Demand for second hand dry bulk carriers on healthy levels says Intermodal Shipbrokers
In an interview with Hellenic Shipping News, Theodoros Ntalakos of Intermodal Shipbrokers Co. states that we are in a healthy period for dry bulk vessels, as long as they are debt-free, which means higher profit margins for ship owners.
Regarding the looming prospect of tonnage oversupply, Mr. Ntalakos says that although it was avoided during 2009, with some deliveries being delayed to 2010, it’s bound to happen some time next year. This will prompt more ship owners to scrap their older tonnage with a higher pace. Also, “with banks taking over ships from unpayable debt and yards taking over ships that had started construction but buyers not secured financing there could be more of a down turn in prices with some victims out there forced to sell their ships at lower price levels” said Mr. Ntalakos.
What is the current situation in terms of inquiries made for hiring dry bulk vessels?
We are in a healthy period for the dry bulk vessels, well, the ones that are debt-free anyway! There is demand for dry bulk vessels, depending of course on the age, size, position etc. However, although on the one hand the rates that charterers are paying today usually leave owners with some profit (as long as there is no heavy debt on the vessel), on the other hand they are substantially lower that the levels shipowners have been used to during the last few years and in combination with expensive acquisitions they leave a rather bitter taste!!
What sort of vessel ages are more in demand?
On the employment front we believe that the more modern the vessels are the better the demand for them. As new rules and regulations come into force, charterers are always looking for the more modern tonnage where possibly and will pay a premium for such vessels.
Do you already see an oversupply of tonnage in today’s dry bulk market?
So far it is marginal and we see a very thin balance in today’s market. Not so many dry vessels have been delivered so far in 2009. The majority of the dry bulk orderbook is expected to be delivered from the yards in 2010 and 2011. Furthermore, some vessels that were due for delivery in 2009 were delayed, or pushed back to 2010. Today, as the market softens and the new vessels are delivered from the yards they will push charter rates down and force overage vessels to the scrap yards. The present levels of employment do not substantiate putting a vessel through her 5th or sometimes 6th special survey whereas in the past 5 years the owners could easily afford to keep the vessels going.
Which types of dry bulk vessels are more in demand today, in terms of spot trade?
We like and propose the handies for their flexibility, the panamaxes for their stability and of course the supramaxes which are the “all-around players’.
Which routes appear more busy and why? Do you see any other ones emerge in the near future, in terms of high demand?
Lately of course there are many ships calling China to discharge. No-one can argue that China is sustaining shipping today; India is getting a lot busier and we also see solid development in most countries from the Middle up to the South East Asia with an appetite for raw materials. Also, many cargoes have their recipients on the West African coast where there seems to be strong growth and a lot of infrastructure works.
What means does a ship owner have in his disposal in order to weather this adverse market environment?
Hopefully cash from all the good years, a modern renewed fleet and an eye to spot good opportunities, there is quite a few of them; As they say “one man’s problems are another man’s gain’. Also different types and sources of financing can help shipowners meet their strategies.
Do you believe that things will get even worse before they get better in terms of freight rates? Have ship values in the second hand market completed their fall, or is it possible for further reductions?
Indeed, we think that the oversupply of tonnage will push freight rates and prices further down before the fundamentals of the global economy are back to normal and before the world economy achieves a sustainable growth, that will in time absorb the excess ships. With banks taking over ships from unpayable debt and yards taking over ships that had started construction but buyers not secured financing there could be more of a down turn in prices with some victims out there forced to sell their ships at lower price levels.
How long do you think the process of finding the proper balance between supply and demand in the market will last?
We cannot make any predictions on that; we foresee a healthy demand for transportation of goods from emerging countries, we also note that the developed countries are slowly coming back in the import/export global trade.
However, the new buildings orderbook is still enormous therefore global demand cannot (will not) absorb all vessels not at least for 2-3 years. However, it is proved that the market has its own sentiment and always tends to perform beyond everybody’s expectations.
During the past few months, we’ve been hearing about new building order cancellations, as a means for the industry to recover quickly. According to your experience and through your company’s close cooperation with ship owners, do you see many of them trying to get out of hefty contracts?
This is a rather complicated issue; all shipowners who have contracted dry bulkΒ vessels during the 2nd half of 2007 but mainly in 2008, have agreed to pay very high prices. Certainly, for many of them if they were given a chance to cancel their order with no negative consequences (i.e. to get a refund of their money) they would do so.Β This is apparent from the fact that whenever the shipowner has a contractual right (mainly from delays) for cancellation they cancel. On top of the cancellations, we also have price or payment terms renegotiation, restructuring, consolidation etc.
How easy or not is it to walk out of such contracts?
All contracts where no payments have been made have been canceled already. The cancellation of a contract usually means that the buyer is willing to give up several million of dollars. The heavier the advances remitted the more difficult to make the decision to cancel and very few shipowners are prepared to do that. If a buyer is entitled to walk out of a contract, then it is relatively easy to do so; this does not however mean that they will receive their money back the next day. The builder may argue against cancellation which will lead to arbitration and this will of course delay refund. Cancellations depend on how good the relationship with the seller/builder. Other means of cancellation can include consolidation of the order, for example an order of 6 vessels to be reduced to 4 vessels, or restructure the order from three aframaxes to two suezmaxes or from dry to wet etc; usually the money paid for the canceled vessels is applied on the ones that will be finally built.
How has this slump in shipping affected your business, given that Intermodal also has offices in China?
Undoubtedly it has greatly affected us, like everybody else in the industry, on the new building side it has been very difficult to secure new orders the last 12 months. However, we have offset that with increased Sale and Purchase secondhand activity. Our timely placement in the Chinese market has given us immediate access to all the resales and the Chinese buyers who are presently dominating the market.
Nikos Roussanoglou, Hellenic Shipping News Worldwideο»Ώ