Confident that second hand dry bulk acquisitions will reignite after last week's surge of the Baltic Dry Index Mr. Babis Simantonis, head of Silver Maritime, said in an interview with Hellenic Shipping News, that the dry bulk market still has some
room for an upswing. But he also warns that this rise could prove to be short-lived, at least until the vast numbers of new buildings start hitting the water with increased pace. Mr. Simantonis is also the Cashier of the Union of Shipowners of Short Sea Shipping (Former Mediterranean Cargo Vessels Shipowners' Union). The Union is eager to meet with the new Minister of Economy, Competitiveness and Shipping, in order to discuss the industry's challenges. As for the recent transformation in public administration, with the abolition of an autonomous Ministry of Shipping, Mr. Simantonis appears cautiously optimistic about this change.
This past week we saw the abolition of the Ministry of Mercantile Marine, with most of it embedded under a mega-ministry of Economy, Competitiveness and Shipping, headed by Mrs. Louka Katseli. This brought mixed reactions among the shipping community. What's your opinion?
Of course, this is a big issue. From a psychological point of view, it definitely isn't something positive. We were used to having our own ministry, it was our true supporter. From the other hand though, the fact that shipping is now directly linked with the Ministry of Economy, could also be seen as an upgrade, provided that all jurisdictions are divided properly, so that the know-how of the old Ministry isn't wasted. We shall wait and see. I wouldn't want to believe that this change occurred to cut expenses.
As the Union of Shipowners of Short-Sea Shipping, we will seek a meeting with Mrs. Katseli, in order to inform her of our sector's problems. The most important of them has to do with the renewing of the overaged fleet. This process must begin from providing incentives, or some form of subsidy in order to help us replace older carriers with new ones, under flags of the EU. This has been done with success in Italy, as well as other countries of the Mediterannean.
Almost from the beginning of July we've witnessed a downward trend in the dry bulk market's freight rates. Lately, this trend has been reversed with the BDI climbing again. Where do you the index in the short term?
In my opinion, the freight market still has some room for some increase, at least until newbuildings deliveries pick up pace. From the beginning of the year, we've seen a rather balanced market, in terms of tonnage supply. What I mean by that is that for every newbuilding delivered, an older bulker usually left the market, being sold for demolition. But in my opinion, once ship owners witness a surge of new deliveries, they will move promptly to offload older vessels. Until today though, scrapping activity has remained relatively low. This is mainly because an older bulk carriers, i.e. built in 1987-88, even in today's market covers its expenses and even brings out some small earnings. As a result, its owner is more reluctant to sell it for scrap.
For the market to return to healthy levels soon, a lot will have to do with the overall supply-demand balance. However, the threat of overcapacity is a major fear. Do you think that something should be done in order to provide incentives and maybe encourage owners to scrap their older vessels?
I think such an intervention is very difficult to occur. Let's not forget that shipping is an international activity. I don't believe that there could some kind of public intervention. After all, such an intervention is against the Union of Greek Shiponwers' policy, which has always maintained that shipping is an international activity, governed by very specific rules of supply and demand and shouldn't be a field of state intervention. If something like that was to occur, then things would be very different and the Union would lose its arguments, whenever it tried to raise certain issues.
Many analysts are raising the issue of new building cancellations. Is it crucial for the market to avoid much of the potential tonnage oversupply?
I can't give you an estimate as to what percentage of the global orderbook will eventually be cancelled. What I can tell you is that both ship owners and banks must avoid as much as damage as possible. We've been seeing this portrayed vividly among the publicly-traded shipping companies. Most of them have managed to cancel newbuilding orders, clearly an indication that it's preferable to avoid a "bad" deal, than go through with it. Besides that, with the freight market free-falling, we've witnessed renegotiations for almost 80%-90% of all time charter contracts. This meant that banks couldn't use them as guarantee as well.
How has this recent surge of dry bulk rates affected the market for second hand vessels?
Despite the fact that until this week, the Baltic Dry Index was trading close to the 2,000-point area, values for second hand vessels hadn't dropped in a similar move. Instead they had remained relatively higher. Still, these past few increases of the BDI, restored optimism among ship owners. As a result, inquiries for second hand bulk carriers took off and more deals were concluded these past few days. To me it is obvious that many Hellenic ship owners who sold their fleets during 2007-2008, when prices were still high, are now re-entering the shipping market, acquiring vessels. During March and April a lot of older ships built between 1981-1986 were bought internationally. Today ships built in 1985-1986 are scarce, compared to their older counterparts (1983-1984). Most owners prefer these smaller handy ships because there are particularly low valued. This means that no financing is required. They can be acquired through own capital, something which doesn't apply for their bigger "brothers" like for instance the Panamaxes. That's why we are seeing a lot of movement in the sale & purchase market lately.
Are you actively looking for investment opportunities in the secondhand sale and purchase market for ships?
Yes, in my opinion there are plenty of opportunities. Recently Silver Maritime bought a 25,000 dwt bulk carrier, while we are actively scanning the market for a bigger handysize vessel. For the time being the preferred choice is to trade ships in the spot market and that's what we're now doing. Earlier, we had sold four smaller carriers with capacities between 7,000 "“ 8,000 tons. Luckily, this was done prior to the crisis, which impacted shipping, meaning that we managed to find strong pricing.
Do you think that prices for second hand ships will keep falling or has the market hit bottom?
I don't believe that we shall see any more devaluation. I think values for second hand vessels have concluded their fall. To be honest, I thought there was still room for a further reduction in prices, but from spring of 2009 until today, ship prices have increased by 30% on average, which means that the downward cycle has been concluded.
Is financing a major hurdle for owners who want to capitalize on today's lowered prices?
For those who have decided to acquire a ship, yes, loan financing remains a big hurdle. That's because the majority of banks don't seek to loan towards shipping, even at 50% of the cost of the vessels. But, I believe that well-organized shipping companies, with low exposure can secure financing. Of course, a major role in this has to do with each bank's exposure to the market. Another problem is that the cost of financing remains rather high, with high margins.
Do you think that Hellenic banks will stand by their clients in today's market environment?
I believe that this will depend on a client-per-client basis. Most banks would most likely avoid ship owners with substantial loan portfolios. But, from my experience, lately and in a very cautious approach, some Hellenic banks are returning into shipping, but in most cases it will take some more time.
Nikos Roussanoglou, Hellenic Shipping News Worldwide