Dry bulk demand will be higher in 2010-2014 than during the golden years of 2005-2008 says shipowner

Ship owner Athanasios Samios, owner of Samios Shipping appears optimistic about demand for dry bulk shipping in the years to come. Speaking in an interview with Hellenic Shipping News Worldwide, he said that from a demand point of view,

the period between 2010 and 2014 is expected to surpass even the so called “golden era” for the sector, recorded between 2004 and 2008. Still, he maintains that “the main question should be whether increased commodity demand is sufficient to employ the fleet. The supply side situation is fluid and subject to sudden change”. According to Mr. Samios, capesize vessels, especially for Atlantic hauling are the most appealing ship type at the moment. Samios Shipping is active in the maritime industry for three decades. The company is currently active in the market looking for investment opportunities.

Before the recent fall of the dry bulk rates, we had yet another rally in the market. Where would you attribute this development?

Raw materials’ seaborne demand mainly from China has remained strong the past few weeks and this is mainly responsible for the increase we have experienced in freight rates.Β  In particular, we have experienced strong year-on-year demand from China in respect of iron ore, coking coal and thermal coal imports.
Moreover, the collective port congestion volume of Australia, Brazil, China and India grew considerably during the past two weeks. To put this in context, no less than 12% of the dry bulk fleet is presently tied up in queues and this is an additional determinant of dry bulk freight rates in the short term.

Do you think that freight rates can return and sustain an upward trend in the coming months?Β  Will the market remain over 4,000 points during the second half as well?

As far as demand is concerned, this is plentiful and projections show that it will grow more during the period 2010-2014 compared to 2005-2009.Β  The industrialization and urbanization that takes place mainly in China is difficult to play out in the short to medium term.Β  However, the main question should be whether increased commodity demand is sufficient to employ the fleet.Β  The supply side situation is fluid and subject to sudden change.Β  The newbuilding orderbook mainly on the larger sizes remains substantial and, unless there are significant number of cancellations and slippages, the market should drop way below 4,000 points in the second half of 2010.

How do you foresee future cargo demand for dry bulk carriers to shape up?

As I just mentioned, demand had proved so far to be strong and forecasts show it will continue this way. A 6% increase in global seaborne trade is forecasted for 2010 supported by sustained demand in the Far East and gradual rebound in OECD countries.Β  However, it is the supply side that presents the main concern.

Which types of dry bulk vessels are more in demand today, in terms of spot trade?

It is mainly the larger vessels, namely the Capesizes that can carry cargoes in excess of 90,000 tonnes and to a lesser extent Panamaxes (each carrying 60,000-90,000 tons of cargo) that are more in demand.Β  In particular, Atlantic capesize business has been supported by new business coming out of Argentina and Brazil and the not so many vessels available in the area to carry that cargo. To give you an idea, trans-Atlantic rounds were reportedly in the mid-$70,000’s daily range for modern tonnage, while fronthaul business (e.g. Brazil to Far East) was being talked around the $100,000 daily mark, i.e. levels we have not seen since early 2008.

Have you moved ahead with specific moves / deals regarding your shipping business?

Our company has a history of 30 years in the shipping industry and has exhibited in the past its successful sale and purchase strategy by disposing of a large number of its owned vessels at very high prices.Β  We are presently evaluating a number of deals / projects in order to grow the fleet that offer added value to the company’s shareholders.

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 there for grab, even as prices are firming up?

Indeed we have experienced increased activity in the second hand market, even though that activity has slightly reduced the last two weeks, despite the high freight rates.Β  There are always investment opportunities for cash-rich owners that do not need bank financing, which is still rather scarce (even though significantly improved compared to a year ago).Β  The crucial thing is what are the tangible operating returns on this investment and not only the future expected returns from asset appreciation.Β  In other words, if there is a second hand vessel acquisition that has a good equity payback period and a satisfactory cash-on-cash yield (i.e. EBITDA/acquisition price) deriving from a solid charterer, then it might be considered a good investment opportunity. Otherwise, I believe that second hand prices, especially for older tonnage, are excessive to justify such an investment.

Do you see ship prices heading up again as a result of this renowned demand?

As I already pointed out, demand is just one part of the equation with the other important parameter being supply. There is a huge orderbook especially on the larger sizes for 2010/2011 and we have to appreciate that, unless there are significant slippages/cancellations, there will be a large number of vessels competing for the same cargo and market fundamentals point out to a price drop rather than a price increase.

Why have we seen more and more owners heading back to shipyards? Isn’t the current oversized orderbook enough to cover future transportation needs?

Your point is correct.Β  On the other hand, for particular vessel sizes, current newbuilding prices compare favourably to historical data over the last 10 years and even if we use an average hire rate rather than the current high hire rate to calculate anticipated cash inflows, returns are still satisfactory.Β  Moreover, some financial institutions have gradually commenced financing quality shipowners once again and, therefore, this is an additional boost to ordering vessels.

How is scrapping of older vessels shaping up for far this year?Β  Why aren’t more vessels leaving the market?

In the first four months of 2010 there was increased scrapping activity when freight rates were not that high and scrap prices in some cases had even reached $700 per lightweight ton.Β  In fact, during the period Jan-April 2010 11.9 mln tones were scrapped compared to approx. 31.5 mln tones during the whole of 2009, i.e. already approx. 40%.Β  The last few weeks, however, as freight rates increased and scrap prices fell, less tonnage was leaving the market.Β  Sentiment of scrap buyers is also currently quite negative, because Bangladesh scrapyards remain closed to all vessels.Β  Whilst there is talk of the situation returning to normal in a few weeks, vessel scrap buyers show no sign of looking to acquire tonnage and even if they do, scrap price levels are not capable to induce shipowners to scrap their vessels rather than keep them afloat for further trading.

Nikos Roussanoglou, Hellenic Shipping News Worldwide