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Home  Top Story A Dry bulk rates' volatility to stay, but recovery is underway says Ion Varouxakis, head of Freeseas |
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| Latest News - HELLENIC SHIPPING NEWS WORLDWIDE |
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Dry bulk rates' volatility to stay, but recovery is underway says Ion Varouxakis, head of Freeseas |
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Monday, 07 December 2009 |
 In an interview with Hellenic Shipping News, Mr. Ion G. Varouxakis, Chairman of the Board, President and CEO of Nasdaq-listed Freeseas, explains why dry bulk rates will recover gradually, while volatility will remain. He states that the handysize sector appears to be the healthiest sector right now, mainly because of the low orderbook and the high number of older handies scrapped this year.
Mr. Varouxakis founded Free Bulkers, the beginning of a single-vessel,
self-financed entrepreneurial venture that led to FreeSeas’ founding
and Nasdaq listing in 2005.
Under Mr. Varouxakis’ leadership,
FreeSeas has grown to be a leader in the Handysize and Handymax segment
in the U.S. capital market. Prior to founding Free Bulkers, Mr.
Varouxakis held since 1997 management positions in private shipping
companies operating in the drybulk sector.
Lately we witnessed
yet another rally of the BDI this year. With the market retreating
again, do you think that this erratic behaviour will continue next year
as well?
As the world economy rebounds we expect that the charter
rates will gradually recover. Seasonality and volatility will continue.
For the time being though, the charter rates stand at relatively
healthy levels.
What factors are causing this turbulence of dry bulk rates?
The
effective removal of trade credit and virtual stand-still of industrial
production on a worldwide basis have been the contributing factors for
the collapse of the charter rates. As restocking starts taking place
the rates will recover. However the recovery is not and will not be
uniform and there will be pockets of weakness which will lead to the
volatility of the rates.
Do you think that the looming oversupply of vessels will soon become a reality, or is there any room for that to change?
We
have seen a very substantial number of cancellations and delays in the
deliveries. As a consequence we expect that while the annual rate of
newbuilding deliveries will be at record high levels in the next couple
of years, they in fact will be spread over a longer period of time,
leading to about 20-30 % more newbuilding deliveries than in 2007. This
is probably a scenario much better than most fear, but still of
concern. It is interesting to note that not all sectors are overbuilt.
For instance, the handysize sector we operate in has by far the lowest
orderbook (in fact at rather healthy levels), coupled with an overage
fleet of handies which should provide support for the future.
As a matter of fact there has been massive scrapping of handysize vessels over the last year.
How does Freeseas cope with current market conditions?
We
are operating a profitable and cash flow-positive business under
adverse market conditions, and expect to be able to continue to do so
under the present conditions.
What measures did you implement in order to improve the company’s performance?
We
have taken cost-cutting initiatives, which increased our margins, and
decided to operate our vessels coming off-charter in the spot market in
order to be able to benefit from improving market conditions.
How would you characterize the current market for second hand vessels?
There
is a lot of liquidity and sales in the second hand market, and one
could say relatively stable prices. While prices have increased since
the beginning of 2009, the volatility of second hand prices is far
smaller that the volatility of charter rates. We believe that the
scarcity of credit contributes to this situation.
Why have the Chinese been so aggressive this year, leaving Hellenic ship owners at second place?
An
explanation could be that there is an intention by authorities (which
could soon become a law), under which, ship owners won’t be allowed to
fly the Chinese Flag in vessels older than 10 years old in the future.
This could a reason, why many owners from China are buying a large
number of older second hand bulk carriers from the beginning of the
year, as a reaction to such a possibility.
Do you think that second hand ships’ prices will go down again, or are we heading towards firmer prices?
Nobody
can predict the future. However we believe that prices will remain
relatively stable for a while and will improve only for a sustainable
improvement in the charter rates, and release of acquisition credit in
the market.
With 2010 just a few weeks away, what are your
expectations about next year? How do you think things are shaping up
for the dry bulk industry?
I am optimistic for the future. Shipping
is a centuries-old industry with its own self-correcting mechanism. We
are in the process of the correction, the duration of which is unknown,
yet will provide the opportunities for healthy companies to expand.
Recently,
there’s been a lot of debate among industry players, regarding the
abolition of the Ministry of Mercantile Marine. Do you think it will be
the beginning of a series of changes for the way shipping is treated in
Hellas, or will we see some positive initiatives, for instance towards
the creation of a proper maritime cluster of services?
Bureaucracy,
a chronic problem in Greece, is the main enemy for the integration of a
modern maritime cluster of services (as you call it).
In our
business in which every hour is worth thousands of dollars, there is no
room for bureaucracy and the uncertainty it generates, even worse there
is no room for ‘client-relations’ with the state.
No government in
Greece has so far been able to overcome the public service bureaucracy
and implement ground-breaking changes, allowing the development of
Greek-based maritime services or providing the appropriate incentives
to fly the Greek flag. Let’s see what the future has in task for us.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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