Monday, November 03, 2008
Precious Shipping forecasts repeat of mid-80’s slump
By Marcus Hand in Singapore - Friday 31 October 2008
HANDYSIZE specialist Precious Shipping is forecasting a repeat the mid-1980’s slump for drybulk shipping markets over the next year.
“Prospects for the freight market, over the next 12 months, look like a repeat of the disastrous situation prevailing in the mid 1980’s when eight year old ships were sent to the scrap yard, zero rate time charters were fairly common and brand new ships were laid up never having earned a single dollar of revenue for their owners!” stated Khalid Hashim, managing director of Precious Shipping in the company’s third quarter earnings review.
The Baltic Dry Index currently sits at 885 points, while it hit an all time low of 554 points in July 1986. Speaking to Lloyd’s List Mr Hashim pointed out that operating costs were now five times what they were in 1986. “Just accounting for the increased cost we are currently operating at less than half the lowest point ever.”
Mr Hashim blamed the bleak market outlook on two main factors: the world economy slowing significantly leading to a loss of cargoes and the problem with letters of credit either not being issued or honoured.
“If you take these two things together and couple it with new ships coming out, we are looking at a troublesome 24 months,” he said.
While there could be some small bounce in freight rates in coming this would at most take the BDI to 2,000 or 3,000 points, with the market generally trading at a very low level.
Although doom and gloom is ahead Thai-listed Precious Shipping reported a third quarter net profit of $42.25m, 69% higher than the same period in 2007.
The Bangkok-based company is banking on its strategy of locking in long term charters for the coming years to enable it to ride out the bad times.
“We believe that due to the unique position we are in, because of our strategy of fixing long term charters at reasonably high levels, with our current forward book and a strong balance sheet, we should be able to escape the absolute carnage being witnessed in the shipping world and come out relatively unscathed,” Mr Hashim said.
The shipowner has 66.9% of available fleet days in 2009 fixed at an average time charter rate per day of $15,502, generating revenues of $165.3m across the year.
On the possibility that charterers might default he said that this what not something they had experienced so far.
“We have tried to be extremely selective in who we have fixed these ships to,” he said.
As ship prices tumble sharply Precious Shipping sees opportunities for it to renew its fleet which currently stands at 44 handysize vessels with 18 newbuildings on order for delivery in 2010 onwards.
“For the last few years we have not bought a single new ship, we’ve been very patient,” Mr Hashim said.
The company has $500m in credit lines which it is already talking to its banks about extending for a further 12 to 18 months.
“We will use this money because we believe prices will come down to a realistic level. If you are lucky we will see 1986 prices,” he said.
The shipowner would most likely look to start acquiring tonnage from the second quarter of next year.
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