Monthly Archives: October 2013

‘Liner Business Models’ in Shipping

The first decade of this century has been characterized not only by the strongest shipping rates of a lifetime, but also by the rise of a new breed of shipowner who was financially literate (sort of the ‘MBA President’) and capital markets savvy and highly conversant on Wall Street values; while previous generations of independent private owners were going in to great efforts to design their house flags and insignia, modern shipowners were focusing on mission statement and shareholder value optimization hanging high from the yardarm of their ships and their roadshow presentations.

True to the spirit of the decade that made securitization of debt a very profitable alchemy in the financial industry by slicing ‘composite’ into different, distinct ‘trade-able’ tranches where certain investors would appreciate especially, the shipping industry was fast on catching up with the ‘divide and conquer’ strategy of its own.  While private shipowners stack to what had worked best for them in the past, usually by trial and error and exploiting their special trades and relationships, publicly traded owners devised business models that were appealing and sale-able to Wall Street and the institutional investors primarily rather than to the shipping markets.  There were formed companies whose business models were very distinct and ‘pure plays’ such as dependent on spot VLCC market exposure or Suezmax market exposure, companies with ‘yield driven’ strategies irrespective of underlying shipping market conditions, capesize shipowners with full spot market exposure positioned as ‘China play proxy’, dry bulk owners whose chartering strategy to reflect the ubiquitous Baltic Dry Index (BDI) given there is no liquid derivative market for an investor to play directly the BDI; there were even owners who moved into the ice-class products tanker market just to fill the ‘vacuum’ of despite having several publicly traded product tanker owners, there was none in the ‘pure’ ice-class segment. Public ship ownership become a very streamlined business where a financial owner identified a segment that was missing from Wall Street, used Other People’s Money (OPM) to secure the tonnage, involve liberally as much cheap debt financing as possible, engage a third-party vessel manager on a contract basis, and charter out the vessels in the open market.

‘Mono-line’ shipping business models definitely have their advantages.  They optimize economies of scale, operational leverage and cost savings, and they level sufficient critical mass of modern tonnage to entice major charterers and trading houses.  One additional benefit of such business models is that it’s easily understood and explained to the investment community, without undue complications and multiple layers and overlaps with inputs from other market segments and industries.  For example, for a VLCC owner of ten vessels trading on the spot market, the financial model could be sweet in its succinctness: capital requirements and financial expenses were known or easily projectable, operating expenses were contractually assigned to third parties and thus publicly known, and the assumption of expected future rates to be ‘plugged into’ the financial model was really the only big unknown. Modeling out a year or so was rather easy…and unquestionably worked time and again when the times were great.

Not Linear Enough Model? (Image source: courtesy AP Moller Maersk)

Not Linear Enough Model? (Image source: courtesy AP Moller Maersk)

Fast forward to the lower arch of the business cycle and taking another view at vessel ownership, it seems that shipping companies active in markets with a narrow focus that appealed to the investors in the past, have their fair share of problems.  This observation has been valid for both private and public owners who had overweighed exposure to one market.  After all, if the VLCC market is oversupplied, in a burning cash mode for some time and with unfavorable underlying economics, a narrowly focused VLCC owner has few options…the market is the market, and no much can change in shipping in the short term (sparing an exogenous shock like a geopolitical or macro-economic event or other event of unforeseen nature such as military action, embargoes, etc.)  Such an owner, a VLCC owner will suffer in a bad market, whether the capital structure is private or public; the market is the market, as we said.  However, a public company with a VLCC mandate has few options navigating the storm, unless the management or the ‘sponsor’ has the capacity to support the company directly or through their market clout.   Things would not be much better for a private owner, except that the private owner may have saved away some of the excess profits (dividends) from the good times, or had diversified away in less volatile or lightly correlated industries like in real estate those earnings; or even may have used the excess profits to enter other shipping segments that offer different (uncorrelated) characteristics and a better chance of survival when the headwinds hit.  Shipping companies with broader diversification to be considered ‘industrial conglomerates’ like AP Moeller Maersk or MOL OSK Lines with legs in many industries and segments had never had their survival questioned during the days of the absolute gloom.  Also, staying closer to home, without having to reach ‘industrial’ scale, it’s well commented that Dryships would had survival issues when the dry bulk (capesize) market collapsed if not for the management’s ‘thinking outside the box’ and entering heavily the drillship market with the acquisition of Ocean Rig.  The recent filing of private Greek owner for an LNG IPO is also another exhibit that diversification in shipping may pay better than ‘mono liner’ plans, possibly to the extent of making the difference between survival and going under.  Whether horizontal or vertical integration / diversification is best suited is debatable, however it seems that ‘lard’ rather than ‘leanness’ make better buffers in shipping…

This article is an adaptation from an earlier posting on November 5th, 2011, at The Captain’s Log blogspot.

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer and other important information and terms. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this and related websites. Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you kindly for your consideration.

A New Way to Make a Million Dollars?

There was a saying about the airline industry that in order for one to become a millionaire, they had to start with a billion-dollar investment.   With the Airline Deregulation Act of 1978 in the US, the regulatory barriers to entry were not stratospheric anymore, allowing for new entrants, like Southwest, to enter the market with a clean sheet, no legacy entanglements (union labor, mostly) and set a business plan – mostly like thereof – to act opportunistically and expand selectively.  With an ever expanding fleet, route and plane offerings, the market grew, ticket prices came down, and once upon entering the internet age with its easy price comparisons and choices, competition became cutthroat, and airline companies were after survival by going after market share and covering variable cost.  It was a brutal business model with a constant round of bankruptcies where legacy airliners were trying to get rid of their legacy fixed costs, such as pension obligations or get out of leases for obsolete planes, etc.  Come the liquidity crunch of the financial crisis that caused the legendary ‘tit to go dry’ of easy lending combined with skyrocketing fuel prices, airline companies had to do a reality check.

In the first decade of the century, the seat mile availability (an industry metric of airline seats available for booking) exploding, while revenue per seat and the financial condition of the airline companies was deteriorating.   Once upon having to face reality and deal with a constrained option set, airline companies started shedding off inefficient airplanes, focusing instead on strategic routes and discontinue flying on marginal ones, and, to the detriment of passengers, started optimizing pricing and charging extra fees for luggage and almost anything else for that matter, and … and … In a rare Pauline moment for the industry, the airliners understood that collective, self-imposed discipline was required for survival, and shifting focus from market share (the typical ‘we lose money on the operations but we make it up in volume’) to revenue optimization and maximizing of profit.  And to make this clear, today’s Wall Street Journal reports that Thanksgiving-week typical airfare is about 9.4% higher than last year, and Christmas-week traveling higher by about 7.3% respectively; given that seat availability is tight, prices could increase further and no last minute madness sales are expected any more from airline companies trying to fill empty seats at the last minute.

Why one should care about the airline industry’s self-discipline about capacity?  As much as we hate such self-discipline as passengers, likely we would have loved it as investors.

Like a Passing Ship!

Like a Passing Ship!

In previous postings we have raised doubts about the shipping industry’s fundamental recovery based on the amount of newbuidings that were delivered in the last few years, and mostly about the newbuildings being ordered today. We appreciate the frustration of investors / shipowners from their market point-of-view as buyers being unable to find quality tonnage in the secondary market for purchase at market related prices, since there are few vessels available for sale given that the system is ‘propped up’ all around: central banks and regulatory authorities with their quantitative easing keeping propped up bad banks which in turn keep propped up bad owners which in turn are allowed to keep trading expensive vessels in default (having earned the banks’ tolerance for servicing properly their shipping loans), and thus expensive vessels have an efficient cost basis to compete with more modern and efficient vessels.

Ordering newbuilding vessels is still a rather tempting proposition: prices are still low, especially when compared to peak market pricing, payment terms for newbuildings are favorable and fairly backloaded, and more importantly, newbuildings are better vessels since they are more fuel efficient and may also provide operational efficiencies as well (usually bigger cargo carrying capacity for same dimensions / asset class vessel.)  The logic goes that a vessel that is 15% more efficient than an existing vessel, she will crowd out the less competitive vessel; whether the vessel were to be employed under a timecharter (where the charterer pays for fuel expenses) or a voyage charter (where the shipowner pays for fuel expenses), the more efficient vessel will offer a lower transport cost per cargo unit, and thus will have preference over the less efficient one.

Looking for Guidance!

Looking for Guidance!

That’s at least what we learned in Economics 101.  What happens when tonnage capacity doubles, as it has or expected to do for certain segments, and there is no sufficient demand for all the available tonnage?  Logically owners will have to accept any charter rate, whether it’s profitable, break-even or unprofitable. What happens when the banks have given up demanding loan servicing from ‘bad’ owners and now these owners – despite their early mistake of ordering peak-expensive vessels – have actually a low cost basis that can remain competitive (only operating cost)? What happens when the ownership and chartering activity is of a very long tail nature, as it is in several market segments in shipping, most conspicuously for the smaller dry bulk vessels? There are jurisdictions and charterers who would accept such vessels that can be kept profitably trading when they are well past their design lives (although clearly top, big charterers would prefer modern, economic vessels, for many reasons.)  What happens when shipowners refuse to scrap vessels when they become economically inefficient? (admittedly, selling a vessel for scrap is a very tough, irrevocable decision that never is taken with light heart).  Frontline, among others, has recently advocated for the early scrapping of relatively new VLCCs in order for the market to get rid prematurely of tonnage that has not yet reached its design life but could clear the way for more efficient vessels and higher freight rates.  As a gesture of setting a good example, Frontline has scrapped earlier than expected a few vessels, and Mitsui OSK Lines over the last year have opted to sell fairly modern capes (sixteen and seventeen year old) for demolition rather than in the secondary market where they could achieve a small premium over scrap. But Frontline has to be a responsible corporate citizen since they are now collectively one of the biggest shipowners in the world and Mitsui OSK Lines is an industrial conglomerate that can absorb losses from shipping; try to explain the logic of early scrapping to independent, trap owners, a long line of them in every sector and in every corner of this planet.

It has been said recently that shipping is not a ‘team sport’ and that certain companies have already been benefiting from the advantages of the ‘first market mover’. No doubt.  One of the ‘charms’ of shipping is the renegade attitude of a worldwide market of perfect competition.  But again, it’s said that shipowners are their worst enemies where self-discipline is an unknown virtue.  Time will tell!

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer and other important information and terms. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this and related websites. Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you kindly for your consideration.

S/Y „SEA CLOUD”

“Once upon a time ships were beautiful and people lost their hearts to them.”                                                                                                      Stanley Steward

Nothing truer than that! Ships were beautiful and sexy and sleek and curvaceous at the same time!  And strong and rigid man-of-war with their own idiosyncrasies!  And, they were pushing the limits of ship-wrighting, naval architecture and navigation! And, they were not only merchants’ tools for trade but also ‘vessels’ bringing closer cultures with their stories from lands faraway existing only in dreamland of the average peasant of centuries past.  And, with their towering masts, sails full of wind and sleek silhouettes on the sea horizon, riding fast of foaming waves, they seemed like they were reaching up to the divine skies to make the best of the winds and also reaching out to the end of the world, to the boundaries of human skill and experience and knowledge!  And, yes, they were beautiful silhouettes full of passion that could reach people’s hearts!

What got us so nostalgic has been a recent article in the Financial Times of the legendary sailing yacht S/Y „Sea Cloud” and her present owners recent decision that next year she will be offering pleasure cruising only under the power of the wind and her sails, without having to depend on present-day diesel engines at all.

S/Y „SEA CLOUD” in full sail

S/Y „SEA CLOUD” in full sail

That will be a cruise down memory lane to different times and customs: the yacht was built in 1931 in Kiel, Germany, at Krupp Germaniawerft, to the orders of the breakfast cereal heiress Marjorie Merriweather Post and her husband at the time, Edward Hutton, a New York stockbroker. She was a windjammer with four masts and 30,000 sq.ft. of canvas, originally named S/Y „Hussar”, built at the peak of the Great Depression and when the steam engine was the new standard in yachting and shipping. After a few years of happy sailing in the Caribbean, the proud yacht moved under her present name S/Y „Sea Cloud” to Leningrad and the Baltic Sea, where Marjorie Post and her new husband, American diplomat Joseph Davies, were based. The royalty and the high society of the time from the Soviet Union and adjacent countries had been known to have boarded the yacht on occasion, luminaries like the Soviet politician Molotov, the King of Sweden, the Duke and Duchess of Windsor, the Queen of Belgium, and the oppressive President of the Dominican Republic, Rafael Leonidas Trujillo.

S/Y „SEA CLOUD” under sail

S/Y „SEA CLOUD” under sail

From 1942 to 1945, the yacht was chartered to the US Navy for $1 per annum, had her four masts removed and painted battleship grey, to serve as a ‘weather observation station vessel’, in the North Atlantic.  The vessel has been the first vessel in the US Navy where racial desegregation took place in early 1944, and she was decommissioned later in the same year earning two medals, the WW II Victory Medal and the American Campaign Medal, and $175,000 compensation from the US government to bring her to her original appearance.

S/Y „SEA CLOUD” painting

S/Y „SEA CLOUD” painting

It took four years to re-rig the vessel, and by now Marjorie Post was on to her next marriage and facing difficulties keeping up with the 72-crew payroll. Great effort was placed to sell the vessel among the glitterati who had boarded her before, and our old friend from the Dominican Republic Rafael Trujillo bought the vessel, re-named her after his daughter S/Y Angelita”, kept her for a while as a government office but mostly allowed his son Ramfis to take the vessel to Santa Monica, California where he was attempting to study law; however, soon the vessel got the reputation (euphemistically) for a ‘floating fun house’ for Hollywood starlets.  When in 1961 Trujillo the president of the Dominican Republic was assassinated, the family along with the state bullion and the corpse onboard attempted unsuccessfully to escape to Europe after making it all the way to the Canary Islands.

S/Y „SEA CLOUD”

S/Y „SEA CLOUD”

The yacht had a difficult decade thereafter with serious neglect, and faced obsolesce on occasion, now named S/Y „Patria”, and eventually was sold Operation Sea Cruises and was re-named S/Y „Antama”, and then sold once again. This time the vessel was used as an ‘oceanic school’ vessel sailing worldwide for training young cadets in seamanship, but rumors surfaced that the actual business behind it was for drug trafficking.  After several more years of legal disputes and neglect, German Hartmut Paschberg acquired the vessel and in 1978, and had in the original shipyard that had built her in Kiel in 1931 (now named Howaldtswerke-Deutsche Werft) bring her to her original glory and convert her to a cruiseship with sixty-four passenger capacity. The vessel was undergone additional renovations in 2011 and has been voted as the ‘most romantic sailing ship in the world’.  The vessel trades under Sea Cloud Cruises house flag, subsidiary of Hansa Treuhand based in Hamburg.  And, of course, she has her very own corner in Hamburg’s Maritime Museum.

Yes, ships are beautiful, lovable, sexy sweet things that have been stealing our hearts for ages and excite passion and action. Just think about the story of the S/Y „Sea Cloud” – the people and cultures she touched, the people who touched her and caressed her teakwood, the passengers who had a great time on her and the shipbuilders agonizing about her lines…Never a doubt that ships are beautiful, yesterday and today …

 

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer and other important information and terms. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this and related websites. Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you kindly for your consideration.

US Oil Embargo?

In Wednesday’s editorial article in the Financial Times, the point is made that prohibition of US crude oil exports, coming into effect forty years ago at the peak of the Arab oil embargo, is an antiquated strategy, quite against the spirit of free markets, and in effect, another ‘pork barrel’ policy treating favorably certain industries in the name of consumer protection and national interest. The fact that US crude oil cannot be exported but refined petroleum products can, it means that US based refineries can have a competitive advantage bequeathed to them favorably not from market forces.  Landlocked but high quality US crude oil West Texas Intermediate (WTI) has historically has been priced, based on market forces, higher to Brent oil and other international blends, which are usually of lower quality but more easily trade-able on the international markets; however, in the last several years, since shale oil came to production in the US, WTI is casually priced at discount (sometimes heavy discount of more than 20%) to Brent and other easily trade-able blends.  As a result, US refineries have been getting access to cheap oil, and particularly refineries in the continental / Midwest of the country have been making money ‘hand over fist’ given that they get access to heavily discounted, landlocked oil.  Since it is legal for refined oil products to be exported, the refiners’ access to cheap oil does not necessarily translate to cheap gas for the US driver and consumer. A US refiner could as easily sell their product to the international market if that would maximize their profit. The fact that an international business newspaper like the Financial Times makes the argument in favor of letting the free markets operate by allowing exports of US-produced crude oil is not shocking. It’s a fair call about free markets and leveled competition, including fair trade practices (anyone remembers the US taking China to the WTO in reference to rare earth metals last year?) In the domestic oil business, besides the recent editorial, there have been a few more but never frequent or loud enough ‘voice(s) shouting in the wilderness’ about the same effect.  However, it’s fairly hard envisioning the US Congress acting in favor of such law. There could be some political cost, of course, and some activists would play the ‘national interest’ card for absolutely its maximum value.  Besides, there are several well-established interests that would lobby very hard to maintain the status quo.  Logically, the refinery industry would be at the front of the line protecting their shale oil ‘moat’; however, oil companies, to the extent involved in shale oil, would love to have the ability to sell internationally. In repealing the US crude oil ‘embargo’ most likely will be a killer for the Keystone XL pipeline as the most highly promoted argument in favor of its construction is the assumption that refineries along the US Gulf will have access to more oil, especially heavier and sour-er Canadian sands oil as compared to WTI, which is more profitable to the US refineries that were built and geared toward lower quality imported oil (from Venezuela for instance, and to a lesser degree from Middle East); the point is that US refineries working on cheaper heavy and sour imported crude likely could be more profitable, while foreign refineries (that are mostly geared for light and sweet blends) would be willing to pay a higher price than presently to acquire US blends like WTI and Louisiana Light Sweet (LLS) and other high quality crude. In the following two graphs prepared by Karatzas Marine Advisors & Co. on data sourced from the U.S. Energy Information Administration (EIA), despite the fact that US crude oil production increased from about 160 thousand barrels per diem in January 2008 to approximately 230 thousand barrels at present (up about 43%), the average price of retail gasoline has not declined overall, but it has rather shown a small increase. At least on this benchmark, it doesn’t seem that the US driver has seen much of benefit from increased US oil production and it’s mandatory refining in the US.

US Crude Oil Production vs US Gasoline Retail Prices

US Crude Oil Production vs US Gasoline Retail Prices

On the other hand, while overall production of gasoline by US refineries has remained constant more or less since January 2008, from the following graph it’s clear that total refined petroleum products have been a growth export market, showing an approximate 176% increase since January 2008.

US Weekly Gasoline Production & Total Refined Petroleum Product Exports

US Weekly Gasoline Production & Total Refined Petroleum Product Exports

Taking a look closer at home, any action by Congress to repeal Energy Policy and Conservation Act of 1975, and the Export Administration Act of 1979 would have a tremendous impact on shipping, both for the domestic, cabotage Jones Act tanker market but also for the international tanker market.  The shale oil boom had been a tremendous blessing for the usually ‘sleepy’ Jones Act tanker market (as compared to the international trade) with both activity and rates in the segment shown signs of vivid life, on the back of the need to transport domestically (at any price) oil along the US Gulf Coast or up the Atlantic and East Coasts. On the other hand, the shale oil boom (among other factors such as higher fuel efficiency standards in the US) has been the death knell for the international crude oil tanker market (recently, the US has lost its long-held biggest oil importer in the world, a ‘privilege’ that was passed on to China (in September, China imported 6.47 million barrels per diem of crude and refined petroleum products vs 6.2 million barrels per diem for the US.)  However, the shale oil has been also a blessing to the international product tanker market as refined petroleum products can be exported from the US refiners on foreign-flagged and owned vessels. A casual perusal of the shipping stock tables could not be more clear with well-established and respected companies like Frontline (ticker: FRO) are struggling for survival while product tanker upstarts like Scorpio Tankers (ticker: STNG) have been having the time of their lives. The odds for now are still significantly in favor that the US will maintain the ban on crude oil exports. Should there have been a change to implement free market practices, there will be another major inflection point for shipping: down with the Jones Act tanker market and the international products tanker market, and hoorah for the crude oil tankers.  As proud as shipping wants to be about its international pedigree and an industry mostly related to ‘perfect competition’, government policy can always make or break a fortune.  But again, it seems that often in free-market societies all the more often fortunes are made based on some preferential treatment not associated with market forces. © 2013 Basil M Karatzas & Karatzas Marine Advisors & Co. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders.

Sale & Purchase, Newbuilding and Demolition Market Overview

Sale & Purchase, Newbuilding and Demolition Market Overview (October 13, 2013)

The decline of freight rates and of the BDI notwithstanding later in the week, hope springs eternal that shipping is at the first stages of a cyclical recovery.  It’s to be seen at which phase of the cycle we are in, but for now let’s all enjoy what the market brings!

The momentum continues in many markets, capital markets and private markets, and the volume of sale & purchase transactions has been rather robust; also, asset prices have been showing signs of improvement (please see our last report on capes from last week), or at the very very least, holding steady.

For tankers, ‘year of built’ 2000 has become a psychological barrier, with tankers built prior to that getting definitely stigmatized as “bad” (read, priced at scrap-related levels), anything built after 2000 but newer than ten years seen as “ugly” (for the sellers that is, but rather fertile for a ‘value-deal’ for the buyers, in our opinion), and anything newer than ten years perceived as “good”.  And if one is in need to differentiate further, vessels on order are the best (“pretty ladies”, as the saying goes.)

The pumproon-design product tanker MT „UNIQUE SUNSHINE”  (47,000 dwt, 2001, Onomichi) was sold at $12 mil to Greek interests (“ugly”), while slightly smaller but newer MT „PIONEER SUNSHINE” (46,000 dwt, 2004, Shin Kurushima) was sold to Greek interests, again, at $17 mil (“good”). There has been definite price improvement (and robust activity) over the last few months for this asset class, as in May the good vessel MR „HALLINDEN” (46,000 dwt, 2008, Shin Kurushima) was sold at just excess of $20 mil to Greek interests, again.   Four modern, high quality aframax tankers (but of narrow beam) built at Sasebo H.I. in 2007 & 2008 were sold from clients of Cido Shipping (Japan) to Zodiac Maritime (Singapore) on private terms, at a price rumored to be about $104 million (between $25-27 mil per vessel); with about $52 million replacement cost, this is a “very ugly” transaction despite the age and pedigree of the vessels, but we suspect there is more to it than it meets the eye, given the nature of the buyers and sellers.  And, speaking of “very ugly” transactions, the Daewoo-built in 2003 VLCC MT „BW LUNA” was sold to an active recently Indonesian buyer, Soechi Lines, at $36 mil (as a matter of comparison, less than four years ago, such vintage vessels were well in excess of $50 mil).  However, there has been improvement given that a sistership vessel MT „BW LUCK” was sold at $35 mil earlier in the summer. The theme with crude oil tankers these days is that their market is so bad that it cannot get any worse (“don’t get no respect!” in the immortal words of Rodney Dangerfiled), which is a nice and soothing line, but not a great investment thesis…so, we have been a bit surprised by the rumors that a major VLCC fleet acquisition may be in the works based on the logic that …things in the crude tanker market cannot get worse… try to keep this mind (and a long balance of working capital to maintain the position)… but things, otherwise, like will not get worse.

The dry bulk market with its longer tail of charterers and more flexible standards overall (compared to tankers) has been active too, with Japanese-built resales of Kamsarmax tonnage committed to Greek buyers in excess of $31 mil. The fifteen-year old MV „ORIENTAL SUN” Japanese-built panamax bulker was sold just below $11 million, while the ten-year old MV „SEA OF GRACIA” panamax built in Japan was sold at just below $17 million (in en bloc deal with MV „SEA OF HARMONY”; we understand that the vessels were no exact sisterships.) And, in the ever surprising cape market, the 1997-built at IHI in Japan cape MV „SU-OH” was committed at $16.5 million.  The “ugly” bunch in this market may have more wind in their sails by virtue of the nature of their trade.

The showstopper however has been the newbuilding market where, honestly, we have lost count of newbuidings recently; just the broader news, Scorpio Bulkers (SALT) has announced orders in the magnitude of $400 million, and a reference name Greek owner cape / VLOC orders in excess of $1 billion. A few more orders for several MRs from Navig8, several post-panamax 10,000 TEU containerships (ULCVs), a few more Newcastlemax orders by the Oldendorff Group in Germany, etc, etc  We understand that most S. Korean and good quality Chinese yards are solidly booked till end of 2016, and several Japanese builders have managed to pick up orders from international buyers over the last six months.

World Economic Growth Revisions (Graphs form the Financial Times, Oct 8, 2013)

World Economic Growth Revisions (Graphs from the Financial Times, Oct 8, 2013)

For someone having tangential knowledge of shipping, the active orderbook would imply that things in shipping are great.

However, just last week, the IMF lowered forecasts for economic growth in 2012 to 2.9% (the lowest post-crisis) and 3.6% in 2014 on ‘subdued medium-term growth trajectory’ expectations. And, for September, Chinese exports dropped unexpectedly by 0.3% year-over-year against expectations of 6% growth, it was announced by the Customs Administration over the weekend.

Full steam ahead! 2008, here we come again in a boatload of newbuilding orders!

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.

No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders.

Ship Inspired Quotations

“Beware of little expenses. A small leak will sink a great ship.”                                                                                                                                   Benjamin Franklin

“Neither should a ship rely on one small anchor, nor should life rest on a single hope.”                                                                                         Epictetus

“If the highest aim of a captain were to preserve his ship, he would keep it in port forever.”                                                                                   Thomas Aquinas

“A community is like a ship; everyone ought to be prepared to take the helm.”                                                                                                       Henrik Ibsen

“Set your course by the stars, not by the lights of every passing ship.”                                                                                                                      Omar N. Bradley

“A whale ship was my Yale College and my Harvard.”                                                                                                                                                  Herman Melville

“We may have all come on different ships, but we’re in the same boat now.”                                                                                                           Martin Luther King, Jr.

“If I had been censured every time I have run my ship, or fleets under my command, into great danger, I should have long ago been out of the Service and never in the House of Peers.”                                                                                    Horatio Nelson

“There can be only one Captain to a ship.”                                                                                                                                                                 Thomas John Barnardo

“Failure saves lives. In the airline industry, every time a plane crashes the probability of the next crash is lowered by that. The Titanic saved lives because we’re building bigger and bigger ships. So these people died, but we have effectively improved the safety of the system, and nothing failed in vain.”                                                                                                                                                                                                 Nassim Nicholas Taleb

“It takes a big idea to attract the attention of consumers and get them to buy your product. Unless your advertising contains a big idea, it will pass like a ship in the night. I doubt if more than one campaign in a hundred contains a big idea.”                                                                                                                                              David Ogilvy

“Ships are a strange kind of commodity because they’re very lumpy, very big individual units, but they’re commodities.”                                                                                                                                                                                             Wilbur Ross

“You can never tell what ships are worth.”                                                                                                                                                                    Stavros Niarchos

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”                                                                                                                      Warren Buffett

“Only the guy who isn’t rowing has time to rock the boat.”                                                                                                                                          Jean-Paul Sartre

“Every man should pull a boat over a mountain once in his life.”                                                                                                                                Werner Herzog

“Fortune brings in some boats that are not steered.”                                                                                                                                                 William Shakespeare

“Vessels large may venture more, but little boats should keep near shore.”                                                                                                             Benjamin Franklin

“If you want to sail big ships, go where the water is deep.”                                                                                                                                      Conrad Hilton

“If my ship sails from sight, it doesn’t mean my journey ends, it simply means the river bends.”                                                                           John Enoch Powell

“History is the ship carrying living memories to the future.”                                                                                                                                       Stephen Spender

“A man without a goal is like a ship without a rudder.”                                                                                                                                              Thomas Carlyle

“The person who goes farthest is generally the one who is willing to do and dare. The sure-thing boat never gets far from shore.”                                                                                                                                                                        Dale Carnegie

“The small force that it takes to launch a boat into the stream should not be confused with the force of the stream that carries it along: but this confusion appears in nearly all biographies.”                                                                              Friedrich Nietzsche

“It’s not the towering sail, but the unseen wind that moves the ship”

“Noah was a brave man to sail in a wooden boat with two termites.”

“Give a man a horse he can ride, give a man a boat he can sail; and his rank and wealth, his strength and health on sea nor shore shall fail.”                                                                                                                                                         James Thomson

“We were all on this ship in the sixties, our generation, a ship going to discover the New World. And the Beatles were in the crow’s nest of that ship.”                                                                                                                                               John Lennon

“Basically my wife was immature. I’d be at home in the bath and she’d come in and sink my boats.”                                                                                                                                                                                                                          Woody Allen

“Give a man a fish and feed him for a day. Give him a fishing lesson and he’ll sit in a boat drinking beer every weekend.”                                                                                                                                                                                    Alex Blackwell

Be a Pirate!

Be a Pirate!

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.

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