Dry-Bulk Shipping Extends 2011 Drop to 20% on Australia Floods

The news for existing capesize ship owners is not good.  Rents for the largest vessels (capesize) are down to $9,143 per day.  That is the lowest level since January 2nd, 2009.  To understand the magnitude of the loss of revenues to the ship owners consider the fact that rents averaged $110,000 per day back in 2007 and 2008.  Those high rents caused ship owners to order more capesized vessels because they looked profitable.  Then the global recession caused by Keynesian central bank actions from 2003-2007.  The recession revealed the malinvestments of the ship owners.  Rents fell in free fall until January 2nd, 2009.

 

Capesized rents increased over the course of the next two years as the Keynesian central bankers pumped trillions of counterfeited dollars into the world's economies.  The false recovery coupled with a glut of capesized vessels are now putting pricing pressure on capesized rents.

 

However, this is somewhat good news for Safe Bulkers Inc. (SB).  They entered into a shipbuilding contract for the construction of a Chinese-built, drybulk Capesize-class vessel of approximately 180,000 deadweight tons at a contracted price of $53 million, with an expected deliver of the third quarter of 2012.

 

One of the reasons that I like Safe Bulkers is that this vessel will be employed for ten years at a gross daily charter rate of $24,810, less 1.25% total commissions.  Most of their existing fleet along with the new vessels are locked in for several years.  Their earning power is foreseeable.  There ships will be bargains when worldwide inflation takes off from the trillions of dollars printed in late 2008 to the present.

 

http://www.safebulkers.com/sbpr120710.pdf

 

Dry-Bulk Shipping Extends 2011 Drop to 20% on Australia Floods

January 19, 2011, 11:20 AM EST

By Alistair Holloway

Jan. 19 (Bloomberg) -- The Baltic Dry Index, a measure of commodity-shipping costs, extended this year’s decline to 20 percent as Australian flooding curbed cargo volumes and new capesize ships joined the fleet.

The index fell 21 points, or 1.5 percent, to 1,411, according to data from the Baltic Exchange in London. Daily rents for capesizes that haul coal and iron ore led declines, dropping 4.1 percent to $9,143, the lowest level since Jan. 2, 2009. That means the biggest ships in the gauge are the cheapest to hire.

Australia’s Queensland state, producer of about half the world’s seaborne supply of coking coal to make steel, suffered its worst flooding in 50 years this month, shutting mines and railroads. The state today cut its coking-coal output forecast for the year ending June 30 by 10.5 percent. The capesize fleet’s carrying capacity will swell by 18 percent this year, according to fund managers and analysts surveyed this month by Bloomberg.

“It’s a combination of Australia, plus continued deliveries of capesizes,” Philippe van den Abeele, managing director of Castalia Fund Management (U.K.) Ltd. in London, said by phone. “We are down to levels that are really hurting owners.”

Capesize rates declined today for a 17th session, the longest streak since November 2008. The capesize fleet’s carrying capacity expanded by 23 percent last year, according to an estimate by Clarkson Plc, the world’s biggest shipbroker.

Negative Rate

The lack of cargoes in the Pacific Ocean has led some shipowners to cover part of clients’ costs in an effort to hire out vessels. Costs on the C11 journey for shipments to Europe from Asia were at minus $825 a day today, compared with minus $879 yesterday. The rate went negative on Jan. 13, a first for any dry-bulk voyage reported by the exchange, which publishes daily assessments for more than 50 routes.

The vessel surplus stems from orders placed in 2007 and 2008, when daily capesize income averaged about $111,000. Rates reached a record $233,988 in June 2008 before plunging 99 percent over the next six months to $2,316 as economies entered the first global recession since World War II.

Rates to hire panamax vessels that compete with the larger capesizes for coal and iron-ore cargoes and also ship grains fell 3.5 percent to a daily $14,166 today. Supramaxes gained 0.5 percent to $15,023 and handysizes rose 0.7 percent to $11,402.

--Editors: Dan Weeks, John Deane.

Link to the original article: http://www.businessweek.com/news/2011-01-19/dry-bulk-shipping-extends-2011-drop-to-20-on-australia-floods.html

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