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Dry Bulk Shippers Foundering |
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Thursday, 23 October 2008 |
 Dry bulk shippers are going the way of the global economy: under water. Among the shippers, DryShips and Excel Maritime Carriers have been hit particularly hard because of their large debtloads and significant spot market exposure. For the 13th straight day, the Baltic Dry Index, which measures dry bulk shipping rates on 40 routes across the world, tumbled
Wednesday, falling 71 points to 1,221.
The BDI began its slide over the summer, and it has been taking
shipping stocks down with it. Among the companies that have been hit
the worst are DryShips (nasdaq: DRYS - news - people ) and Excel
Maritime Carriers (nyse: EXM - news - people ), whose shares have
plunged 72.9% and 65.3%, respectively, since Aug. 1. Both companies not
only had the most outstanding debt, but have been increasing their
borrowings. DrysShips' total debt shot up 131.3% over the prior year,
while Excel’s soared 304.5%.
About 50.0% of DryShips' fleet is spot exposed, while approximately 30.0% of Excel’s fleet is not on long-term contracts.
Meanwhile during that same period, Diana Shipping (nyse: DSX - news -
people ) has slid 45.1%, while its debt has increased 92%.
Jeffrey Landsberg, a freight options broker at Imarex, a
shipping-related derivatives exchange, said that financing has become a
huge problem and has pushed freight rates down to break-even levels.
“Day rates have fallen below costs for some ship owners,” Landsberg
said. “Rather than take inadequate fixtures, they are anchoring their
vessels and letting them sit idle.”
Day rates on Cape-size ships, the largest vessels, tumbled 5.9% on
Wednesday to $9,359. Cape-size day rates have plunged 49.1%
week-over-week to $18,400.
Landsberg blames the turmoil in the dry bulk shipping sector on two
factors: the ailing equity markets and Chinese steel prices, which have
tumbled. As Chinese steel producers--who are major importers of coal
and iron ore--have cut output to try and boost prices, iron ore imports
have declined and shippers have been slammed.
Most observers thought the dry bulk market would worsen in 2009 and
2010 because of the substantial number of new vessels due for delivery,
but the downturn in the global economy has brought the good times to a
quicker end than anyone expected.
Even the last-ditch scenario of scrapping ships to sell for steel is
not an option anymore as buyers of scrap have had difficulty getting
letters of credit to do so, Landsberg said. With steel prices lower,
ship owners are also less inclined to scrap their ships.
“Everything’s at a standstill,” Landsberg said.
Source: Forbes
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