Friday, February 27, 2009
Posco aims for profit despite output cuts
Seoul: Recently appointed Posco ceo Chung Joon Yang has stated that the steel producer is “confident” of turning a profit “with only 2m tons of output cuts,” (i.e. a 6% reduction to the previous year’s production) and is considering mergers and acquisitions.
The South Korea-based company said today it will cut output by as much as 800,000 metric tons between January and March, Bloomberg writes. Posco slashed production in December for the first time in its 40-year history, joining moves by ArcelorMittal and Nippon Steel Corp., the world’s biggest steelmakers, as the global recession crimped demand. The slowdown and tumbling values may present acquisition opportunities for Posco, Chung is reported as saying.
“At this time of economic recession, the cost to buy a steel company can come down to below $1,000 per ton, so we are positively considering M&As,” the newswire reports Chung saying at a press conference. “What we fear the most is the industry slump may last for the next two to three years. Then, we’ll have to cut output by 30%.”
However, Posco may carry out output cuts if the slump continues after June. Chung said, “Global steelmakers need to cut output together to reduce inventories, and thus help the industry recover quickly.”
Chung’s comments echo concern by UBS AG that steelmakers may have raised output too quickly in January in response to a bounce in Chinese demand. Global output rose 5% in January from the previous month, the first gain since April, UBS said Feb. 23.
Posco, which has dismissed rumours of another attempt for a controlling stake in DSME, is expected to go ahead with $17bn worth of investments in India and Vietnam. “We are also considering so-called brown-field projects that include joint ventures where necessary infrastructures are well in place,” Chung said. [27/02/09]
A chilling reminder
By Marcus Hand
Friday 27 February 2009
THE recent kidnapping of the master and chief engineer of a Singapore-registered tug in the Malacca Strait sends a chilling reminder that piracy has not been eradicated in the world’s busiest sealane.
Joint naval and air patrols between Malaysia, Singapore and Indonesia have sharply reduced piracy in the Strait in recent years, but have not put the pirate gangs out of business completely. They have merely made it far more difficult for pirates to operate effectively.
The modus operandi of the recent attack was almost identical to scores of similar attacks in the earlier part of the decade. Pirates stormed the vessel, smashed or took communications equipment, and kidnapped senior crew members who most likely command the highest ransom.
As southeast Asian economies head into a sharp downturn following the rest of the world there are concerns that more people will turn to piracy as times get desperate. This is exactly what happened in the years that followed the Asian financial crisis, which in particular took a heavy toll on Indonesia’s economy.
At the same time financial and economic pressures on certain regional governments could lead to anti-piracy patrols taking a back seat to more pressing priorities on land. Thankfully, as yet this does not appear to be the case.
The piracy problem in the Malacca Strait has greatly improved over recent years, but that does not mean governments can afford to be complacent especially at time when piracy could prove an increasingly attractive option to some.
KG offshoot woos Hong Kong and China
Keith Wallis, Hong Kong - Friday 27 February 2009
HONG Kong and China-based shipowners are being targeted by German Ocean Invest, an offshoot of Hamburg-based KG house Wölbern Invest.
Outlining German Ocean’s interest in the region, managing director Luo Min said private investors in Germany still kept a close eye on KG based ship finance deals despite the downturn although they have become more selective in the projects that are offered.
“Private German investors are well aware of risk and a KG fund offers a long-term investment return – it is not a short term asset play,” Mr Luo said.
With an average return of about 7%, compared to a mid-term saving deposit rate of 2% - 4%, Mr Luo thought “the KG market is still there. People still have money” although confidence had been hit.
He said that for Asian shipowners, a KG fund could provide top-up finance, filling the gap between what an owner wanted to commit in equity and a bank wanted to provide through loan finance. Outlining this co-partnership approach Mr Luo, said a shipowner could provide 30% of the finance for a ship, a bank 50% with the remaining 20% coming from the KG fund.
“Co-partnership offers more flexibility that the traditional KG model,” Mr Luo said adding that a deal can be tailored on a case-by-case to the needs of the shipowner.
He said KG finance would be open to newbuildings, modern secondhand tonnage and ships on bareboat charter. Mr Luo said that for secondhand vessels to be considered, they must be under 10 years old and in good condition.
Under German KG rules, ships must be flagged and managed in Germany, while the owner must establish an operations office in the country. But with several Hong Kong ship managers with operations in Germany – Wallem is in Hamburg and Anglo-Eastern Shipmanagement is in Bremen – these links could provide a level of comfort for Hong Kong shipowners interested in the possibility of KG finance.
German Ocean Invest is the first company with a direct link to the German KG market to set up in Asia.
Wölbern Invest, which entered the shipping market in 2006, has invested around Euro3.2bn ($4bn) in 87 funds covering property and aircraft in addition to ships and is one of the top 10 KG funds houses in Germany.
Mr Luo said there has been extensive interest in what German Ocean Invest is doing even though it has only been established in Hong Kong since November. A recent seminar attracted more than 50 delegates including representatives from owners, law firms and banks.
Explaining the reasons for setting up in Hong Kong, Mr Luo said two other locations, Shanghai and Singapore, were considered in addition to the territory.
“Hong Kong is close to mainland China, the biggest banks worldwide have subsidiaries in Hong Kong and there are about 540 asset management companies and over 170 private equity companies in the territory, while the stock market is as big as the one in Germany,” he said.
Mr Luo said that while investor interest had dampened and the best strategy might be to “wait and see, this does not mean one should do nothing. Hong Kong provides attractive investment opportunities”.
Currently, Mr Luo sees Hong Kong and top flight Chinese owners including Cosco and China Shipping as the those most likely to be interested in KG finance, but he did not rule out interest by owners from other Asian countries.
Thursday, February 26, 2009
Genco Shipping & Trading Limited Announces Fourth Quarter 2008 Financial Results
Thursday, 26 February 2009
Genco Shipping & Trading Limited yesterday reported its financial results for the three and twelve months ended December 31, 2008. The following financial review discusses the results for the three and twelve months ended December 31, 2008 and December 31, 2007. Fourth Quarter 2008 and Year-to-Date Highlights • Excluding a $159.7 million loss for unusual events as described in the financial review section below, recorded net income of $48.4 million, or $1.55 basic and diluted earnings per share for the fourth quarter;
• Recorded a net loss of $111.3 million, or $3.56 basic and diluted loss per share for the fourth quarter;
• Amended the $1.4 billion revolving credit facility to waive the collateral maintenance requirement until such time that Genco is in a position to satisfy the covenant and other conditions previously announced;
• Took delivery of the Genco Hadrian and delivered the vessel to Cargill International S.A. for the commencement of a 4 year time charter contract at $65,000 per day with a 50 percent index-based profit sharing component; and
• Negotiated the cancellation of the previously announced acquisition of six drybulk newbuilding vessels with an aggregate purchase price of $530 million and repaid $53 million in related debt.
Financial Review: 2008 Fourth quarter
Excluding the $159.7 million loss from unusual events, the Company recorded net income of $48.4 million, or $1.55 basic and diluted earnings per share for the three months ended December 31, 2008. Specifically, the Company deemed its investment in Jinhui Shipping and Transportation Limited to be other-than-temporarily impaired as of December 31, 2008 due to the severity of the decline in its market value versus its cost basis. As a result, during the fourth quarter of 2008, the Company recorded a $103.9 million impairment charge as other expense in the Consolidated Statement of Operations. Prior to recording this impairment, the Company reflected any gains or losses associated with this investment as a component of other comprehensive income in equity. We also realized a $53.8 million charge to operating expenses related to the forfeiture of the 10% deposit from the cancellation of the six vessel acquisition, a $2.2 million write-off of deferred financing fees associated with the cancellation of our $320 million credit facility, and a $1.9 million write-off of deferred financing fees related to the amendment to the $1.4 billion revolving credit facility. These events were slightly offset by a $2.0 million gain associated with our forward currency contracts. Including these unusual events, the Company recorded a net loss for the fourth quarter of 2008 of $111.3 million, or a $3.56 basic and diluted loss per share.
EBITDA was $(74.4) million for the three months ended December 31, 2008 versus $76.6 million for the three months ended December 31, 2007. Excluding the $159.7 million loss from unusual events, EBITDA would have been $85.4 million.
Robert Gerald Buchanan, President, commented, "During the fourth quarter and full year 2008, Genco posted strong operating results by drawing upon the Company's significant time charter coverage with high-quality charterers. Management worked diligently in signing a total of six contracts under favorable terms during the first half of 2008, providing Genco with significant protection against a volatile rate environment. Our past success in securing a large portion of our fleet on favorable contracts with a diverse group of leading multi-national companies has strengthened the Company's considerable contracted revenue streams. With approximately 64% of our fleet's available days secured on contracts for the remainder of 2009 and 41% in 2010, Genco remains well positioned to deliver stable results for the benefit of shareholders. With a growing modern and diverse fleet, the Company is also in a strong position to continue to deliver first-rate service to world-class charterers."
Genco Shipping & Trading Limited revenues increased 55% to $101.6 million for the three months ended December 31, 2008 versus $65.7 million for the three months ended December 31, 2007, due to the operation of a larger fleet and higher charter rates for our vessels.
The average daily time charter equivalent, or TCE, rates obtained by the Company's fleet increased 13.4% to $35,304 per day for the three months ended December 31, 2008 compared to $31,140 for the three months ended December 31, 2007. The increase in TCE rates was due to higher charter rates achieved in the fourth quarter of 2008 versus the fourth quarter of 2007 for two of the Panamax vessels, six of the Supramax and Handymax vessels, and two of the Handysize vessels in our current fleet. Furthermore, higher TCE rates were achieved in the fourth quarter of 2008 versus the same period last year due to the operation of one additional Capesize vessel acquired as part of the Metrostar acquisition and the operation of two more Panamax vessels acquired as part of the Bocimar acquisition. This was partially offset by lower revenues from our profit sharing agreements on our Capesize vessels.
Total operating expenses increased to $93.9 million for the three months ended December 31, 2008 from $0.5 million for the three-month period ended December 31, 2007 due to higher vessel operating expenses, general and administrative expenses and depreciation and amortization related to the operation of a larger fleet. Total operating expenses for the fourth quarter of 2008 included a $53.8 million charge related to the forfeiture of the 10% deposit from the cancellation of the six vessel acquisition. Total operating expenses for the same period in 2007 included a $23.5 million gain from the sale of the Genco Commander. Vessel operating expenses were $13.5 million for the fourth quarter of 2008 compared to $8.1 million for the same period last year. The increase in vessel operating expenses was due to the operation of a larger fleet, higher crewing, and insurance expenses, as well as the operation of more Capesize vessels for the fourth quarter of 2008 versus the same period last year. We expect our vessel operating expenses, which generally represent variable costs, to further increase as a result of the expansion of our fleet and higher crewing expenses.
Depreciation and amortization expenses increased to $19.9 million for the fourth quarter of 2008 from $11.6 million for the fourth quarter of 2007 related to the growth of our fleet. General and administrative expenses increased to $4.1 million from $3.0 million during the comparative periods due to costs associated with higher employee non-cash compensation and other employee related costs. Management fees were $0.7 million for the three months ended December 31, 2008 and $0.5 million for the three months ended December 31, 2007, respectively, and relate to fees paid to our independent technical managers.
Daily vessel operating expenses grew to $4,734 per vessel per day during the fourth quarter of 2008 from $3,824 for the same quarter last year as a result of higher crew and insurance expenses. We believe daily vessel operating expenses are best measured for comparative purposes over a 12month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. For the full years ended December 31, 2008 and 2007, the average daily vessel operating expenses for our fleet were $4,400 and $3,716 respectively. Based on estimates provided by our technical managers and management's expectations, we expect our 2009 DVOE budget to be $5,350 per vessel per day on a weighted basis. As previously announced, the increased budget reflects the anticipated increased cost for crewing, insurance and lube oil expenses, as well as the operation of a greater number of Capesize vessels.
John C. Wobensmith, Chief Financial Officer, commented, "During the fourth quarter and year to date, Genco implemented proactive measures to increase the Company's financial flexibility and strengthen its leadership position. Specifically, we made the prudent decision to cancel the acquisition of six drybulk vessels during the fourth quarter as market conditions contracted. We also amended our $1.4 billion credit facility under favorable terms that provide significant benefits for Genco. Specifically, the collateral maintenance covenant has been waived, ensuring that we will not be affected by the current volatility in asset values. In addition, we have maintained the ability to borrow the undrawn portion of the loan during the waiver period. Management remains committed to utilizing our strong liquidity to seek opportunities to take advantage of the current market weakness in the drybulk industry. In pursuing future growth, we will continue to adhere to a strict set of return criteria related to earnings and cash flow accretion as well as return on capital hurdles."
Financial Review: Twelve months 2008
Net income was $86.6 million, or $2.86 basic and $2.84 diluted earnings per share for the twelve months ended December 31, 2008 compared to $106.8 million, or $4.08 basic and $4.06 diluted earnings per share for the twelve months ended December 31, 2007. The Company deemed its investment in Jinhui Shipping and Transportation Limited to be other-than-temporarily impaired as of December 31, 2008 due to the severity of the decline in its market value versus its cost basis. Prior to recording this impairment, the Company reflected any gains or losses associated with this investment as a component of other comprehensive income in equity. As a result, during the fourth quarter of 2008, the Company recorded a $103.9 million impairment charge in its Consolidated Statement of Operations. The Company also recorded a $53.8 million charge related to the forfeiture of the 10% deposit from the cancellation of the six vessel acquisition, a $26.3 million gain from the sale of the Genco Trader and $7.0 million of income received from its investment in stock of Jinhui Shipping and Transportation Limited. Revenues increased 119% to $405.4 million for the twelve months ended December 31, 2008 compared to $185.4 million for the twelve months ended December 31, 2007. EBITDA was $208.8 million for the twelve months ended December 31, 2008 versus $164.2 million for the twelve months ended December 31, 2007. TCE rates obtained by the Company increased to $37,824 per day for the twelve months ended December 31, 2008 from $24,650 for the same period in 2007. Total operating expenses were $171.0 million for the twelve months ended December 31, 2008 compared to $54.3 million for the twelve months ended December 31, 2007, and daily vessel operating expenses per vessel were $4,400 versus $3,716 for the comparative periods.
On January 26, 2009 the Company announced that it had entered into an agreement with DnB NOR Bank ASA and Bank of Scotland PLC as the lead arrangers to amend its $1.4 billion credit facility. Under terms of the amended ten-year $1.4 billion facility, the collateral maintenance requirement is waived until such time that Genco is in a position to satisfy the requirement as well as continue to comply with all other covenants and certain other conditions previously announced. Genco continues to be able to borrow the undrawn portion of the loan during the waiver period. Amounts borrowed under the amended facility begin to reduce on March 31, 2009 at $12.5 million per quarter and will bear interest at LIBOR plus 2.00%.
The Company also announced that, under the terms of the amended credit facility, its cash dividends and its share repurchases will be suspended, effective immediately. Genco will be able to reinstate its cash dividends and share repurchases once the Company can represent that it is in a position to again satisfy the collateral maintenance covenant. The amendment to the credit facility places no further restrictions on uses of the Company's cash.
Source: Genco Shipping & Trading
Third of world's fleet will be scrapped in two years: Khalid Hashim
Bangkok: Precious Shipping, Thailand's largest shipping company by market value, expects a third of the global merchant fleet to be scrapped within two years as trade collapses amid a global recession and tighter credit, Bloomberg reported.
"The banking system is destroyed," ceo Khalid Hashim said at a shipping conference in Singapore yesterday. "China's stimulus plan will help revive trade, but it will not be able to immediately."
The number of vessels scrapped this year may triple on a trade slump caused by China cutting imports of iron ore and U.S. and European consumers paring spending on Asian-made goods. At the same time, new ships are entering service as shipyards complete orders placed two or three years ago, when trade was booming. [26/02/09]
Wan Hai buying into Chinese line
Taipei: Taiwan's Wan Hai Lines is in talks to invest in a Chinese shipping company to expand its network and offset the severe industry downturn that could cut 30 percent off its revenue this year, Dow Jones reported.
Wan Hai Lines, the largest container shipping firm on intra-Asia routes by market share, has been cutting capacity on the Asia-Europe route and restructuring its network because of the slump in global trade and vessel overcapacity that has decimated freight rates and profit, company president Tony Chow said.
An investment in a Chinese shipping firm would allow Wan Hai Lines to capitalize on the expected growth in China's river transport and trade between China and Southeast Asia, Chow told Dow Jones Newswires in an interview.
"We are positive on the domestic demand stimulus package implemented by the Chinese government, which will also create intra-Asia cargo as China and Asean remove trade tariffs," he said.
Chow declined to name the Chinese company, but said a conclusion to the talks isn't imminent as Wan Hai Lines wants a stake of at least 51 percent in the firm.
"The size of the stake is the main contention point," he added.
While Taiwan and China agreed on closer transport links in November, including launching direct daily charter flights and direct shipping links, there are still some restrictions on cross-strait business.
The Taiwanese government prohibits investment in container terminals on the mainland, and while both sides agreed to allow each other to open branch offices, the offices can only deal with cross-strait cargo. This means Wan Hai Lines must first ship Chinese cargo to a Taiwanese port before carrying it to a third destination, said Chow.
Investing in a Chinese liner will give Wan Hai Lines, which has 20 offices in China that it opened via its Hong Kong units, instant access to China's river cargo, or cabotage, he said. "There's a lot of coastal and Yangtze River cargo that we can't do now."
By March, Wan Hai will return chartered ships to cut its capacity by 19.1 percent to 66 ships, or a total of 116,208 TEUs, down from 81 ships in the first half of last year.
The company's 2008 revenue rose 9.9 percent to a record US$1.87 billion as its total carried cargo volume rose 6.5 percent to 2.96 million TEU.
But this year, cargo volume will likely fall 15.5% to 2.50 million TEU, and revenue may fall as much as 30% as rates on intra-Asia routes started falling in the second half of last year, Chow said.
"If you don't scale down, you're going to loss big," he said. [26/02/09]
Wednesday, February 25, 2009
Wuhan boosts port investment
Shanghai: Wuhan New Port, based in the central Chinese province of Hubei, will get another injection of more than CNY 5 billion this year.
The new port is designed to be capable of handling 100 million tons of cargos and over-10 million teu a year. Once completed, it can serve cargos from such central and western provinces as Hubei, Hunan, Anhui, Jiangxi, Henan, Shanxin, Shaanxi, Sichuan, and Guizhou.
After the first batch of 16 projects launched last year, another 18 projects will kick off construction in 2009, including Tangjiadu rail and road bridge and 17 dedicated docks.
The bridge, with a total investment of CNY 9.3 billion, is scheduled to start construction in August 2009, and it will play an important role in connecting the Beijing-Jiujiang Railway with the Wuhan-Jiujiang Railway as well as several highways, furthering Wuhan’s claims to be the central nexus hub of China.
An oil tank dock of China National Petroleum Corp. will be built with a total investment of CNY 350 million. [25/02/09]
Dry bulk rates suffer largest fall of the year
Hong Kong: The cost of shipping commodities such as iron ore and coal tumbled the most in three months as Rio Tinto Group said it may delay deliveries from Western Australia, increasing the supply of vessels seeking cargoes, Bloomberg reported.
Rio declared a force majeure, a legal clause allowing delays if an incident happens outside of the supplier’s control, according to a letter from the company dated February 23 obtained by Bloomberg News. The decision applies to shipments on or after 7 a.m. Feb. 14, the letter said, after rail lines connecting mines to the coast flooded. Nick Cobban, a London-based Rio spokesman, said the company’s policy is not to comment on force majeures.
“It’s knocked the market for six,” Stuart Rae, co- managing director of M2M Management Ltd., the largest hedge fund group dedicated to shipping markets, said by phone. Some shipowners will be forced to send their vessels to seek cargoes in Brazil because of a lack of Australian deliveries, he said.
Hire rates for capesize vessels most commonly used to haul iron ore fell 9.8 percent yesterday to $34,284 a day, according to prices from the London-based Baltic Exchange, the biggest drop since November 26. It was also the largest contributor to a 3.6 percent decline in the Baltic Dry Index, a broader measure of commodity shipping costs, to 2,010 points.
Forward freight agreements also declined yesterday. Capesize FFA contracts for April to June lost 11 percent to $24,500 a day. The contracts for smaller panamax ships fell 3.3 percent to $12,500 a day.
The force majeure is likely to be “short term” and create “extreme volatility,” Rae said, adding he expects iron ore demand to accelerate once the situation is resolved.
Also of concern for bulk owners are the nearly full inventories of steel mills in China. A serious restocking of iron ore over the past three months looks just about complete. [25/02/09]
Shipping Corp of India axes expansion plans
Mumbai: State-run Shipping Corp. of India Ltd (SCI), India’s biggest shipping company by fleet size and revenue, has scrapped a tender to buy four dry bulk cargo carriers as demand for ships declines in the face of a slowdown in global trade.
“Demand has changed; supply has changed. The future looks uncertain,” said U.C. Grover, the Mumbai-based company’s technical and offshore services director told local media. “We didn’t want to keep the tender open till eternity. It makes sense to scrap the tender now.”
Unlike earlier, when the tendering process had to start from scratch, SCI now has greater freedom from government control to take a call on its own.
Last year, the government granted so-called navratna status to SCI, enabling it to take quick decisions on ship purchases and other expenses without having to seek approval from the shipping ministry. The navratna status granted to select public sector enterprises, recognizing them as the most prestigious government-owned companies, allows them greater autonomy.
“The advantage of this is that when the market improves, we can swing into action very quickly. As the technical specifications are frozen and known to the bidders, we can ask for price quotations and finalise the tender in a month,” Grover said.
Typically, SCI takes four-five months to finalize a ship acquisition tender.
The company had announced plans to buy 72 new ships with an investment of $3.1 billion in the five-year period beginning 2007.
SCI has so far ordered 32 new ships worth at least $1.88 billion at various global yards to replace some of its ageing fleet, which has to be decommissioned in line with global maritime regulations.
It plans to buy the remaining 40 new ships worth close to $2.6 billion over the next four years. [25/02/09]
Royal Caribbean warns over ships funding crisis
Rajesh Joshi - Wednesday 25 February 2009
ROYAL Caribbean has issued a veiled warning that securing committed financing for the ambitious pair of Oasis-class cruise ships expected to debut this year is “not assured”.
The company revealed in its annual report filed with US regulators that it is trying to convince the Finnish export credit agency to increase the guarantee level on the Oasis project from the existing 80%, and in fact get the agency itself to lend some money.
Noting the “turmoil in credit and capital markets”, Royal Caribbean said its situation has been compounded by a further downgrade of its credit rating by Standard & Poor’s in January this year.
This caution is thrown in relief by the situation at Royal Caribbean’s cross-town rival Carnival.
Carnival has frozen its dividend for 2009, and hopes to use the resultant savings of $1.3bn, together with ample liquidity and expected healthy cash-flow, to avoid having to borrow money from banks or capital markets in today’s tough environment to finance its own portfolio of 17 newbuildings on order.
Royal Caribbean, too, has eschewed dividends, curtailed “non-shipbuild capital expenditures”, and put further newbuildings on hold. However, the company admits it needs bank support.
Royal Caribbean said it is “working with various financial institutions to secure financing for the Oasis-class ships”.
The company said it may elect to fund contractual obligations through “other means” if current conditions in the capital markets improve. The company’s share price was $6.84 on Monday, compared with a 52-week high of $38.70.
The company has $2.6bn in contractual obligations due in 2009.
Royal Caribbean’s newbuilding roster comprises six ships. Two of them are for the 5,400-passenger Oasis-class for Royal Caribbean, described as the “biggest ships ever built”.
The first of these, the Oasis of the Seas, is scheduled for delivery from STX Finland this autumn, with the sistership Allure of the Seas due late next year.
The other four newbuildings are Solstice-class ships for Celebrity Cruises, at Meyer Werft.
The total price of the six ships is $6.5bn, of which Royal Caribbean had paid $540m as of December 31, 2008. Anticipated capital expenditures will be $2.1bn for 2009, $2.2bn for 2010, $1bn for 2011, and $1bn for 2012.
Carnival’s 17-ship newbuilding portfolio is priced at $9.1bn, of which $719m was paid through to November 30, 2008. The remaining costs are scheduled at $2.6bn, $2.8bn, $1.9bn and $1bn in 2009, 2010, 2011 and 2012, respectively.
Royal Caribbean has commitments for financing guarantees from Finnvera, the export credit agency of Finland, for 80% of the financed amount.
The annual report states “We are working with the relevant export credit agencies and various financial institutions to obtain committed financing for Oasis of the Seas. This includes exploring opportunities to increase the guarantee level and obtain partial funding support from the relevant export credit agencies.
“Although we believe that we will secure committed financing for these ships before their delivery dates, there can be no assurance that we will be able to do so or that we will do so on acceptable terms.”
Celebrity’s Solstice-class quartet has committed bank financing, but the financing guarantees from Euler Hermes Kreditrersicherungs, the German export credit agency, account for 95% of the financed amount.
Overall, Royal Caribbean notes: “In response to the current environment and in light of our funding needs, we have increased our focus on preserving cash and improving our liquidity.”
A cost-cutting programme unveiled in the summer of 2008, before the global financial crash but caused immediately by the sky-high fuel prices prevailing at the time, is said to be on track, with the annualised cost-savings of $125m expected to come through.
Royal Caribbean remains confident that its usual funds-flow mechanisms would see it through, but even this is tempered with caution.
“While we anticipate that cash flows from operations, current available credit facilities, current financing arrangements and those that we expect to obtain will be adequate to meet our capital expenditures and debt repayments over the next 12-month period, there can be no assurance that this will be the case,” the annual report notes.
Idle capesize numbers fall by more than two thirds
Michelle Wiese Bockmann - Wednesday 25 February 2009
THE number of capesizes without employment has dropped by more than two thirds in the last three months, with 30 of the vessels now idling at ports around the world.
But a different story has emerged for older and smaller bulk carriers, or those rendered too “toxic” to trade, because they are connected to financially troubled Asian-based owners or operators.
About 4%, or 64, of the 1,550-strong fleet of panamaxes is currently in full or partial lay-up, or longer-term anchorage, according to data from Lloyd’s Maritime Intelligence Unit.
Overall 484 bulk carriers, or 6% of the global bulk carrier fleet, representing 17.9m dwt, is classified as “inactive”.
“All older vessels are having trouble finding employment, and they’re getting such a deep discount [in rates] compared to modern vessels, owners are preferring not to trade,” said a London-based dry cargo broker.
Brokers and traders familiar with the panamax sector thought the actual figure could be even higher, with unemployed vessels numbers remaining high since freight rates collapsed in the final quarter of last year.
Of the handymax fleet, 6%, or 105 ships, and 286 smaller handysize bulk carriers, or 10% of the fleet, are also idle, according to Lloyd’s MIU. The handysized fleet’s average age is 20 years.
“I have a perception that older [panamax] ships aren’t doing any business. I don’t see them fixing and I’m sure they’re sitting around and doing nothing,” said Steve Rodley, director of London-based shipping fund Global Maritime Investments. He said many panamax charterers had also refused to trade any modern “toxic ships”.
These vessels had complicated time charter chains of hire involving bankrupt owners or operators, or those who had defaulted on payments. “Those are the ships with nothing to do,” he said.
One London-based broker estimated at least a dozen panamaxes were in full lay-up. Lloyd’s MIU data was collated yesterday by tracking AIS movements, classifying inactive bulk carriers as those without registering any movement for at least 35 consecutive days.
Brokers familiar with the capesize market said the 30 unemployed vessels identified by the Lloyd’s MIU data most likely had “toxic hire chains”.
Those capesize owners had returned to the market in January, when Chinese and European steel mills resumed iron ore shipments from Australia and Brazil. Many had withdrawn their capesizes from trading in the last months of 2008, when spot rates fell below operating costs to as low as $2,000 per day amid widespread payment defaults.
By early December, an estimated 12% of the capesize fleet, or more than 100 vessels were idle. Seven months earlier fleet utilisation had been at 100% and freight rates as high as $300,000 per day.
HSH Nordbank’s Chang predicts extended fund struggle for owners
Singapore: HSH Nordbank AG, the world’s biggest shipbuilding financer, said the global credit crunch and recession mean that shipowners will likely struggle to raise funds for as much as 18 months, writes Bloomberg.
“We still haven’t seen the light,” Paul Chang, the lender’s Asia head of shipping, said in Singapore yesterday. The timing for the end of the credit squeeze will depend on how fast lenders can recapitalize, he added.
Banks worldwide have curbed lending to shipping lines and other industries on concerns about getting repaid amid the recession. Lenders are also struggling to raise funds, with HSH Nordbank, itself, having to seek a bailout from its biggest shareholders, the German states of Schleswig-Holstein and Hamburg. [25/02/09]
Japanese shipping firm fined $1.75m for pollution
Washingon: Japanese shipping firm Hiong Guan Navegacion has been fined $1.75m for dumping oily waste into the ocean and falsifying records to cover it up, the US Justice Department said Tuesday, writes AFP.
A US District Judge ordered the fine after finding that a Hiong Guan Navegacion Japan vessel had bypassed onboard equipment designed to deal with oil and sludge and dumped the materials directly overboard. The firm pleaded guilty to the charges and to falsifying ship documents to cover up their deeds.
The two men who acted as the ship's chief engineers were fined $1,500 and $1,000 respectively and put on probation for one and three years.
"Hiong Guan is paying for failing to follow the law by, among other things, attempting to mislead the Coast Guard with falsified environmental-compliance records," John Cruden, an assistant attorney general for the Justice Department is quoted as saying.
Some $400,000 of the fine is expected to be used for clean-up and conservation projects in the Tampa Bay area. [25/02/09]
DryShips bulk vessel hijacked
Athens: Greek coal carrier MV Saldanha and its 22 crew members by Somali pirates in the Gulf of Aden. The 75,707dwt vessel, owned by DryShips Inc, was enroute to Slovenia at the time of the attack and is said to have adhered to security measures and available advice to attempt to avoid the attack.
According to reports, the Maltese-flagged bulker was captured despite the presence of the HMS Northumberland in the vicinity as the captain of the British warship was warned to keep its distance by the pirates as they boarded the vessel.
Tuesday, February 24, 2009
Weak won hits newbuilding cancellation efforts
Tony Gray - Tuesday 24 February 2009
The value of the won has fallen by as much as 60% since early 2008. pic: Bloomberg
SHIPOWNERS’ efforts to secure the cancellation of billions of dollars of newbuilding contracts placed with South Korean shipbuilders are being hampered by the weakness of the won, which is threatening to result in huge currency losses for the yards.
The problem for shipbuilders arises from the forward sale of dollars expected to be received over the next two or three years from newbuilding orders - if these contracts are cancelled, shipowners will not make their payments and the yards will have to buy more expensive dollars to fulfill the foreign exchange deals.
Increased demand for dollars by the yards would also place further downward pressure on the South Korean currency, creating a downward spiral which will serve to exacerbate the country’s trading position, which is built on a strong export industry.
One shipowner said the “reality is that Korea Inc cannot afford to accept cancellations or delays as they desperately need the dollars from ship orders.”
Analysis by Daewoo Securities said the won had weakened sharply due to a number of factors, including the “potential contagion” from the economic crisis in Eastern Europe, worries over banks’ ability to repay foreign-currency denominated debt, as well as the cancellation of shipbuilding orders.
The last two factors are related as most South Korean shipyards are believed to have swapped their scheduled dollar revenues with domestic banks through forward contracts.
In turn, the banks have undertaken a similar exercise in international markets.
South Korean yards have a combined order book worth about $200bn, but the contracts most at risk of cancellation will be those placed in 2008 where construction has yet to progress significantly.
Daewoo Securities estimates that South Korean yards last year captured newbuilding orders totalling $59.5bn, of which 30% would be spent on importing raw materials and equipment.
The securities firm pointed out that the yards hedge about 90% of the remaining 70% of the order value - thus, net selling of forward dollar contracts is estimated to be about 63% of an order’s entire value.
Given the $59.5bn of contracts gained in 2008, hedging is estimated to total $37.5bn through forward foreign exchange deals.
As the value of the won has fallen by as much as 60% since early 2008 to below Won1,500 to the dollar, these forward contracts are now substantiantially ‘out of the money’ if newbuilding contracts are cancelled.
“Demand for dollars related to shipbuilding order cancellations will be determined by global financial market conditions,” Daewoo Securities said.
“The Korean [foreign exchange] market, which was thrown into crisis in the fourth quarter of 2008 due to global financial turmoil, is facing a similar predicament in February.
“Financial market anxieties are unlikely to dissipate until there is clarity over the extent of the crisis in Eastern Europe and the amount of shipbuilding order cancellations.”
Of course, many shipping companies are also under financial pressure and, with steel prices lower, may expect concessions from the yards.
“But what they don’t see is the desperate shape South Korea is in,” said the owner.
“Personally, I suspect Korean shipyards are under pressure from the Korean central bank not to negotiate or accept any cancellations and delays.”
Daewoo Securities said theSouth Korean financial authorities were expected to maintain dollar reserves by decreasing imports and borrowings, and by withdrawing overseas investment to reduce demand, “since expanding supply through exports or foreign investment has become more demanding.”
Shipowners outraged by light dues hike
Janet Porter - Tuesday 24 February 2009
SHIPOWNERS have reacted with fury to a planned rise in light dues that would lift the maximum charge for calling at a UK port to £20,500 for the biggest vessels, an increase of almost 70%,
The Department for Transport is proposing a hike of 6 pence per net registered to n to 41 pence in light dues that cover the cost of providing navigational aids around the British Isles.
Shipping companies that have been lobbying hard for a cut or freeze in the levy were nevertheless braced for a 4 pence upwards adjustment, but were stung to hear of a possible 6 pence increase from July 1.
“This is a catastrophic blow for shipping at a very difficult time for the industry,” Independent Light Dues Forum spokesman Mark Watts said today.
“The damage to Britain’s maritime interests will last for many years to come.”
Repercussions would spread beyond the shipping industry to the wider economy, with a threat to jobs, he continued.
This setback comes at a time when the entire UK maritime community is calling for a more coordinated approach to shipping at government level, particularly after the damage caused by continued uncertainty over tonnage tax, and the decision to impose a £30,000 levy on non-domiciled residents that has already driven some shipowners away from Britain.
Chamber of Shipping president Martin Watson also recently expressed concern over the threat to UK shipping services and fleet deployment of high light dues.
Moves to raise the levy come at a time when Singapore has promised to cut the fee because depressed shipping industry conditions, and is also setting out its stall as a global maritime hub to rival London.
Explaining its case for an increase, the DfT said the General Lighthouse Fund would incur an estimated shortfall of £21m next year, while a recent decline in its investment portfolio had reduced the capacity of the fund to defer or spread increases in light dues.
As well as the proposed increase that would only be confirmed after consultation, the DfT also wants to lift the tonnage cap from 35,000 to 50,000 tonnes. That move would hoist the maximum charge per call from £12,500 at the moment to £20,500.
Furthermore, the voyage cap will be raised from seven to nine voyages, a move that will particularly affect ferries.
The announcement came just shortly before a private members bill is due to be finalised today, that will call for both an end to the controversial subsidy to Ireland towards the cost of navigational aids, and an inquiry into the three lighthouse authorities that cover the British Isles, and which shipowners want to see amalgamated. Lord Tony Berkeley has agreed to sponsor the Bill.
The ILDF argues that merging Trinity House, which is responsible for navigational aids around the coasts of England and Wales; the Northern Lighthouse Board for Scotland; and the Commissioners of Irish Lights, would generate sufficient savings to dispense with the need for higher light dues.
In a statement on the planned amendment to light dues, the DfT said it would “continue negotiations with the Irish government aimed at reaching a new lasting agreement for funding the work of the Commissioners of Irish Lights in providing a whole of Ireland aids to navigation.”
The subsidy to Ireland is considered unreasonable even by those who support the continued independence of Trinity House and the Scottish board.
CONGESTION AT AUSTRALIA’S COAL, IRON ORE AND GRAIN PORTS
24-02-2009
Congestion at key iron ore load ports in Western Australia has risen to a 22-month high partly as a result of rain and flooding severely affecting iron ore production, railing and loading at the terminals of Dampier and Port Walcott. SSY’s Australian Iron Ore Port Congestion Index has leapt to 10.9 days from 6.0 days last week. Furthermore, disruption at both ports is likely to persist over the coming weeks, with Rio Tinto advising that railings will only partially resume from 28 February, and local agents reporting that some berths will be closed for significant spells over the coming weeks.
In contrast, the SSY Australian Coal Port Congestion Index has slipped to 5.4 days, the lowest since November 2005. Finally, a surge of grain cargoes (primarily wheat) from Western Australian ports has led to a build-up of tonnage at Albany, Esperance, Geraldton and Kwinana. Currently 29 Handysize/max vessels are waiting to berth at the four terminals.
Coal prices continue to slide at Qinhuangdao Port
Shanghai. February 24. INTERFAX-CHINA - Coal prices at Qinhuangdao Port,
China's largest coal trans-shipment port, continued to decline from Feb.
16 to Feb. 23, while stockpiles grew, according to China Coal
Transportation and Development Association (CCTDA) statistics.
Average prices dropped between RMB 5 ($0.73) and RMB 10 ($1.46) per ton
over the period and the port's stockpiles increased from 7.38 million
tons on Feb. 14 to 7.60 million tons on Feb. 21. Stockpile volume is
more than 2 million tons higher than it was on Feb. 1.
Growing stockpiles is attributable to weak downstream demand, Li Ming, a
CCTDA coal analyst, wrote in a research report on Feb. 23. Meanwhile,
coal stockpiles at key power plants grew to 36.30 million tons on Feb.
10, which is enough to operate on for 21 days, or two days more than
there was at the end of January. The situation indicates that thermal
coal prices might continue to drop in the coming weeks.
Coking coal prices, however, have rebounded due to relatively short
supplies. In addition, a coalmine explosion that occurred at a coking
coal mine in Shanxi Province on Feb. 22 could further limit supplies.
The table below specifies coal prices on Feb. 16 and Feb. 23 at
Qinhuangdao Port.
Spot coal prices at Qinhuangdao Port, Feb. 16 and Feb. 23, 2009
Coal type Heat value FOB price on Feb FOB price on Feb
(Kcal/kg) 16 (RMB, ton) 23 (RMB, ton)
Datong premium 6,000 590 - 600 ($86.26 585 - 600 ($86.26
blend - $87.72) - $87.72)
Shanxi premium 5,500 565 - 575 ($82.60 555 - 565 ($81.14
blend - $84.06) - $82.60)
Shanxi blend 5,000 475 - 485 ($69.44 465 - 475 ($67.98
- $70.91) - $69.44)
General blend 4,500 400 - 420 ($58.48 400 - 420 ($58.48
- $61.40) - $61.40)
General blend 4,000 350 - 365 ($51.17 340 - 355 ($49.71
- $53.36) - $51.90)
Source: China Coal Trade and Development Association
Note: FOB = free on board
-TW
Hamburg agrees HSH Nordbank restructuring plan
Friederike Krieger, Cologne - Tuesday 24 February 2009
THE German state governments of Hamburg and Schleswig-Holstein have agreed to the restructuring plan for HSH Nordbank, the world’ s largest shipping bank.
Both states hold stakes in the bank, as well as the US-Investors JC Flowers and regional savings banks.
Crisis-ridden HSH Nordbank sought €3bn from Hamburg and Schleswig-Holstein as well as fresh guarantees of €10bn. HSH needs the money to pay for losses incured during the financial crisis.
For 2008, it has forecast a consolidated loss of €2.8bn and expects further losses in 2009 and 2010.
“After the changes, the bank will have a core capital ration of 9% and will shrink its balance sheet in the following years by about half to €100bn,” said chief executive Jens Nonnenmacher.
HSH is planning to scrap its €750m container financing business, but will keep its shipping, aviation and transport units. However, the German financial services industry is united in expecting that HSH will run its ship financing in an increasingly risk-averse fashion.
The bank currently has ship finance lending of €30bn on its books.
As part of the wide-ranging reduction of activities, HSH plans to cut 1,100 of its 4,400 jobs.
While Mr Nonnenmacher is optimistic that the restructuring plans will help to cure the bank, Wolfgang Kubicki of the Freie Demokratische Partei (FDP) is doubtful. The chairman of the FDP parliamentary group in Kiel expects that the bank will need €8bn-€9bn in the next four to five years to be in the black again.
The €3bn provided by Hamburg and Schleswig-Holstein is barely enough to keep the business running in 2009, said Mr Kubicki. Furthermore he believes that HSH will be too small to survive after shrinking the balance sheet to €100bn.
Meanwhile, HSH’s supervisory board chairman Wolfgang Peiner announced his resignation. The former insurance manager and Hamburg minister of finance admitted mistakes had been made in relation to the financial control of the bank. The volume of toxic papers had been too large in relation to its low equity and its risk management, he said.
Mr Peiner will leave HSH’s supervisory board after the annual general meeting in April 2009.
Thome expands lay-up services
Singapore: Thome Group, the leading Singapore based ship manager, has expanded its vessel lay-up services via subsidiary S&P Marine Consultants.
S&P Marine Consultants general manager, Raul Matovic said yesterday: “It is apparent that in the current trading markets, many owners are looking at lay-up as one option for their vessels. We have seen several new operators attempting to offer this service recently.
“In response to this and the fact that several owners have already approached Thome, we have secured several safe and above all secure lay-up anchorages around this region and owners can now take advantage of this.”
He said the extensive expertise within the Thome Group meant that a full range of service could be offered. “We can provide backup, technical expertise and a full range of other services to owners wishing to take this option,” he added.
Thome Group President, Claes Eek Thorstensen added: “Lay up of a vessel requires to be done by professionals with a track record. The key requirements are proven lay-up procedures, planned maintenance, professional lay-up crew and stringent supervision in order to maintain the value of the owner’s asset.
“Having extensive experience in re-activation of vessels, we understand the importance of quality lay-up”
Mr Matovic noted that Thome had a team of experts dedicated to the expanded lay up service. Container vessel operators and dry bulk owners had been making active inquiries about lay up in particular, he said.
He said the benefits of lay up included much lower operating costs, a reduction of fuel and lubricants costs, plus lower hull and machinery and P&I premiums.
Some registries are also prepared to either waive or reduce tonnage taxes. [24/02/09]