Ship prices to bottom out in 2013 says George D. Gourdomichalis

Ship values especially in older tonnage, or even modern vessels with poor quality are expected to fall further during 2013, with the market as a whole predicted to bottom-out next year, creating the ground for a rebound later on. In an exclusive interview with Hellenic Shipping News Worldwide, Mr. George D. Gourdomichalis, Managing Director of G. Bros Maritime S.A. talks about the dry bulk market’s potential in 2013, which ship types appear to have the best value-for-money and debates the effectiveness of the new breed of “Eco-Carriers”.
The Gourdomichalis family commenced their own shipowning activities in the London shipping market in 1950’s. Since then have enjoyed a very high reputation in the shipping industry. Members of the family have kept high positions in various Boards of Directors and other Official Organizations such as being President of the Union of Greek Shipowners. In 1974 the firm’s offices moved to Piraeus, Hellas while still maintaining a presence in London. Since 1990, the family’s involvement in shipping has also included a joint venture with the Romanian State Company (Petromin). The Gourdomichalis brothers first independent foray into shipowning and shipmanagement activities was with the family sponsored Joint Venture with the Russian State owned Baltic Shipping Co. which operated under the flag of Baltmed Shipping Co.
In 1996, after having wound up Baltmed Shipping Co., the J.V. with Baltic Shipping Co., George and Stathis Gourdomichalis established Gourdomichalis Naftiki Eteria S.A. The establishment of the company manifested the younger generation’s strong drive to succeed using its own means and skills. Since its inception in 1996 it has managed a total of six dry cargo ships including Freedom and Handy type vessels. The company has also managed a repossessed vessel on behalf of a bank.
In 2004 all their activities were consolidated into a holding company FREESEAS INC. and managed by Free Bulkers S.A. Freeseas Inc was listed on NASDAQ on December 2005. George Gourdomichalis held the position of President and Chairman and Stathis Gourdomichalis was the Treasurer and Chief Financial Officer. The two principals controlled about 48% of the listed company. In January 2007 they sold their shareholding in both Freeseas Inc. and Free Bulkers S.A. to entities controlled by the Restis group.
This development allowed George and Stathis to once again grow their “private – family” shipping activities. A new structure was put into operation under the name G Bros Maritime S.A. They employ a total of sixteen shore-based staff including a Port Captain, Engineer Superintendent, Accountants, Secretarial and Administrative Executive staff. The company occupies approximately 300 sq. meters of office space in prime area on Akti Miaouli, Piraeus, at the heart of the worlds largest shipping center.

This year’s performance of the dry bulk market has been less than memorable, in fact quite the opposite. Why did this happen, especially after a satisfying 2011, at least in terms of freight rates?

The softness of the dry bulk market is clearly a function of the imbalance of tonnage supply and demand, world GDP growth slowdown experienced over the past couple of years and the lack of finance. We fail to see any satisfaction in 2011 in freight rates and values and would suggest that the dry bulk market downturn we are experiencing essentially since end 2008, with a short breather in the spring of 2010, is a prolonged down run of the market.

Do you expect 2013 to be just as challenging, or could conditions improve, as a result of an improvement of the supply/demand current imbalance, a product of heavy new building ordering of the past few years?

As stated above there are three basic reasons pressuring freight rates and values down, whereas the supply/demand balance is slowly starting to look better, there is still significant danger of continued oversupply of tonnage on the back of the very strong marketing of the supposedly “eco-ships” by yards lacking utilization. The coming year will be as challenging as 2012, but will also see the market bottom out thus creating the opportunity for purchases and positioning for a upturn.

What strategy did your company follow, in order to cope with these adverse market conditions?

We, as many others, restructured our fleet by retiring older tonnage and restructuring financial arrangements, as well as disposing of vessels with heavier than acceptable debt. In reality, we exercised a stop-loss strategy allowing us to weather the down market.

Do you thinks that ships’ values are close to bottoming-out, or is there still room for lower prices?

Vessel values are a function of earnings and replacement value and as such there are certain segments and age groups that may have further down side with overage tonnage in the larger sizes being the most prominent in that group. Having said that, older tonnage across the board has further downside as it is trading at scrap related values. We also believe that younger tonnage of questionable and inferior quality has considerable down side, being that in a buyer’s market one tends to cherry pick the best of the candidates.

Which ship types do you find the most attractive in today’s market?

The answer depends on the driver behind purchases, i.e. is it a speculative asset play, or an operational longer term investment? In the case of the first, we would be inclined to look at the very large modern units, whereas in the case of the latter we would look at the modern high quality/high spec handy and handy-max segment.

Do you prefer newbuilding investments, or is it better to look for modern second hand tonnage in today’s market environment?

We believe that quality of design and build is paramount these days and as such would rule out any new-building activity at inferior yards. Having said that, the discount to replacement cost found in today’s market leads us to believe that very attractive valuations can be found in top quality modern second hand vessels.

How different are today’s conditions in shipping finance, compared to the pre-2009 period? Is it challenging to obtain financing for new vessel acquisitions?

Immensely!! There is practically no finance available except from very select institutions to very select borrowers either by virtue of being existing clients and/or by virtue of paying down existing facilities and thus opening up credit and to the larger corporate entities who are borrowing both on the strength of their balance sheets but also on the strength of their cash flows and cash in hand. Naturally, there are certain segments that are faring better than other in obtaining finance such as the LNG and offshore industries as well as the re-appearance of quasi financial institutions providing higher cost finance. In all though, margins are up, loan to value ratios are down and security is paramount to lenders.

Do you believe that the latest trend of the so-called “Eco Carriers”, i.e. ships which promise lower fuel consumption will become dominant in the future, despite the premium prices they command? Are you considering investing in such vessels in the future?

The response of any educated and experienced shipping man is that the plethora of “eco-carrier” designs are untested and make claims that have not yet been put to the test and rigors of the real sea. A properly designed, maintained and operated existing ship can provide good competition to any of the new designs and we believe it is best to reserve judgment till these designs are put to the test.

One of the major concerns of the global shipping industry has also been piracy in various areas around the world. How do you protect your vessels? Which is the best solution in your opinion?

We, as others, have been forced to employ armed guards onboard our vessels transiting/trading in high risk areas. It is not a solution to the problem but is a necessary evil. The solution lies in the geopolitical balances that need to be juggled in Somalia and/or in West Africa and/or S.E. Asia. We hope, primarily for the safety of our crews and the free flow of trade that a final solution both on shore and at sea is found the soonest possible.

Nikos Roussanoglou, Hellenic Shipping News Worldwide