Dry bulk to stay subdued in the long term

Tonnage oversupply keeps adding “œweight” to the dry bulk market, but even if the balance with demand was right, ship owner Alexis Angelopoulos, head of ACA Shipping says it wouldn’t be enough to propel the Baltic Dry Index (BDI) more than 20% – 30% of what it is today.

In an interview with Hellenic Shipping News Worldwide, Mr. Angelopoulos, whose company is mainly focused to smaller ship types of 15,000 ““ 20,000 tons, operating a fleet of five, mainly active in the Mediterranean market, states that some external factors would have to apply for the market to rebound to higher grounds. He also goes to explain why ship owners went on a newbuilding frenzy last year and still are in large part, while he contemplates on the recent turmoil in the Middle East and how it has affected the shipping business.

How did the Egypt unrest affect the market for short sea shipping and the Mediterranean routes in particular, where you’re quite familiar with?

It wasn’t just Egypt, but also Tunisia and Algeria, which meant that charterers imposed force majeurs, which in turn caused huge delays and severely affected income and earnings of the past couple of months for all shipping companies operating in the Mediterranean. From freight rates’ point of view, the fall was at a range of about 25% to 30%. If one considers that countries like Spain, Italy and Hellas have been facing economical and financial problems, coupled with the latest upturn in the countries of the North African region, it’s pretty obvious that the above are translated to lower demand for cargoes.

Do you believe that things will settle down, especially in terms of Suez passages or do you see more turbulences as we move forward?

The Suez Canal was never actually affected. The problem for some days was that the local banks stayed closed, which meant that ship agents couldn’t work or get paid, thus delaying ship passages. In general, I don’t think Suez will face any problems in the future. But, I do believe that when people are undergoing period of crises, the last thing on their minds is to spend and consume, which in turn has a negative impact to transportations and therefore shipping as well.

From the beginning of the year, there’s been a change in the Port State Controls across the EU ports, towards stricter controls. How have smaller ship owners and especially those active in the short sea shipping trades adjusted to them?

There’s a lot of turbulence regarding the new port state controls. This system is yet another blow towards the Mediterranean tonnage, since even traditional players and companies operating their vessels in the region, or other European ports are seriously considering changing the area of their activities. The problems are many, with the new controls demanding quite serious terms to be met at the same time. For instance, we have to fly national flags, instead of flags of convenience and even then those have to be in the White List. If not, the new PSC enforces an expanded survey of each vessel calling to an EU port for every five months. If the vessel is detained twice in three years, it will be banned. Now, when we have port of calls almost each week to an EU ports, it’s highly unlikely that in some point, something won’t go wrong. So, in a nutshell, I think that the importance of the Classification Society and the Flag State have been undermined, with everything now depending on the Port State Control officer.

A lot has been said about the current huge orderboook for dry bulk carriers? Why ship owners keep feeding the “monster” through new orders even as we speak?

Well, until recently many ship owners were trying to lower the average cost of their fleet, in other words they were ordering ships at far lower prices than the ones they are currently accepting delivery on, which were ordered back in 2007-2008 at the peak of the market. In that way, when they take delivery of the new ones, the average investment cost of their fleets would be lower than before, helping them with investment returns.
But, this can’t be said for orders placed at the moment, with the orderbook still at huge numbers. In my opinion, Greek ship owners are now active investors at sea, because it’s the only investment they have thorough knowledge of and at the next upward cycle of the market, they’ll be among the winners, even if in short-term they’ll face some tough years. The other main reason is that they think that even by having their cash on a deposit account can be risky at the current shaky state of the local economy and hazy outlook of the banking sector, while the option of a foreign, for example a Swiss bank isn’t an option either, with current zero interest rates.
The problem of the Greek ship owners is that they’ve made all those billion dollar investments, mainly to carry Chinese cargoes, but they are about to face an ever so growing Chinese-owned fleet, which will undoubtedly have an edge in the future, when it comes to deal with Chinese charterers and the rest parties involved, due to its locality. As a result, there is growing concern among the shipowning world at the moment.

Should this oversupply of tonnage not exist, where do you suppose the BDI would be, given the healthy demand for commodities and especially iron ore?

In that scenario, I believe it would trade between 1,700 and 2,000 points, which is about 20%-30% more than today, not more. The current demand is basically coming from two countries, China and India. The rest of the world and in particular the West hasn’t yet recovered to pre-crisis levels and that’s a fact. We’re also debating ships oversupply, which in a way is creating demand on its own, since shipyards are operating at full capacity, requiring raw materials on a daily basis. So, we may find a silver lining as well.

In any case, where do you the market ranging in the coming months and why?

In all truthfulness, I can’t tell. I think that something will happen and the market will rise, but I can’t tell for sure, it’s one of those times when everything seems hazy. If there isn’t some external factor to affect the market, I don’t believe that it will be able to rise to new heights, as things are at the moment.

Just this week, the Hellenic Stock Market Commission’s President, Mr. Lazarides said that the stock market is open for ship owners, who should take advantage of listing their companies’ shares. Do you think this notion is realistic, should one consider the current investors’ pessimism across the board, as a result of the country’s financial problems?

In my view, the Hellenic Stockmarket only enables companies to appeal to local investors. Instead, in the US market, one is able to try and lure in investors from all over the world. Today I don’t think that foreign investors will come to invest in a Hellenic shipping company, trading in the local stockmarket. When conditions were far better, such a move (i.e. the opening of the local stockmarket to ship owners) didn’t occur. Today, that the relative framework exists, the timing is far from ideal. But, generally I’m positive towards such a development in the future, it’s something that must be done.

Would you be one of the candidates should conditions improve?

I would definitely llok to it in a positive way. There’ve been some presentation made by the local stockmarket authorities to the Union for Short Sea Shipping, which were quite interesting and I’m sure that some of us were interested. At the moment ACA Shipping, has an operating fleet of five vessels, but what’s been keeping up afloat in today’s market, is the fact that we have no loan exposure. If we did, we would making losses for sure. Instead we’re breaking even, which at this market, isn’t that bad.

Nikos Roussanoglou, Hellenic Shipping News Worldwide