Dry bulk shipping companies could soon layup larger bulkers, scrap ships of just 15 years old says Greek ship owner
The dry bulk market is caught between a “rock and a hard place” at the moment, as the world economy’s growth is lower than anticipated, hurting demand, while at the same time, the dry bulk segment is still riddled by chronic tonnage oversupply. As such, ship owners of larger bulkers, like Capesizes could soon opt to layup part of their fleet, or even scrap vessels of just 15 years old, as there is no credible anticipation of a market rebound anytime soon. This, according to Mr. George Goudromichalis, Managing Director of Phoenix Shipping & Trading, in an exclusive interview with Hellenic Shipping News Worldwide (www.hellenicshippingnews.com).
However, Mr. Goudromichalis also noted that any rebound will also, very likely, be very steep. According to him, “we are witnessing a change of the way our market operates, in the sense, that it is maturing and evolving into an efficient market with immediate reaction to news, but also incorporating volatility on the index basis, that doesn’t exactly mirror the physical markets”. The full interview of Mr. Gourdomichalis can be read below:
Did you expect the BDI to reach these historical low levels, or did it catch you by surprise?
With hindsight twenty twenty sight…! Whereas I never subscribed to the notion that 2015 would be a “good” year I believe that most of us were caught by surprise as to the depth of the decline in the freight markets, the continuing lull in the market, but also as to the lack of any fundamental macro support in the near term. We are witnessing and for that matter participating in a change of the way our market operates in the sense that it is maturing and evolving into an efficient market with immediate reaction to news, but also incorporating volatility on the index basis that does not always exactly mirror the physical markets and is very much prone to psychology, which admittedly has been very negative over the past few months. Having said that, one should note, that, a rise in the indices will also very likely be rather steep. Furthermore, apart from the market fundamentals of supply and demand we are also having to consider, both owners and charterers, the reality of the regulatory framework we operate in and it would be to no one’s advantage to operate vessel at revenue streams consistently and long term below operating expenses, as this would inevitably lead to jeopardizing the safety of the crew, the cargo and the asset itself.
Apart from the chronic imbalance of the dry bulk market, which were the latest factors which triggered the latest market meltdown?
Historically tonnage supply has been the factor that we abuse and create the imbalances, this time around, in addition to what you describe as “chronic oversupply” we are faced with much slower than historically experienced growth in world trade and uncertainty of the future. In this respect, not only do the traditional means of supply correction need to be activated (recycling, cancellation of new orders, slippage of new deliveries and standstill of new orders), but also a reversal of world trade slow down, the latter only possible if the USA continues its stimulus package through QE, as well as the Eurozone putting its house in order and China reaffirming its rationalization enabling the emerging economies to follow suit. A tall order, but an obvious need for a “reboot” of the world economies and eventually growth.
Do you expect a surge in demolition activity as a result? Do you think it will be enough to alleviate net fleet growth in a substantial manner?
Recycling this year has been very robust, we note that as of November 2015 where statistical data is available, the number of dry bulk carriers recycles is creeping up to a record high not seen in a number of years. Additionally the proactive stance of many recyclers to meet and exceed the minimum environmentally friendly and safe practices dictated by the Hong Kong Convention is allowing increased activity in recycling. On the other hand we are also noting a collapse of domestic steel price on the Indian Subcontinent which is driving offered prices for recycling down to the detriment of sellers, however, in this continued state of freight markets and value collapse it is rather sure that older tonnage above 20 years old and in the case of larger vessels even 15 years old will be taken to the recyclers prior to their next costly survey.
Are ship lay ups just around the corner, or is slow steaming still the best defense against these market conditions?
Lay ups will be easier for larger vessels to consider given that daily running expenses are considerably above earnings with no short term view of improvement. Additionally, long haul and front haul voyages are those that stand to gain the most from slow steaming noting though that what we all considered slow steaming a few years ago has not only become the norm but its effectiveness has been decreased by the significant drop in bunker prices and thus the much lighter voyage expenses. As for smaller vessels, with rates hovering right
below or very close to daily running expenses the proposition of a lay up is increasingly difficult due to the cost involved in both hot but mainly cold layup as well as the reality of banking relationships which seem not to be willing to provide the necessary relief in the form of principal amortization holidays etc..
Are there new, potential sources of demand for dry bulk carriers?
There are new trade patterns emerging which do provide for measured growth in new sources of demand, these include intraregional trade in the Arabian Gulf and in S.E. Asia, however these alone will not suffice. Unless a dynamic growth in India and/or Africa is around the corner I fail to see any other really unique source for new demand. A normalization of world trade with its evolution of new patterns is what the market should be looking for.
Given this year’s lackluster performance of the Baltic Dry Index, how crucial was it for shipping companies the fall of bunker prices? How much have you benefited from this?
Falling bunker prices are a double edged sword, on the one hand it has allowed for significant savings in voyage expenses and thus provided relief to owners but on the other hand it is an integral part of the general problem of falling commodity prices which goes hand in hand with the World GD malaise. The silver lining is that cheaper oil has assisted economies at large to sustain some growth and the caveat being that cheaper oil has prompted a switch to oil fired energy production instead of say coal.
In which dry bulk segments do you see the most growth opportunities going forward?
If the question is long term growth then I would suggest that stability is better served by the smaller sizes, but if one is looking at a short term speculative investment then those vessels that have been hit more in value should be looked at. Common sense would indicate that the asset play of the equation is better served by investments in the kamsarrmax and cape size sectors whereas if one was looking for a longer term workhorse then the smaller sizes are better suited.
How hard is it to obtain attractive financing in today’s market conditions, especially given that the vast majority of banks has developed an “aversion” to dry bulk financing, even if the vessel price is really attractive?
Very hard…! It would be safe to say that today’s environment is extremely challenging for those seeking finance and unless it is a corporate with a strong balance sheet and cash in hand as well as positive equity value or a “traditional” family run business with committed principals showing their cash reserves to support the project, debt is scarce.
Given the potential revision of the current tax benefits which are provided to the country’s shipping industry, as a result of the latest bailout agreement signed by the Greek government, how do you expect this to impact your future decisions? Do you believe that shipping companies will just move out from the country? Is it something you’d consider as well?
The industry’s position has historically been very straightforward and constant, we seek stability in the legal and tax framework we operate in. We have been, and continue to be as an industry, at whole, a significant net contributor to the national GDP as well as to its current balance of payments and one of the larger employers of a highly skilled work force. We operate in a tested frame work which enjoys constitutional protection to a large extent and
which is no more competitive than the ”competing” euro zone frameworks. We have made it abundantly clear that we are committed to Greece and expect this to be respected by both the state but also our vendors and business partners.
Nikos Roussanoglou, Hellenic Shipping News Worldwide