The record levels of scrapping activity seen this year are going to be a catalyst for alleviating the industry's oversupply problems by balancing supply and demand says Christina Anagnostara, Chief Financial Officer with New York-listed shipowner
Seanergy Maritime Holdings. In an interview with Hellenic Shipping News Worldwide, Anagnostara said that "recently an international broker estimated that if all vessels built before 1985 were scrapped before the end of 2013 it would bring net annual fleet growth to 6.3%, compared to gross growth of roughly 12% and an estimated annual rise in demand for dry bulk transportation of about 5.2%. If this materializes, we should see a gradual stabilization of the demand and supply dynamics going forward" she said.
Could you provide us with the latest figures regarding Seanergy's performance during the first half of the year?
We reported our 2011 six months earnings with an increase in revenues and net income compared to the same period last year. Net Revenues were $53 million, up 30% from last year's $40.8 million. EBITDA for the first half of the year was $26.5 million as opposed to $20.9 million in the same period of 2010.
For the second quarter of 2011 Net Revenues were $27.8 million as compared to $22.6 million in 2010. EBITDA was $13 million and Net Profit was $650 thousand, as compared to a net loss of $290 thousand in the same period of 2010.
For the first six months of 2011, we owned and operated 20 vessels, achieving fleet utilization of 94.4%. This compares to an average of 13 vessels and a fleet utilization of 95.2%. TCE was equal to $14,991, as compared to $17,729 in the same period in 2010.
In May 2011, we announced the reorganization of our Hong Kong office, as it offers advantages for further growth in the Far East, a region of critical significance for dry bulk shipping.
As of June 30th, 2011 our cash reserves, inclusive restricted cash, were $45 million and our total assets amounted to $660 million.
How would you evaluate the company's performance so far in the year and which are your expectations for the remainder of 2011?
Considering the current weak market environment, we were able to improve our revenues due to the increase in the size of our wholly owned fleet. In addition, as per our fleet employment strategy, we are maintaining a portfolio of fixed and floating rate contracts as well as profit sharing agreements that provide us with cash flow stability and protection against the volatile freight rate environment which has hampered the industry in 2011.
We anticipate that the following months will continue to be characterized by volatility, as there are a multitude of factors that can affect the market, which are hard to predict. At the same time, our increased exposure to the less volatile Handysize segment along with our balanced chartering strategy is likely to go a long way towards moderating the negative effects of increased volatility in the shipping market. It is worth noting that all of our vessels are fixed with what we believe to be highly reputable charterers. We would therefore expect the Company's performance to remain largely in line with what we experienced during the first half of the year.
During the past couple of weeks, the dry bulk market experienced a rally for the first time in months. What developments triggered this rise and do you expect this trend to continue as reports are indicating that scrapping levels of ageing bulkers are increasing?
The rally in the shipping market has mainly taken place in the capesize segment, which took the hardest hit over the first months of 2011. The most important driver of this was high demand for Brazilian iron ore imports into China and increased coal imports into Japan. It is worth noting that over the first months of 2011, iron ore inventories in China were quite high, which had also contributed to lower activity and lower rates paid for capesize tonnage. Furthermore, the fact that many new ships have been delivered in the Pacific since the beginning of the year has caused a relative shortage of tonnage in the Atlantic, which led to higher rates.
Most industry sources point to the fact that fundamentally, supply and demand dynamics have not changed that much and so the spike in rates is likely to be transitory. As a result we expect freight environment to remain soft for the next 18 months.
Going forward, the record levels of scrapping activity seen this year are going to be a catalyst for alleviating the industry's oversupply problems by balancing supply and demand. Recently an international broker estimated that if all vessels built before 1985 were scrapped before the end of 2013 it would bring net annual fleet growth to 6.3%, compared to gross growth of roughly 12% and an estimated annual rise in demand for dry bulk transportation of about 5.2%. If this materializes, we should see a gradual stabilization of the demand and supply dynamics going forward.
How well positioned is Seanergy Maritime Holdings in order to benefit from a longer term recovery of the dry bulk market to more sustainable levels?
Since 2009 we have managed to increase our fleet from 6 to 20 vessels proving our ability to deal with unfavorable market fundamentals. We have managed to increase our revenues and we are poised to benefit from any future recovery in the dry bulk shipping and continue to grow.
At the same time, the Company's increased exposure to the Handysize vessel segment means that it has the capacity to withstand a weak market environment, as spot rates for smaller vessels are not expected to come under the same pressure as the larger ones given the market fundamentals.
Furthermore, as asset values decline we will continue to review business opportunities as they become available.
Having secured period employment of 93% for 2011 and 64% for 2012 all with what weΒ believe to be credible and reliable counterparties puts us in a position where we enjoy cash flow visibility for the coming months, while we are able to take advantage of short term spikes in freight rates in order to increase profitability.
How do you see the market behaving until the end of the year?
As already mentioned, the market is likely to remain at low levels for the rest of 2011, yet seasonal factors in worldwide commodities trading and any sudden growth in demand attributable to such factors has the capacity to affect rates positively, as seen in the last weeks. We therefore expect the market to remain volatile, albeit at relatively low levels.
Which are your estimates about freight rates going forward to 2012?
We expect the freight rate environment in 2012 to remain at the same levels as in 2011. The pace of new deliveries, scrapping and slippage will play a key role as increased vessel supply is going to lead to lower rates.
When do you expect oversupply issues to start alleviating?
As things currently stand, the bulk of new vessel deliveries is going to take place in 2011 and 2012, while from 2013 the pace of expected deliveries is likely to subside considerably. Even as we expect some deliveries to be pushed back in time due to financing and other difficulties, it is unlikely that after 2013 the industry is going to be facing the problem of oversupply as intensely as it does so today.
An important assumption to be made here is that orders for new dry bulk vessels are not going to increase significantly, to the extent that they did in the years leading up to 2009 as that may prove detrimental for market fundamentals in the future.
Are you still on the market for more vessel purchases?
We would engage in acquisitions as long as they are expected to be accretive to earnings and in line with our investment criteria. The broad based reduction in asset prices caused by weak market fundamentals makes it likely that investment opportunities with high expected returns may arise.
Do you favor second-hand vessels or newbuilding orders at this stage?
Despite the fact that prices for new-building vessels have generally fallen, high prices for raw materials such as steel makes further decline unlikely. On the other hand, due to adverse and deteriorating market conditions high-quality second-hand vessels and new-building vessels on resale may become attractive investments.
In general, vessel acquisitions are reviewed on a case by case basis.
Which dry bulk sector will prove the more resilient in the long term?
Long term fundamentals seem to be more favorable for Handysize vessels, for two reasons. Firstly and most importantly, demand and supply dynamics are a lot more promising compared to larger vessel segments. The outstanding orderbook for Handysize vessels stands at approximately 27%, with the total fleet having grown at an estimated rate of about 5% year on year according to industry sources. By comparison, for Capesize and Panamax vessels the outstanding orderbook is closer to 50% of the current fleet, while fleet growth year on year is expected to surpass 10%. Furthermore, Handysize vessels represent on average the oldest fleet, as approximately 45% of the world Handysize fleet is over 20 years. This should translate in more intense scrapping activity that can further tilt the supply and demand balance in favor of ship owners.
Secondly, Handysize vessels enjoy unparalleled operational versatility, in terms of the types of cargo that they can carry and the ports they can access. In this respect, it should be noted that demand for transportation of minor bulks, including steel products and fertilizer raw materials is generally more diversified as there is no need to rely on demand for a single type of cargo. Furthermore, areas of increasing importance for dry bulk shipping, such as most countries in the African continent, Indonesia and even India generally lack the infrastructure to accommodate large vessels.
We therefore believe that in the long term Handysize vessels are likely to enjoy the most resilient market fundamentals, leading to reduced volatility in freight rates as compared to larger vessel types.
Nikos Roussanoglou, Hellenic Shipping News Worldwide