Tonnage oversupply will add further pressure into dry bulk rates as the year closes to an end says Mr. Athanasios Samios, Managing Director of Samios Shipping, one of Piraeus' small, yet traditional dry bulk "players". In an interview with Hellenic
Shipping News, Mr. Samios says that things will get worse before they get better in the dry bulk market, as the current fundamentals don't seem to support a potential rebound.
Samios Shipping has a history of more than 35 years in the shipping industry. During the previous years, the company capitalized on high ship values by selling a total of 14 vessels (before the values crashed). Today, the company controls one handy bulker of 29,000 dwt, built in 1995, which under a time charter.
Almost from the beginning of July we've witnessed a downward trend in the dry bulk market's freight rates. Is there room for that to change soon, or do you believe that the market will be further subdued until the end of the year?
Judging by the current nervousness and insecurity, I believe that the market will be further subdued until the end of the year, mainly because of the market's oversupply of tonnage. Of course our wishes and hopes are to see more older vessels heading for demolition. What should be done, but probably we'll never see it in shipping is for some kind of initiative similar to those undertaken by the G-20. That is to see some incentives to sell older dry bulk tonnage for scrapping, not only to alleviate the current oversupply, but also to improve the overall quality of the global fleet with younger, safer and more environmentally friendly vessels. But, of course this is rather difficult to happen, as shipping has always been a role model for free market and competition in terms of its operating status. Still, in today's conditions, we see many owners preferring to keep their older carriers in operation, because it doesn't make economic sense to sell them for scrap, as a result of low scrap prices.
Do you already see an oversupply of tonnage in today's dry bulk market?
There is a trend developing at the moment, towards an oversupply in the Panamax and Supramax sectors of the market. Anyhow Charterers are becoming very selective.
An additional problem is that even if there was an increased interest of scrapping of older carriers, there aren't enough scrapyards available today, at least able to cope the required rules in safety of operations and workers, as well as protecting the environment. In other words, should we have a simultaneous "crash" scenario in all three major shipping segments (i.e. tankers, dry bulk carriers and containerships), there wouldn't be enough scrapyards to handle the increased demand.
Which types of dry bulk vessels are more in demand today, in terms of spot trade?
Up to lately, in terms of spot trade, the Capes are the type of vessel more in demand.
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?
The fear of overcapacity by itself is a major motive towards scrapping. Otherwise, with the exception of China whereby a relevant scheme has been approved by the Central government, I do not foresee anything major to be done. About a month ago, the Chinese government said that during the period 2010-2013 the state can subsidize and retire older ships, should the freight market undergo a severe crash. This "“ in essence "“ scrapping scheme (similar to the ones being implemented in the car industry) is combined with subsidies for the acquisition of newer vessels. If this scheme becomes a reality, ship values will be affected, not to mention the balance of the supply/demand in the market. Let's not forget that ship values are mainly influenced by older ships' prices.
Do you believe that things will get even worse before they get better in terms of freight rates?
I am afraid yes. During the past few months we've been witnessing some rather unusual behavior by the market. We've been seeing a frenetic rise in commodities prices, at the same time that the US dollar is falling. In the past, whenever such a development occurred, the dry bulk market was positively affected, something which hasn't happened in this case. This can only be interpreted by the negative impact in the balance of supply/demand. As a result, when the prices of commodities are corrected, which in part we already see happening, ship rates will fall at even lower levels.
What means does a ship owner have in his disposal in order to weather this adverse market environment?
Cost cutting, where applicable, mainly in managerial costs; Time Charter with first class Charterers and hedging with FFA's in accordance with the tonnage exposed.
Have you moved ahead with specific moves/deals regarding your shipping business during the past 12 months?
We are closely monitoring the markets, however we have not done any specific move or deal during the past 12 months.
From the beginning of the year we've been witnessing a fair number of acquisitions in the second hand vessel market. Do you think that the investment opportunities for cash-rich owners are big?
In today's economic environmental, there are certainly investment opportunities for the cash-rich in many sectors of the economy, shipping not excluded. There are opportunities in all three main segments of the market, but the most attractive ones, I in my view can be found in the container sector, where ship values have plunged by as much as 75% since 2007. Thus, I believe that in this fragile financial reality, those with sufficient liquidity will benefit the most.
Have ship values completed their price correction, or is there still room for further reductions?
If the downward trend in freight rates continues and financing does not improve, there is still room for further reductions on ship values.
Is financing a major hurdle for owners who want to capitalize on today's lowered prices?
It definitely is. This problem will persist for a significant period of time, because banks are faced with serious challenges, not only because of shipping, but in a plethora of areas, from investment funds to real estate. Until they manage to deal with the problem of "bad loans" and clear their balances, we won't see an improvement in financing. But, this applies for all business sectors, not only shipping as I said.
Nikos Roussanoglou, Hellenic Shipping News Worldwide