SHIPPING - DRY BULK CARGO RECOVERY

Recovery of Dry-Bulk Cargo Shipping

By C. Akalanka Samarasena

Jul 27, 2013

Since the start of this year, dry bulk cargo industry is obtaining a fragile recovery from its disastrous four year decline started in 2008, but a new wave of ship orders and a setback of Chinese economy is threatening it. The Baltic Dry Index, a measure of commodity shipping costs, reached its lowest annual average in 26 years in 2012 amidst an oversupply of vessels and slowing demand. Following the trend, dry-bulk shipping rates touched a 14-year low in March 2012, after touching a life-high of 11,793 in 2008. In this period of turmoil several dry bulk shipping companies including Britain’s oldest shipping firm, Stephenson Clarke Shipping, and Italy’s Deiulemar Shipping filed for bankruptcy unable to pay their debts.

In general terms bulk carrier, bulk freighter, or bulker is a merchant ship specially designed to transport unpackaged bulk cargo, such as grains, coal, ore, and cement in its cargo holds.  In 2012, approximately 4 billion tons of dry bulk cargo was transported by sea, comprising more than one-third of all international seaborne trade. The global fleet of 9,490 dry-bulk ships will haul an estimated 4.2 billion metric tons of cargo this year, 5 percent more than in 2012, according to Clarkson Plc, the biggest shipbroker in the industry.

Positive first two quarters

Since the beginning of the year, rates on the iron ore benchmark Capesize route from Tubarao, Brazil, to Qingdao, China have increased by $2.25/t from $17.25 to $19.50/t. Coal freight Capesize rates for Richards Bay to Rotterdam voyage increased to around $8/t in June from $5.90/t in April. These increases were all fuelled by a lower supply of new fleets into the industry in the early parts of the year. The Baltic Exchange’s main sea freight index, which tracks freight rates for ships carrying dry bulk commodities such as coal, iron ore and grain, plunged to a 16-year low of 647 last year. However, many believe that the peak is now over as more and more new orders are recorded by ship makers.

“The supply situation is quite staggering.” Raymond Ching Wei-man, Vice-Chairman of Jinhui Shipping and Transportation, stated to South China Morning Post.

Ship owners have splurged on a raft of new orders, taking advantage of cheaper prices, more fuel efficient designs and money from private equity funds looking for a new home. This oversupply of ships has caused a risk of charter defaults, lower freight rates and a rush for lease payments. Furthermore, this has caused companies such as Jinhui Shipping to report impairment losses on their existing fleet. Last year a staggering number of 256 ships were scrapped by dry bulk cargo operators indicating the overcapacity in this highly competitive segment of shipping.

“The ordering wave is indeed worrying,”  Henning Oldendorff, chairman of Oldendorff Carriers reported to South China Morning Post.

The main worry regarding the new influx of dry bulk cargo carriers is that it happens in a time of economic slowdown in the world. Highlight of this adverse economic situation is the slow economic growth in China and the recession in global steel industry. However, the analysts are divided over the progress made by bulk shipping industry as Maritime-expert reports a positive outlook for dry bulk shipping industry starting from the 3rd quarter of this year.

“Dry-bulk supply and demand is currently challenged, but we believe there is a solid potential for recovery beginning in the second half of 2014,”

 

Earnings for ships that carry dry- bulk commodities are set to start recovering in 2014 despite the fears of slow economy and oversupply of ships as fleet growth slows to keep pace with demand for the first time in four years, said Citigroup Global Markets Inc.

Expansion of ship fleet will weaken to 5 percent amid fewer deliveries of new vessels, compared with an 18 percent average pace in the 2011-13 period, analysts led by New York-based Christian Wetherbee has disclosed to Businessweek. The main challenge is to stay afloat with heavy debts until the fortunes once again favours the dry bulk cargo industry.

SHIPPING - restructuring causes job losses

Maersk to restructure, terminate 400 jobs

Danish oil and shipping group A P Moller-Maersk said it would slash about 400 jobs as part of a restructuring of its struggling container shipping division Maersk Line.

The group said in a statement that a key objective of the reorganisation was faster decision-making and that about 250 of the job cuts would be at its Copenhagen headquarters, reported Reuters.

The shipping industry has been hit hard during the global economic downturn as weak demand and excess capacity knocked freight rates to loss-making levels.

Maersk said last month it expected 2012 results "slightly lower" than in 2011, a modest improvement on previous guidance, but below analysts' hopes.

Maersk Line reported a loss of US$599 million in the first quarter. In a stark illustration of the damage caused by excess tonnage in a poor rate environment, Maersk Line’s volume increased by 18 percent while the average freight rate declined by nine percent compared to the first quarter last year.

Malaysian Shipping - Cabotage

Cabotage to develop domestic shipping: Bakri

Published on: Thursday, May 10, 2012

Kota Kinabalu: Deputy Transport Minister Datuk Abdul Rahim Bakri said the Cabotage Policy is maintained because it is recognised by the World Trade Organisation (WTO) as being of strategic importance to a nation.

He said this when replying to Senator Datuk Maijol Mahap and Senator Pau Chiong Ung in Dewan Negara.

He said when the policy was implemented in 1980, many countries around the world had already been applying it.

He said the Government implemented the policy to develop the nation's domestic shipping sector and also to achieve various objectives, namely:

- To abolish the country's dependence on foreign vessels which all this while has been contributing to the outflow of the nation's foreign currencies due to huge payment in the form of fraud and insurance payment

- To develop the nation's shipping sector to enable those involved to become players in the business of shipping either regionally or internationally

- To develop the shipping sector that is of a strategic dimension to the nation and part of the defence and security system where vessels could be utilised in case of crisis or emergency

However, Abdul Rahim stressed that the policy is very liberal and does not prevent any foreign vessels that wish to berth in the ports in Sabah and Sarawak to bring goods in or out.

MISC - POOR EARNINGS

Monday February 27, 2012

Analysts cautious on MISC

By SHARIDAN M.ALI
sharidan@thestar.com.my

Company’s prospects uncertain on poor earnings visibility

PETALING JAYA: Analysts remain cautious on MISC Bhd’s prospects going forward due to poor earnings visibility of its petroleum tankers, chemical tankers and liner divisions.

This was after the world’s single largest owner-operator of liquefied natural gas (LNG) tankers was dragged into the red for the first time in its history in its financial year ended Dec 31, 2011 with a net loss of RM1.48bil on revenue of RM8.5bil.

The loss was mainly due to recognition of one-off provisions totalling RM1.4bil following its recent decision to exit from the liner business. Excluding liner provisions, the group also recognised RM287.2mil impairment losses on its vessels on the back of the poor shipping market.

MISC had on March 2, 2011 announced the change of its financial year-end from March 31 to Dec 31. The first new financial year ended on Dec 31, 2011 with a shorter nine-month period.

Kenanga Research said the MISC management anticipated a gloomy outlook for charter rates, which had yet to bottom out partly due to the oversupply of vessels.

“The continuous rising bunker price definitely does not augur well for its shipping business and this will likely persist for another two to three quarters before it gets better.

“Although we are positive on its exit from the liner business, we remain cautious on the company due to its poor earnings visibility,” said Kenanga in recent report.

It added that the overall shipping businesses performed poorly as even its usual star performer, the LNG shipping division, registered a 1.1% contraction in its earnings before interest and taxation (Ebit) in the quarter ended Dec 31.

“This was mainly due to escalated bunker price where, currently, the bunker price remains high at US$728 to US$730 per tonne.

“In addition, higher drydocking days and lower off hire days had squeezed LNG’s margins while soft charter rates continued to compressed petroleum and chemical shipping’s profitability,” said Kenanga.

Hong Leong Investment Bank Research (HLIB) expected further impairment on petroleum tankers at US$22.1mil (RM66.6mil) and chemical tankers at US$62.7mil (RM189mil) due to weak outlook on these sectors.

“Regarding the delay on Gumusut Kakap floating production system, MISC has been levied for late penalty, which will be recognised by 2013,” it said.

On the flip side, HLIB said there could a potential writeback on its liner business provisions.

“MISC has specifically provided RM1.45bil (larger than previous guidance of RM1.2bil) for the potential losses of exiting the liner business.

“There is potential writeback should MISC able to realise its liner business at higher than the expected value,” it said.

Additionally, HLIB said MISC’s 66.5% subsidiary, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) that handles the group’s heavy-engineering business, still had an orderbook of RM3.1bil that would last until 2013.

“And the acquisition of Sime Darby’s Pasir Gudang yard by MMHE is expected to be completed by the second quarter this year.

“MMHE recognised lower earnings mainly due to timing of revenue recognition,” it said.

In general, according to a shipping analyst, the situation at MISC could be worse if it was a purely shipping company, but MISC’s businesses were diversified in energy-related construction as well as offshore.

“This has kept the company afloat and weather the longer-than-expected storm that has hit the shipping industry globally.

“The situation at MISC may be clearer after the provisions, especially for its liner business, are finalised most probably by mid-year,” he said.

MISC in a recent statement accompanying its latest financial result admitted that the demand outlook for shipping remained weak.

“The supply-demand imbalance will continue to further depress and add volatility to petroleum and chemical freight rates. However, the group’s recent decision to cease its loss-making liner business operations is expected to benefit in the medium to long term,” said MISC.

“Meanwhile, LNG, offshore and the heavy engineering businesses will continue to provide stability to the group’s earnings. And no dividend has been proposed for this financial year.”

SHIPPING COMPANIES SEEING RED

Evergreen profit down 98% in nine months

Evergreen Marine Corp, Taiwan's largest container shipping company by revenue, posted a 98 percent drop in net profit for the January-September period, because of weak freight rates and high fuel costs, reported Dow Jones Newswires.

The shipper, which derives around 65 percent of its revenue from routes to Europe and the Americas, said its net profit for the nine months ended September 30 was US$8.93 million, down sharply from $390.47 million a year earlier.

It didn't give its third-quarter results separately.

Yang Ming $177m in the red in nine months Yang Ming Marine posted a net loss of US$177.33 million for the first three quarters of this year because of weaker demand on its European routes and high fuel costs. Yang Ming Marine, Taiwan's second-largest container shipping company by revenue after Evergreen Marine Corp, reported a net profit of $347.31 million in the same period in 2010. It didn't give its third-quarter results separately.

MARITIME - SLOW STEAMING

Slow steaming does not damage engines, says Maersk line Malaysia Sun Wednesday 5th October, 2011

• Maersk said Wednesday its slow steaming did not damage ships • Shipping line found that reducing speed saved 7% on fuel costs • Wants others to adopt slow steaming to prevent mandatory laws The world’s largest shipping line, AP Moller-Maersk, says it has saved around 7% in fuel costs through reducing the speeds of its ships and is encouraging other lines to follow suit. At a conference Wednesday, the Denmark-based shipping line said it had concluded a four year study and found marked fuel cost savings, with no damage inflicted on ships’ engines at slower speeds. “There were a lot of concerns about soot build-up, vibrations and propeller health. We addressed those concerns and found solutions,” said Jan de Kat, Maersk’s senior technical adviser. Maersk began instructing its fleet of around 500 ships to travel at 10 to 15 knots, instead of the standard 25 knots, back in 2007 in response to rising fuel costs. The industry leader has now made its findings public to other ship owners to reassure them that following the same strategy won’t damage their vessels. Maersk wants to see more shipping companies adopt voluntary slow-steaming in order to avoid local or international laws being introduced that would make the practise mandatory, as the line wants to retain flexibility in adhering to schedules. The entire Maersk fleet now operates on around 10% of maximum power, according to de Kat, which has resulted in fuel savings of 7% and an average speed reduction of 27%.