year, there were substantial buyers with deep pockets buying several sistership vessels or fleets of vessels. Now, small players with no strategic or competitive advantage, with thin pockets and lots of dependence on luck and circumstance are looking to buy a cheap vessel here or a cheap vessel there. Now that freight rates have been improving and the market seems to breathe again some sign of life, they all rush to ride the wave. For bulkers it’s a “buy” mode, but for tankers it’s a “stay away” mode as in the latter market rates have going south and the momentum has been evaporating. All in all, a highly speculative approach to the shipping market, especially by the weaker hands who borrow expensively and they bet that the market will turn around sooner than their short runway will disappear.

We view with concern the recent resurgence of buying interest in the dry bulk market and the flip side, the absence of interest for the tanker market. Buying interest is not driven by access to cargoes or fundamental analysis of stronger demand; it’s mostly predicated on the fact that dry bulk vessels are cheap and the freight market is improving, at least in the short term. Pure speculation without much analysis; honestly, we are not the ones to judge on that, if that’s how one wishes to apply a market model. On the other hand, speculation has brought much of the present tonnage oversupply from owners who were ordering them to shipyards that were building them to shipping banks that were financing them.

Having experienced a cash-flow negative market for almost two years which saw many shipowners burn their cash to survive or seen their vessels ‘re-allocated’ by the banks, the amount of speculative action in the market is scary. We appreciate that shipping and volatility (and speculation) go hand-in-hand, but one would had thought that two years of bleeding should had taught a lesson or two.

A sign of froth in the stock market is when small investors get all their little savings together and step to open a brokerage account and try to participate in a rally, buying odd lots of shares, and trying to ride the tail of the wave. It’s interpreted that when weak hands get the itch for speculation and getting sucked in, it’s when one knows that there is little more money to be pulled into the vortex.

We are all for entrepreneurship and active capitalism, but buy because “ships are cheap and the market will recover” is not always the best business plan. Typically assets that are out-of-favour will again be back in favor, no doubt, but there is more to the story in order to make money by other than just speculating. Otherwise, it seems a sucker’s game.

Shipping’s family tie in the Trump cabinet – SMN 29th Nov

The Cabinet of President-elect Donald Trump has gained another shipping insider with the choice of Elaine Chao for the post of Secretary of Transportation.

Chao, thought to be a Washington insider, - she was Secretary of Labor in the Cabinet of George W. Bush, and she is the wife of Senate majority leader Mitch McConnell - is the daughter of James Chao, the founder of drybulk specialist Foremost Maritime, which has concentrated on the capesize sector.

The Chao family emigrated to the US in the early 1960’s from Taiwan. Shipping has been a thread in Elaine Chao’s career, as has political service. Following her time at Harvard Business School in the late 1970s, she worked as a shipping banker at Citibank in the early 1980s; she then transitioned to Washington, DC with stints at the Maritime Administration (MARAD) and the Federal Maritime Commission in the Reagan years, the administration of George H.W. Bush as Assistant Secretary of Transportation.

During Democratic administrations (Clinton and Obama), she had worked as a top executive in the non-profit United Way and at the right-leaning Washington, DC think-tank Heritage Foundation. During the late Clinton years, Chao was a Director of the US flag stalwart Marine Transport Lines (MTL),which was sold to Crowley in 2001.

Shipping pundits have been busy speculating whether a Trump administration will be good for the maritime business. Wilbur Ross - the nominee for Secretary of Commerce - has first hand shipping knowledge and money on the line.

Chao, the soon to be Transportation Secretary, steps the maritime industry connection up a notch with her family tie to deepsea shipping. The attitude of the new administration towards the Jones Act is also a subject of continual speculation in the shipping press. On the sunny side of this conversation, MARAD responsible for promotion of the US fleet, is part of the Department of Transportation. On the stormy side, the Heritage Foundation, whose thinking may be infused in Chao’s views this is not known with certainty, has railed against the Jones Act.

Nevertheless, Chao has won the support of the influential Seafarer's International Union, which stressed her support of the US maritime industry during her time in government.

Economou takes over 90% of Dryships debts – SMN 2nd Dec

Dryships founder, chairman and ceo George Economou has taken over more than 90% of the company’s debt.

The Nasdaq-listed shipowner said that Economou had become the lender of record for its $85.1m syndicated loan facility previously arranged by HSH Nordbank. Following the transaction Economou controls the “vast amount” of Dryships debt with a principal outstanding amount of $154.5m.

“With more than 90% of our debt now in the hands of our founder, it is safe to conclude that the company is no longer in any danger from its lenders exercising any of their rights under the company’s existing defaults under their respective loan agreements,” said Anthony Kandylidis, executive vice president and interim cfo of Dryships.

“We are already in discussions with Economou to amend the company’s debt and regain compliance. In that respect, we hope to be in a position to announce further positive developments in the near future.”

Norden lands biggest bulk shipping contract to Philippines – SMN 2nd Dec

Norden has landed its biggest bulk shipping contract to transport up to 24m tonnes of coal to the Philippines over a 10-year period.

Norden and Philippine energy firm GNPowerMariveles Coal Plant entered into the deal on Thursday.

The contract comprises transportation of 20-24m tonnes of coal to the power plant and starts in the first quarter of 2017. In terms of volume, Norden said it is the largest contract for the company.

The shipments will be carried out on panamax vessels and will involve 25-30 trips a year. Each transport will take approximately 20 days.

“We are both proud and happy that GNPower has chosen Norden to handle the transportation of coal to this modern power plant over the coming 10 years. It reflects that the customers know Norden to be a reliable and safe business partner which you can count on – also when it concerns very long-term contracts,” commented Jan Rindbo, ceo of Norden.

The Bataan-based GNPower power plant began its production in 2013, and from the start Norden has transported coal to the plant on behalf of an Indonesian coal producer.

Going forward, Norden said it will deal directly with GNPower as the customer, as the power plant buys the coal from various producers in Indonesia, whereupon it will be sailed to the Philippines by Norden.

d’Amico – a management style emphasizing people – SMN 6th Dec

At a recent Connecticut Maritime Association luncheon in New York, Cesared’Amico, the ceo of d'AmicoSocietàdiNavigazione, a fourth generation shipowner related how the company’s very traditional style had served it well through the cycles.

The company is active in dry cargo, tankers, and in the service side of shipping (agency, crewing and communications and is also the majority owner of d’Amico International Shipping (“DIS”), a listed company active in the product tanker space.

Instead of the usual fare at such lunches- a forecast of freight rates and, supply and demand - he served up a mixture of sound and sensible shipping practice mixed with a management style that emphasizes people.

He related that earlier experimentation with third party crewing managers led to disappointments, with the company making a decision to bring this function in-house.

“Crewing is a very important issue for us,” he said. After mentioning the company’s ship management subsidiary, based in Singapore and running 40 vessels, he focused on the company’s crewing practices, where young candidates take an exam, and, if successful, they are placed in an apprentice programme.

d’Amico’s speech, which was peppered with anecdotes, revealed a unique relationship between officers- who are longtime employees of the company, and may even bring their own sons and daughters into the fold, and company management.

On subjects of ship finance, the view was also very traditional, with the shipowner commenting: “I think that there used to be a real partnership between the shipping owning companies and the banks,” but he acknowledged that, for this model to work, owners must stick to their knitting and avoid speculativeinvestments.

V.Group sold to Advent International – SMN 6th Dec

V.Group, owner of the world’s largest ship manager V.Ships, has been sold to Advent International.

OMERS Private Equity (OPE) has sold a majority stake in V.Group to another private equity investor Advent International. V.Group said that OPE would re-invest in the company working with Advent International, and that’s senior management would retain a minority stake in the company. No financial details of the deal were disclosed.

V.Group said that following the sale it would remain focused on geographical expansion and growth both organically and via acquisitions.