Port of Catoosa, Oklahoma USA

I live in Kansas, where the Arkansas River is often not deep enough to paddle a canoe.

A little further southeast of here, 36 years ago, the U.S. Corps of Engineers dredged rivers, built locks, and made a Port, able to handle barge traffic.

Waterway to the World. The McClellan-Kerr Arkansas River Navigation System (map) is a 440-mile waterway linking Oklahoma and the surrounding five-state area with ports on the nation’s 25,000-mile inland waterway system, and foreign and domestic ports beyond by way of New Orleans and the Gulf Intracoastal waterway. Because of its south central location, the waterway is operational year-round, regardless of weather conditions.

The Tulsa Port of Catoosa, near Tulsa, Oklahoma, (proximity map) is located at the head of navigation for the System. The waterway travels 445 miles along the Verdigris River, the Arkansas River, the Arkansas Post Canal and the White River before joining the Mississippi at Montgomery Point. New Orleans is 600 miles south.

There are 18 locks and dams on the McClellan-Kerr. Each of these dams creates a reservoir, or what is called a navigation pool. The system of locks and dams can be likened to a 440-mile staircase of water.

In an average year, 13-million tons of cargo is transported on the McClellan-Kerr by barge. This ranges from sand and rock to fertilizer, wheat, raw steel, refined petroleum products and sophisticated petrochemical processing equipment.

I just think it's interesting that this system exists, and most of us, even those who live around here, don't know about it.

Everyone thinks they must go through the Panama Canal to experience going through a lock. I don't know if there are any passenger boats which use this system, but I think it would be fun to take a ride. Maybe one of the tug boat operators will let me hop onboard some day.

Looking at the BDI (Baltic Dry Index)

The Baltic Dry Index (BDI) closed at 774 on Dec. 24th. I expect this will be the last figure for the year. This is bad, but it was worse in early Dec., somewhere around 660 if I remember correctly.

I took a look at the 5 year chart on Bloomberg It's pretty bad. We are at the low point in 5 years.

I think I read when it went below 800, that was the lowest since 1986, but I can't find stats to back that up.

Well, ships are being layed up, and probably the owners are realizing maybe nothing really is better than something, especially if they have to pay extra P & I (insurance) premiums for all the pirate business in the Gulf of Aden.

I expect it will be quite bad through 2009, but I really think this is probably the bottom, as far as the BDI goes. That doesn't mean carriers are making money at these rates. I'm quite sure they are not. That's why I expect this to be the bottom for the BDI.

Oh, and I completely forgot about the forward contracts (FFA). I don't know if anyone has the guts to get involved in these right now, unless they are already holding futures.

Happy New Year.

More Containerships Sitting Idle

There are a lot of container ships sitting idle. As of Dec. 29, 2008;

AXS-Alphaliner calculates the amount of idle tonnage at equivalent to 3.5% of the total cellular fleet, the same in percentage terms as that reached during the last downturn of 2002, when the fleet was much smaller.

So in percentage terms, this really isn't so bad. The fleet has grown at an astounding rate.

The downturn comes at a time when the fleet is growing at record speed, with total capacity passing the 13m teu level just before Christmas.

That represents growth of more than 100% since mid-2001 when the fleet stood at 6m teu.

It then took 21 months to climb by another 1m teu, whereas this year, the fleet gained 1m teu in the space of just nine months, and is on course to grow to 14m teu by August 2009.

This is just part of the cyclical business of international shipping. Overbuild, lay-up. The German shipowners are old hands at this problem. During the last downturn they formed the Containership Association.

German owners of container vessels has started a mutual fund for economic compensation to vessels laid-up. Initially the fund has gathered one-vessel owners with a total of 140 ships, writes Lloyd’s List. According to the latest estimates, there are around 150 container vessels laid up around the world, a more is to come. Members can expect a cover of about 70 per cent of the going charter rate.
German Containership Association was established in 2002, but was not activated until now. One reason was uncertainty whether the scheme was in breach of EU regulations. The association now claims that this is not the case as support will only be given for two-three months, and the vessels must be ready to resume service.

U.S. exports to Cuba

The post I made yesterday started me thinking about trade from the U.S. to Cuba. Exports of agricultural products are made from the U.S. to Cuba. It's not illegal to sell food to Cuba, it's just illegal to finance the sale.

I know a couple of guys who make trips there regularly. It's legal. They get special permits because they are dealing with agriculture shipments.

Back in 2007, the ITC (U.S. International Trade Commission) issued a report estimating what would be the impact of allowing U.S. citizens to travel to Cuba, and allowing export financing on agricultural shipments to Cuba.

U.S. AGRICULTURE SALES TO CUBA WOULD GROW SIGNIFICANTLY IF U.S. TRADE AND TRAVEL RESTRICTIONS WERE LIFTED, SAYS ITC

# In 2000-01, U.S. agricultural exports to Cuba were negligible; however, they grew rapidly, and by 2004, the United States was Cuba's largest supplier. Although the value of U.S. exports has fallen slightly since then, the United States still supplies more agricultural products to Cuba than does any other country, accounting for approximately 30 percent of Cuban imports in 2006.

# U.S. regulations, such as those that require the Cuban government to pay for U.S. agriculture products in cash or through letters of credit drawn on third-country banks, raise the cost of U.S. goods for Cubans and likely limit U.S. sales. Other factors that increase costs are port delays; high transport charges owing to limited shipping routes; foreign exchange transactions, exacerbated by the need for third-country financing; and the uncertainty surrounding visas for Cuban officials to inspect U.S. agriculture production facilities.

# About 171,000 U.S. citizens visited Cuba in 2005. According to Commission estimates, in the absence of U.S. travel restrictions, between 550,000 and one million U.S. citizens would visit Cuba annually. This increase in U.S. travel would likely increase demand in Cuba for more and better quality food for tourists as well as for Cuban citizens who work in tourism and related services.

# Eliminating restrictions on trade, particularly those related to export financing, would likely have a larger impact on U.S. agricultural sales than lifting the travel restrictions on U.S. citizens. This is because most food imported from the United States consists of bulk commodities that are sold to Cubans rather than foods that are sold to tourists. With the elimination of all such restrictions, U.S. exports to Cuba could almost double from their 2006 level. The largest absolute gains would be for fresh fruits and vegetables, including potatoes; milk powder; processed foods; and certain meats (poultry, beef, and pork).

I can't say I really agree with them regarding the change in Cuba if more tourists were going there. There are lots of tourists from Canada who go to Cuba. The problem is, Cuba has not relaxed their restrictions. Cubans were running illegal restaurants out of their homes to gain foreign currency, but I believe there was a crack-down on that.

The Cuban government (in my opinion) doesn't want the country to be overrun with foreigners and westernized, but that may change since apparently their economy is in the worse shape since the "special period".

.. the past year had been one of the most difficult since the so-called "special period" began - the term used for the economic crisis caused by the 1991 collapse of the Soviet Union, which heavily subsidised Cuba.

Hamburg Sud and Alianca call at Havana, Cuba

Alianca is owned by Hamburg-Sued. They have not dropped the Alianca name as it is Brazilian Flag and well known.

They operate pretty much as one, except for the coastal trade in Brazil which only Alianca can provide.

The recent announcement of changes to their schedule is rather boring, unless you really need to know this stuff, or just want to brush up on your geography.
Honestly, I had to look up Navegantes, as this port was built only in 2007.

What I did find interesting is the port call at Havana. Of course, you cannot load cargo from the U.S. to Havana, but that doesn't mean every other country can't, and does, ship to Cuba.

This whole Cuba embargo thing by the U.S. is non-sense, and I expect it to change not too long after Obama takes offices.

Hamburg Sued and Alianca adjust vessel port calls

Hamburg Sud and Alianca announced changes to their two-string U.S. Gulf-Central America-Caribbean-South America East Coast (UCLA) service.

The carriers said String 1, offering direct connections between Brazil, Colombia, Mexico and the U.S. Gulf, will now call Houston, Cartagena, Suape, Santos, Rio Grande, Navegantes, Paranagua, Santos, Cartagena, Veracruz, Altamira, and back to Houston.

The rotation for String 2 remains the same, covering Santos, Rio de Janeiro, Salvador, Puerto Cabello, Cartagena, Santo Tomas de Castilla, Havana, Veracruz, Altamira, Manzanillo, Cartagena, Puerto Cabello, and back to Santos.

The two carriers said the changes follow operational difficulties at ports in Venezuela, while continuing to serve the country's Port of La Guaira via Cartagena, Colombia, through a dedicated feeder service operated by Hamburg Sud.

Where is the BBC Box, NYKU8210506

It's empty in New York.

As of Dec. 26th the BBC site shows it was still at the importer, Big Lots, in Tremont, Pennyslvania, but apparently they are having some technical difficulties

Unfortunately, owing to some major technical problems with the Box's GPS unit beyond our control, we will only be able to make sporadic updates to this map over the Christmas period until repairs can be made.

Guess this explains why it hasn't been accurate as of late.

Germans capture, then release, Pirates

I have never understood people who catch fish and then release them. Really, why go to all that bother if you aren't going to eat the fish?

I know, it's a sport.

The German Navy caught some pirates, but then released them.

I don't think it's a new sport. The news report came out on Christmas, but apparently that was not the motive for the release.

He said the decision not to detain or arrest them was taken by the German government in Berlin.

A spokesman for the EU's mission off Somalia, Cdr Achim Winkler, told the BBC's Europe Today programme that Germany would only bring pirates to justice where German interests were hurt.

This would be the case if a German ship was attacked or German citizens were killed or injured, he said.

Truth be told, people are probably having trouble figuring out who to turn them over to, and how.

International Holidays

Today is Dec. 26th. It is not an official holiday in the U.S. However, it is in the U.K. and most of the Commonwealth.

It is called Boxing Day. Nothing to do with the sport of 2 persons pummeling each other, but something probably to do with alms (charity) boxes, or at least giving to the poor.

Generally in the U.S. all the states celebrate the same holidays, although some have special local ones.

I will never forget one of the first years I worked in ocean transport. I called my freight forwarder in Houston one day, and no answer (this was before the days of answering machines). I called several other companies and no answer. I couldn't figure out why, but then later was informed it was Texas Independence Day, which was an official holiday for the port.

The longshoremen in NY/NJ have an official holiday called "Teddy Gleason's Birthday", which just happens to be celebrated on St. Patrick's Day (at least it use to be, I can't find anything confirming this at the moment).

I have tried to think of a holiday which is truly international, but I don't believe there is one. Chinese New Year's is a huge celebration, but it's timing is based on the Chinese calendar and therefore is not celebrated on Jan. 1st.

And of course, the entire world does not celebrate Christmas, although I saw where it is now an official holiday in Iraq (wonder why).

ProLogis Sells Operations in China

ProLogis, a Real Estate Investment Trust specializing in distribution facilities, has decided to sell their operations in China, at a loss.

The real estate investment trust said net proceeds of the GIC transaction will be used to reduce debt. Overall, the company said it expects to record a “modest net loss on the transaction of approximately 4 to 6 percent of the book value of the assets sold.”

In one substantial step, this transaction helps ProLogis de-lever its balance sheet, relieve near-term re-financing pressure and enhance liquidity,” said Walter C. Rakowich, chief executive of ProLogis.
“Selling our China operations and our investment in the Japan funds was not an easy decision,” his statement continued. “However, this represents a major milestone in the implementation of the plan we outlined last month to strengthen the company's balance sheet in order to meet the challenges of the current environment.”

I haven't really followed this company, but it sounds like a lot of "tap dancing" if you ask me.

I prefer it when the chief exec says "things are bad", and this is what we are doing, like Fed Ex did.

But, that's just me.

Tanker Companies take a dive

I haven't talked much about tanker companies. They had not had the problems of the dry bulk carriers, or even the containerized carriers. That has now changed.

I think everyone has been surprised to see the dramatic reduction in the demand for oil, causing the price to fall to a 5 year level despite cuts from OPEC.

There had been some talk that tanker shipping companies could weather the storm by using their ships as storage tanks until the market improved. But I think this will be a long long downturn, and apparently so do others.

The investment bank Jefferies has slashed their target prices on tanker stocks.
They say the current charter prices are at cash-flow break even, and it is to get worse. They don't say when they expect an upturn, but they expect it to be bad through 2009.

Many economists in the U.S. are saying things will get better in the middle of 2009. I highly doubt this.

From Lloyd's List

Jefferies slashes tanker firms share price targets

Tony Gray - Monday 22 December 2008
TANKER rates falling to barely break-even levels and companies sliding heavily into the red is the bleak scenario painted for 2009 by Jefferies, the US investment bank.

Jefferies said the latest Opec production cuts, shipyard deliveries, and the release of tankers from storage duties, will combine to depress spot freight rates and earnings, and as a result the bank has reduced 12-month share price targets for most of the quoted companies it covers.

The bank believes Opec’s pledged production cuts will translate to about an 8%-9% contraction in crude oil tanker demand in 2009, while the fleet is likely to expand by 14%-15%, leading to a “significantly oversupplied” freight market.

“In fact, we believe crude oil tanker fleet utilisation could decline 22%-24% in 2009, which could cause crude oil tanker charter rates to decline significantly from current levels.”

The bank has reduced its estimates of next year’s average daily crude tanker spot charter rates to $30,000 for very large crude carriers, $25,000 for suezmaxes, and $20,000 for aframaxes, “essentially just above cash flow break-even levels”.

Two months ago, Jefferies expected the average 2009 rates to be $50,000, $40,000, and $35,000, respectively.
According to Jefferies’ latest research, the two biggest losers will be Teekay Corp and Overseas Shipholding Group.

The BBC Box is empty in New York

According to the NYK tracking site, the BBC Box has been returned empty after being unloaded by the latest consignee, BigLots. Their warehouse (or distribution center) is in Pennsylvania. It was picked up by truck in Jersey City NJ, unloaded, and the empty container was returned to New York (so it says).

NYKU8210506 Container Size/Type 40'/DRY

Status As Of Event Location Mode
DEC-19-2008 10:03 Empty container returned to carrier at destination
New York, NY, USA Truck

If you want to check the location yourself, you can go to the NYK link, but then you must input the container number (prefix - that's the letters, and number, no spaces).

It says it's in New York, but I suspect it really in a container yard somewhere in New Jersey.

I guess it probably won't be picked up for a load until after Jan. 1.

By the way, the BBC tracking site shows that it is still loaded with consumer goods.
I thought that site was suppose to be real time, but I guess not.

Fly direct China to Taiwan - first since 1949

Things went bad between Taiwan and China in 1949

Cross-Strait relations refers to the relations between mainland China, which sits to the west of the Taiwan Strait, and Taiwan, which sits to the east; especially the relations between their respective governments, the People's Republic of China (PRC) and the Republic of China (ROC).

In 1949, with the Chinese Civil War turning decisively in the Communists' (CPC) favour, the ROC government led by the Kuomintang (KMT) retreated to Taipei, in Taiwan, while the CPC proclaimed the PRC government in Beijing.

In 2008 they allowed direct air and ocean service between Taiwan and China.

This had a rocky start.

Taiwan Seizes Drugs from China Flight
12/19/2008

Customs officials on Thursday seized 30 kilos of illegal drugs that arrived on one of the first direct flights from China to Taiwan. Agents in Taipei found eight boxes of the hallucinogenic party drug ketamine worth approximately $28,500, officials said. Agents took into custody a 31-year-old Chinese woman in connection with the discovery.

I don't think this will have too much affect on the relationship between the 2 countries.

Customs officials said they were prepared for the possibility of drug smuggling.

Previous to this ban being lifted, all air and cargo shipments had to transship in Hong Kong, adding time and expense.

Fed Ex Chairman says things are bad

Back on Nov. 10, 2008, I wrote Beware Owners Giving Glowing Reports, with regard to the rosy forecast given by the chairman of DryShips.

Fed Ex's chairman is certainly not giving any rosy reports.

FedEx Slashes Spending
12/18/2008
Thomas L. Gallagher
Web Editor

FedEx earnings increased just 3 percent in the quarter ending Nov. 30. Revenue inched up 1 percent during what Chairman, President and CEO Frederick W. Smith called "the worst economic conditions in the company's 35-year operating history."

"With the decline in shipping trends during our second quarter and the expectation that economic conditions will remain very difficult through calendar 2009, we are taking additional actions necessary to help offset weak demand, protect our business and minimize the loss of jobs," said Smith.

The company eliminated variable compensation payouts and instituted a hiring freeze. Labor hours and line-haul expenses will be reduced along with volume. The company has cut discretionary spending. FedEx announced some personnel reductions at FedEx Freight and FedEx Office. There may be more.

In addition, CEO Smith will take a 20 percent cut in base salary. Salaries for other senior executives will be cut 7.5 percent to 10 percent. FedEx will reduce remaining U.S. salaried exempt salaries 5 percent. Merit-based salary increases will be eliminated in calendar 2009 for U.S. salaried exempt personnel. The company will suspend 401(k) matching contributions for a minimum of one year, beginning Feb. 1.

FedEx reaffirmed its earnings estimate of $3.50 to $4.75 per diluted share for fiscal 2009, which assumes weak global macroeconomic conditions, anticipated volume gains from DHL and stable fuel prices.

The volume gains from DHL is because DHL announced they are pulling out of the domestic delivery market in the U.S. This now leaves only Fed Ex, UPS and the U.S. mail to get us those packages. You know, those from Grandma, or Amazon.

The consolidations we will see during this economic downturn will end up costing us consumers more money, once the economy improves. That's because there will be less competition.

But, that's just the way things go.

Remember when the post office was the only way to ship small packages? No? Oh, then you probably don't remember when Kennedy was shot either.

Eagle Bulk Suspends Dividend

From Reuters, Dec. 19, 2008

UPDATE 2-Eagle Bulk suspends dividend, cuts capex; shares plunge

BANGALORE, Dec 19 (Reuters) - Dry bulk shipper Eagle Bulk Shipping Inc (EGLE.O) suspended its dividend and reached an agreement with a Chinese shipbuilder that will enable it to cut its capital expenditure by 33 percent, as it looks to preserve cash in the current downturn.

Shares of the company fell as much as 29 percent.

"The dividend cut is what is hurting the stock... I think the more people look at it, the more they are going to realise that the dividend might come back," Maxim Group analyst Charles Rupinski said.

Earlier this month, Eagle Bulk rival Diana Shipping Inc (DSX.N) suspended future dividends to improve its cash position.

Shares of Eagle Bulk fell to a low of $6.30, before recovering slightly to trade down $2.31 at $6.62 Friday afternoon on Nasdaq.

Like I said before, these shipping companies are in a world of hurt, and I will be surprised to see them survive (although the guy on Fox News today totally disagreed with that.... he probably owns these stocks, ha, ha).

Ship High In Water (SHIT)

Eric Joiner works at DHL and has a blog entitled "Freight Dawg". He is usually quite serious, but considering DHL has a lot off lay-offs going on, I guess he needed a "lighter" type of post.

I found this one very amusing - it's the history of shipping manure, and explains how the slang term for manure came into being.

More Ocean Freight History and Humor...

Piracy Surcharge to be put in place

Back on Sept. 22, 2008 in my blog, Pirates! No Kidding! I said we could expect to see a piracy surchage.

Shipping companies have a couple of options if their ships normally go through the Gulf of Aden.

1) They can go another route, which will add to the voyage time.

2) They can buy additional insurance coverage.


Either one will cost the carriers more money. If you ship to or from this part of the world, expect a new "pirate avoidance" surcharge. I suspect the official name will be security surcharge.

This is the first one I have seen, to be effective Jan. 1, 2009.

French carrier CMA CGM announced it will levy a $23 per-TEU surcharge on all containers shipped through the pirate-infested Gulf of Aden as of Jan. 1.

The company said the surcharge is “in addition to any rate agreement, short- or long-term, already concluded with customers or to be concluded.”

The levy will be implemented on bills of lading dated from Jan. 1 on all boxes transiting the Gulf “at any point in the voyage”.

The announcement comes a week after CMA CGM bowed to demands from its crews for double pay, as a risk bonus, for sailing through the waterway, where dozens of ships have been attacked by Somali-based pirates.

The carrier said transit of container ships through the Gulf in both directions is subject to additional high costs due to increased insurance premiums and other expenses because of the prevailing risks of piracy.

The bit about "in addition to any rate agreement, short- or long-term, already concluded with customers or to be concluded.” is, because many contracts are all-in, or what the customer believed to be all-inclusive.

This new charge will apply anyway.

Unless, you were really able to negotiate a contract which specifically said no new charges would be charged during the lifetime of the contract.

Probably, when the big boom hit a couple of years ago, carriers wouldn't give that wording, so CMA-CGM will probably be able to charge this new surcharge to all of their clients.

I don't think the customers should complain. Unless, of course one of the ships does get hijacked.

Dry Bulk carrier Atlas Shipping goes Bankrupt

Atlas Shipping is a Danish dry bulk carrier. They started out in 1996 and have used chartered tonnage to date, but have orders with ship yards for new buildings.

The market has collapsed, and they realize they will not be able to withstand it, even though their bank would probably give them more money.


From Lloyd's List, Dec. 18, 2008

Mr Moller denied that the company had lost the confidence of its bank, Den Danske Bank. “No that’s not the issue. The issue is we have been run over by the market.”

He also recognised that the vessel owners will be hit by the company’s bankruptcy. “Others will be hurt, that is the unfortunate truth,” he admitted.

“We have 41 vessels under our control right now and we want to do something positive with the owners. All the vessels are chartered in, so the owners will be hit, or the operator in between,” he confirmed.

The role of Atlas as a major charter was also underscored by a leading London broker.

“I think it will very much have an effect on the market as they are a major player. I don’t think it will affect rates but I expect quite a few ships will be delivered back to head owners.”

He said he couldn't be specific but Atlas would probably be two or three down a chain.

Guess maybe I should start a score card of the bankrupt steamship lines.
This could also very well cause a drop in the BDI (Bulk Dry Index).

Things are getting ugly in the world of international shipping. Well, for that matter, I guess in most industries. I guess maybe the repo guys are doing well.

Fallout from the drop in BDI (Bulker Dry Index)

As I mentioned before, companies are defaulting on their contracts to ship cargo.

When the charter rates were going up dramatically as seen by the BDI Index, companies started locking in futures (FFA's) on the assumption the rates would continue to increase. Much the same as airlines and ocean carriers who bought future bunker (oil) contracts.

Just as the price of bunkers has decreased, so too has the price of charter hire.

An example is Fortescue Metals, who bought contracts for the future. They quoted including the freight (CFR - cost plus freight), and these orders did not materialize, or were cancelled (I guess). They have orders, but only the ones where they quoted just the cost of the product loaded onboard the ship (FOB - freight on board).

From Lloyd's List

This came after it suspended all its long-term CFR contracts due to “unforeseen circumstances” which it did not explain but were related to the dramatic collapse of bulk charter rates. Fortescue Metals contracted its CFR business at much higher rates than current spot prices.

The firm said about 66% of its iron ore sales have been on CFR terms “but this is likely to reduce to around one third of sales”.

Fortescue’s FOB contracts are unaffected.

In general the demand for international shipping has decreased dramatically, and will probably stay close to these levels for the next year (in my humble opinion). Well, not just me. There are some saying we won't see any improvement until 2011.

More on that later.

Bold Pirates

The Somali Pirates are really getting bold.

I have a few theories why

1) Getting caught hasn't turned out so bad for them in the past (see below)

2) They really (well, some of them) want to draw attention to the illegal fishing and dumping along their shores, which turned them to piracy

3) Once Ethiopia pulls their troops out (end of the year) they would much rather have UN troops come in, rather than the Islamist group which previously controlled all of Somalia. These folks apparently don't tolerate piracy, and I am sure they won't treat the pirates nearly as well as the U.N. countries would.


From the NY Times, Dec. 15, 2008

The pirates are totally outgunned. They continue to cruise around in fiberglass skiffs with assault rifles and at best a few rocket-propelled grenades. One Italian officer said that going after them in a 485-foot-long destroyer, bristling with surface-to-air missiles and torpedoes, was like “going after someone on a bicycle with a truck.”

... the pirates — true to form — remain unfazed.

“They can’t stop us,” said Jama Ali, one of the pirates aboard a Ukrainian freighter packed with weapons that was hijacked in September and was still being held.

He explained how he and his men hid out on a rock near the narrow mouth of the Red Sea and waited for the big gray ships with the guns to pass before pouncing on slow-moving tankers. Even if foreign navies nab some members of his crew, Mr. Jama said, he is not worried. He said his men would probably get no more punishment than a free ride back to the beach, which has happened several times.

“We know international law,” Mr. Jama said.

On Dec. 16th the U.N. passed a resolution to fight this piracy

States "may undertake all necessary measures in Somalia, including in its airspace, for the purpose of interdicting those who are using Somali territory to plan, facilitate or undertake acts of piracy and armed robbery at sea," it says.

Although the role of the Somali government was repeatedly stressed in the resolution, that government is weak and divided. The country has been in virtual anarchy since the collapse of a dictatorship 17 years ago. Islamists control most of the south and feuding clan militias hold sway elsewhere.

It was also not clear what kind of forces would engage in land or air operations against the pirates or whether the U.S. military would participate.

This is all well and good, but I trust the international shipping community isn't going to wait around for this to solve the piracy problem.

Despite all the objections, my guess is we will start seeing armed guards onboard ships, hopefully from one of the Navies. I suspect the "flag" countries have already started discussions with countries with Navies to offer protection to their flagged ships - I trust for a fee.

"Survivor" needs a new Customs Broker

I will admit, I have not watched the Survivor TV show since the first season.

Apparently there have been at least 17 seasons.(I guess they do more than 1 per year?)

It's hard to believe they don't know how to import things back into the U.S. after 17 seasons, but they screwed up this time.

The reality competition ran into some hot water Nov. 18, when a container of props arrived in Houston from Gabon in West Africa—where the CBS hit just completed its 17th season finale.

The freight contained several animal skulls and hides, ceremonial masks, ostrich feathers, shells and various bones, Yolanda Choates, a spokeswoman for U.S. Customs and Border Protection, told the Houston Chronicle. The items were taken by the U.S. Fish and Wildlife Service to be evaluated. Some were infested with termites, while other artifacts potentially carried microbes linked to Ebola and other viruses.

Choates said the contents manifest claimed to be "returning U.S. goods," but all such packages are inspected to make sure they haven't mixed with foreign objects.

This highlights, just like I said back on Dec. 8, 2008.

International shipping can be quite complicated. And honestly, do these express companies really want the liability of filing entries for packages they don't actually own?

DryShips Cancellation approved by Audit Committee

I guess the Audit Committee came from Chicago.

In my blog of Dec. 11 re DryShips cancelling ships orders (from a company owned by the chairman of DryShips) I stated

Was that really in the best interest of the stockholders?

In the U.S. there are requirements that related companies treat each other at "arms length", meaning they need to treat each other as they would any other company.

Today, in Maritime Global Net

The Audit Committee of DryShips Inc. concluded that due to the significant deterioration in the dry bulk market since the time the agreements were entered into, it would not be in the best interest of DryShips Inc. to consummate the transaction.

In the blogs at Lloyd's List, Tony Gray had this to say

Critics point out that the $160m that is flowing into the private coffers probably more than covers the newbuilding cost of the four panamaxes. They argue that the terms of the cancellation are punitive and question the basis on which the option fee of $26.3m per vessel has been agreed.

Those taking a more positive view of the arrangement suggest that DryShips, where Mr Economou is chief executive and the major shareholder, has extricated itself from a hefty liability.

click here for complete post

And yet, the stock price goes up.

Comments regarding Somali piracy

My blog post of Nov. 26 was entitledIslamist group threatens Somali pirates

This comment was posted

Comments:

At November 26, 2008 11:36 PM , Blogger kingnour said...

Al Shabab have the same ideaogy that Saudi Arabi GOV have which is salfism and Wahbism. Why they not trying to free the ship that was going to Iran. The reality is that Al Shabab trying to win the side of Saudi just to get money from them to support their UN-Somali goals in Somali. Therefore, the world need to respect our coastal line and the world need to stop dumping waste in our water. The whole world is not talking about this, but they have the ability to talk about Somali pirates since the U.N. was not able to help us solve our problems. However,The Somalis should charge those ship money when they crossing Somali water just to protect the water from waste. There are new illness been reported in Somali due of the waste. I challenged you to do research about my claim.

In my blog posting yesterday I quoted an article from allafrica confirming the statements regarding dumping of waste.

This is something which has not made it to mainstream media, but has been reported quite a bit in various sites. Here is one report in July 2008, from SomaliSwiss Community.

Why Somalis turned to piracy

There are reports that the reason Somalis turned to piracy was due to foreign ships illegally fishing in Somalian waters, destroying the Somali fisherman's livelihood.

From the BBC

The BBC's Mohamed Olad Hassan in Somalia says many of the pirates are former fishermen, who began by attacking ships they argued were "illegally threatening or destroying" their business.

"Businessmen and former fighters for the Somali warlords moved in when they saw how lucrative it could be. The pirates and their backers tend to split the ransom money 50-50," he says.

What's interesting is the comment about the backing of the Somali warlords.

This ties in with comments from allAfrica.com

Who Do the Somali Pirates Work For?

The emergence of strong pirate activities started in Somalia in December 2006, after the transitional federal government of president Abdullahi Yusuf took control of the country from the Union of Islamic Courts. Since then, the country has gradually declined in terms of security and morality.

There is considerable reason to believe that some pirates could be working for the transitional government, since it (government) has not expressed any disapproval of their practice even though it could know who the culprits are.

It's alleged that most pirates who operate along the port of Eyl, (a notorious hijacking point) come from the Majarteen clan from which the president of Somalia, Abdullahi Yusuf, comes. Why hasn't the president used his good contacts with the United States, Britain and several African countries fighting a proxy war on terrorism to flush out the pirates?

On the other hand, it's believed the pirates could be working to restore the country's environment, after reports that some European firms were responsible for dumping toxic wastes in the Somali waters.

To verify this claim, the United Nations envoy for Somalia Ahmedou Ould-Abdallah, confirmed that the United Nations had reliable information implicating European and Asian companies in the dumping of toxic waste off the Somali coastline.

However, to the surprise of many, East African maritime authorities have continued to ignore calls by environmental organisations in Somalia over the abuse of the country's coastline.

Environmentalists believe the Somali coastline has been hugely destroyed as a result. Some have argued that the money the pirates demand is very little compared to the devastation that has been caused by the toxic waste, which includes nuclear waste.

M/V Faina - update Dec. 13

I don't know what's going on with the M/V Faina.

It was suppose to be released.

Then there was supposedly an attack by the crew.

However, now there are reports that was a lie.

"In reality, the following happened: Yesterday evening, two pirates who headed for the shore on a boat were seized and detained by the Americans. The pirates called intermediaries and the ship owner and asked them to speak to the Americans to ask for the release of their seized accomplices, but were told it is impossible," Mikhail Voitenko from Sovfracht Maritime Bulletin said.

"So the pirates launched the canard about a mutiny. Something like a threat," Voitenko told Ukraine's Unian news agency, citing the Faina's owner.

I don't know if this is the truth either. Do you think the Americans just let the pirates go?

Why are there still bunker surcharges?

I have been meaning to check out the bunker surcharges (B/S), or also called, bunker adjustment factors (BAF), (just so they won't have to admit they are really BS).

I did a post back in September called Illogical Bunker Adjustment Factors (BAF)

Back then crude was still over $100.00 per barrel, although it had come down from it's high of over $140.00.

Today, December 12th, as per Bloomberg News, it is trading around $44.00 per barrel.

So I thought (stupid me) that surely the ocean carriers had withdrawn all their BS by now. Oh, excuse me, BAF. I did a Google search "why are there bunker surcharges". The 3rd one on the list was the site from Tropical Shipping.

It start out really promising:

Bunker Surcharge Calculation Information Announcement - Update

October 3, 2008 -- Over the past few months, the world has seen an unprecedented amount of volatility in the energies market.
However, due to recent market trends that have resulted in lower crude oil prices, Tropical Shipping will now base its bunker surcharge calculation on the eight week running average of the WTI.

The price of crude oil remains highly speculative and our estimated bunker surcharge continues to reflect that volatility. If anything should happen to cause the cost of oil to rise above its current level over a sustained period of time, or conversely, continue to fall over a sustained period of time, Tropical will once again have to assess the current market conditions and sustained market trends to determine if we need to revisit our bunker surcharge calculations at that time.

But - but, but, but

When I do go to their chart, this is what is says:

Effective Nov. 9, 2008, the bunker surcharge is based on the new estimated WTI Cushing Spot* price of $109.00

Effective Dec. 7, 2008, the bunker surcharge is based on the new estimated WTI
Cushing Spot* price of $140.00

*WTI Cushing Spot - this is a settlement point used on the New York Mercantile Exchange. It is based on the price of delivery in Cushing, OK.

So I don't know what's going on. Maybe they laid off the person who was in charge of this project. This is what they said they would do.

The process of implementing a bunker fuel surcharge increase is focused around observing trends in the price per barrel of crude oil. The time periods most often analyzed are: weekly, monthly, eight-week and quarterly averages.
The new bunker surcharge calculation will be based on the eight week running average of the West Texas Intermediate (WTI) Cushing Spot price of crude oil taken every Monday as published on Bloomberg.com (http://www.bloomberg.com/energy). The spot price is put into a chart that we use to track the price per barrel of crude oil to calculate the eight week running average.
The first Tuesday of every month we will review the eight week running average and publish a benchmark WTI Price per barrel that corresponds to a bunker surcharge amount that is presented in a Bunker Surcharge Chart on tropical.com and in our tariff. This chart will show the various bunker surcharges by equipment size based on the (WTI) price per barrel, provide an effective date for the new bunker surcharge (30 day notice) and a new estimated date for the next increase or decrease (60 day notice).

I am going to give them the benefit of the doubt, and say I don't know how to read their chart. I can always hope.

Anyway, maybe I will try to give them a call and find out what's going on.

I hate to start looking at the other carriers. It's all so depressing. They were so anxious to get this additional revenue, but of course no one thought it would go the other way. They should really be giving Bunker Adjustment Factor credits at this point.

The Waterfront and The Mob - 2008

Some things just never seem to change.

From today's NY Daily News

Federal prosecutors eye N.J. capo from Genovese family in 2005 trial rubout

BY JOHN MARZULLI
DAILY NEWS STAFF WRITER

Thursday, December 11th 2008, 4:00 AM
Federal prosecutors named a powerful Genovese family gangster as the prime suspect in the gangland rubout of a fellow capo who was killed while on trial in Brooklyn.

Reputed capo Tino Fiumara is a target in the investigation of the murder of Lawrence Ricci, who disappeared Oct. 7, 2005, in the middle of his waterfront racketeering trial, Assistant U.S. Attorneys Jacquelyn Rasulo and Jack Dennehy disclosed in court papers this week.

Authorities say Fiumara, 67, runs the Genovese faction in New Jersey, including its illicit stake in the waterfront. Ricci reported to him at the time he was killed.

Ricci was killed for going on trial with two officials of the International Longshoremen's Association, sources said.

"They wanted him to plead guilty," a source said. "They didn't want him sitting at the table with the union guys. It didn't look good."

The prosecutors say another capo, Michael (Mikey Cigars) Coppola, could finger Fiumara in the murder.

click here for complete story

update - here are my previous posts on ILA and Mob

Is the Mob involved in the Florida ILA?
The Mob and the ILA
Tony Soprano would be mad

DryShips Cancels Ship Orders

The headline in Lloyds' List reads DryShips axes ships purchase to save cash.

This is how it starts out;

ATHENS-based DryShips has cancelled its proposed $400m acquisition of four panamaxes from companies beneficially owned by DryShips chief executive George Economou in order to preserve cash.

The company blamed a “significant deterioration in the dry bulk market”.

You caught that right? From companies beneficially owned by the chief executive of DryShips.

Later on in the article;

As part of the deal originally signed in July, the selling companies will retain the deposits totaling $55m for the four vessels, the company said.

The company also inked a revised deal with those selling entities, which gives it an exclusive option to buy the same four panamax ships for $160m.

Due to cancellation of the deal and purchase of exclusive options, DryShips paid an extra $26.3m per vessel.

Was that really in the best interest of the stockholders?

In the U.S. there are requirements that related companies treat each other at "arms length", meaning they need to treat each other as they would any other company.

Of course, the entire dry bulk market is a mess, but it's not like DryShips was buying these new, direct from a shipyard. If they were new, then George was being a go-between.

I know it seems like I am "George bashing", but I just don't have a warm and fuzzy feeling about this whole thing.

Oh, and I do not own this stock.

Marketwatch has the press release from DryShips, and the stock is going up.

The problem is people don't realize this company can go bust, probably not in the next few weeks, but my guess is within the next year. Furthermore, they are a very small player.

But, I guess if you play it right, there is money to be made trading this stock - people are putting in puts and calls.

I will try to do a posting next week with the various players and market shares - the ones listed in the U.S. are very minor players.

Anti-piracy meeting to be held at UN on Dec. 16

From The Journal of Commerce

Secretary of State Condoleezza Rice and senior officials from a number of countries will attend an anti-piracy meeting at the UN in New York on Dec. 16, 2008, according to reports.

The U.S. intends to back efforts to deploy an international peacekeeping force in Somalia to replace a contingent led by Ethiopia scheduled to leave the country. The U.S. says pirates based in coastal camps have links to an Islamic extremist group that has taken control of much of the country.

Pocketing Fabric Rule

On Monday I mentioned how complicated it is to file a Customs Entry.

Here is an example of how complicated it is, or at least how complicated Government Agencies like to make it.

CBP ratchets enforcement of pocketing fabric rule

"Pocketing fabric" actual refers to fabric used to make pockets on garments. (I wasn't sure what it meant, maybe something to do with pool tables).

This will clarify the issue (ha)

The rule, which became effective Aug. 15, requires pocketing fabric in many garments be made from yarns and fabric produced in a CAFTA-DR country in order for the completed apparel imported into the United States to receive duty-free treatment.

The agency said it's responding to a recent review of CAFTA-DR preference claims. The review found non-compliance for apparel declared as manufactured using certain yarns and/or fabrics commonly referred to as being in "short supply."

CBP designates the textile industry as a Priority Trade Issue (PTI): high-risk areas that can cause significant revenue loss, injure the U.S. economy, or threaten the health and safety of the American people. The goal of the textile PTI is to ensure that textile imports fully comply with applicable laws, regulations, quotas, free trade agreement requirements and intellectual property rights, CBP said.

Oh yes, international shipping made easy!

The BBC Box arrived New Jersey Dec. 9

The BBC Box has arrived in Jersey City, NJ.

NYKU8210506 arrived Jersey City, NJ on December 09, 2008

I don't know if this is where it will be removed from the flat car, but I presume so.

I was wrong about when the container would arrive in New Jersey, and at what destination.

My guess was it wouldn't arrive until Dec. 12th or later. The actual transit was much faster - 5 days. Pretty good considering all the stops.



For non-Americans (or, probably more so, we Americans) who want to figure out the route, here are the state codes
CA - California
AZ - Arizona
NM - New Mexico
TX - Texas
KS - Kansas
IL - Illinois
PA - Pennsylvania
NJ - New Jersey


Status As Of Event Location Mode
DEC-09-2008 12:13 Arrived at destination rail terminal Jersey City, NJ, USA Rail


Moves to Date Event Location Mode
DEC-09-2008 05:20 Rail departure Harrisburg, PA, USA Rail
DEC-08-2008 21:20 Rail departure Pittsburgh, PA, USA Rail
DEC-08-2008 01:30 Rail departure Chicago, IL, USA Rail
DEC-08-2008 00:37 Rail departure Chicago, IL, USA Rail
DEC-07-2008 08:00 Rail departure Kansas City, KS, USA Rail
DEC-06-2008 23:38 Rail departure Wellington, KS, USA Rail
DEC-06-2008 17:30 Rail departure Amarillo, TX, USA Rail
DEC-06-2008 14:10 Rail departure Clovis, NM, USA Rail
DEC-06-2008 07:56 Rail departure Belen, NM, USA Rail
DEC-05-2008 19:01 Rail departure Winslow, AZ, USA Rail
DEC-05-2008 08:05 Rail departure Needles, CA, USA Rail
DEC-05-2008 03:29 Rail departure Barstow, CA, USA Rail
DEC-04-2008 22:48 Departed from origin rail terminal Los Angeles, CA, USA Rail

This is from the NYK tracking site, but the site has been modified and all the info is way down at the bottom (I had to look 3 times to find it).

The Box changed trains in Wellington, Kansas, which is only 20 miles from where I live. But it passed through close to midnight, so I wouldn't have seen it, even if I had been in the area.


According to the BBC site as of Dec. 9, The Box is still in California. Trust me, it's not.

Faina crew misbehaving

This is the story from the pirates holding the M/V Faina

"Some crew members on the Ukrainian ship are misbehaving. They tried to harm two of our gunmen late Monday," said the pirate, who declined to give his name.

"This is unacceptable, they risk serious punitive measures. Somalis know how to live and how to die at the same time, but the Ukrainians' attempt to take violent action is misguided," the spokesman added.

He said two of the pirates were taken by surprise when a group of crew members attacked them.

I guess for this "misbehaving" there will be more severe punishment than sitting in the corner with dunce caps on their heads.

click here for complete story

Armed guards on food aid ships

At the end of a news article regarding actions of a cruise line to avoid the Gulf of Aden (they will discharge the passengers in Yemen and fly them to Dubai, thus avoiding "pirate alley", or the official, name Maritime Security Patrol Area, MSPA,) there is a nice section regarding the EU anti-piracy mission.

What I consider the most important comment, is they plan to put ARMED GUARDS aboard the aid ships. Finally, someone with a brain.

Some 21,000 cargo ships a year — or more than 50 a day — cross the Gulf of Aden, which links the Mediterranean Sea, the Suez Canal and the Red Sea to the Indian Ocean, international agencies have said. The growing chaos in impoverished Somalia, which has had no effective government for nearly two decades, has allowed an Islamic insurgency to flourish in the country while speedboat bandits attack ships offshore.

The EU launched its anti-piracy mission five days early on Tuesday, before it takes over for the NATO ships next Monday. The EU mission will involve six ships and up to three aircraft patrolling at any one time, and will station armed guards aboard the most vulnerable cargo vessels, such as ships transporting food aid to Somalia, according to the British naval commander in charge of the mission.

"We would seek to place vessel protect detachments on board World Food Program ships transiting to Somalia," British Rear Admiral Philip Jones told a news conference in Brussels. "They are the most vulnerable ships of all, and the best deterrence is achieved by having such a detachment on board."

The NATO anti-piracy mission has also focused on escorting the U.N. aid agency's chartered vessels, helping some 30,000 tons of humanitarian aid reach Somalia since Oct. 24.

If this piracy problem continues, I think this approach will expand to more ships.

I don't think it's a bad idea for the military to charge the commercial owners for this service. Or, maybe, they can make an arrangement with the "flag" countries to offer security to their ships.

Most ships sail under a "flag of convenience", countries where it is cheap to form a corporation, but which of course do not have a Navy. Generally Marshall Islands, Panama, (use to be Liberia but I think that has changed)

Let the lawsuits begin

In my Dec. 2nd posting I discussed the problem in the Forward Freight Agreements (FFA) on the Baltic Exchange. There have been lots of defaults, or at least dragging of heels, to complete the contracts.

In the Dec. 8th issue of Lloyd's List, they confirm a couple of the lawsuits being filed.

... a growing number (of filings) before US and London courts relating to alleged breaches in freight derivatives contracts and counter party disputes.

Among the higher-profile disputes is Taiwanese owner and operator TMT, claiming $5.3m against Pan Oceanic Maritime for allegedly failing to pay money owed in October in four forward freight agreement contracts.

John Frederiksen’s Golden Ocean Group is also suing South Korean operator STX Pan Ocean for allegedly failing to pay $4.1m owed for FFAs taken out in November last year.

STX had bet that average 2008 rates for capesize ships would be more than $135,000 per day. But STX allegedly failed to make October monthly settlement payments.

I guess these disputes didn't get settled at that meeting held in November.

How to file a customs entry

I am not really going to tell you how to file a customs entry. It's quite complicated, in any country. It's a bit like filing a tax return.

In the U.S., importers are allowed to file customs entries directly with the government. They are not required to use a broker. But, as of now, most do.

All of the big express companies have their own in-house Customs broker, or sub-contract the services as needed. Here is the link for Fed-Ex Trade Networks.

As one of the largest-volume customs entry filers in North America, we handle more than 6 million transactions annually.

But the big guys aren't happy with what the WTO is doing. From the American Shipper

Express carriers voiced concern this week that the World Trade Organization and World Customs Organization appear to be “retreating” on a previous commitment to eliminate national mandates for companies to file import declarations to customs administration via customs brokers.
The Brussels-based Global Express Association told the heads of the WTO and WCO in a Dec. 2 letter that the use of customs brokers should not be a requirement for companies to interact with national customs administrations.
Mandated use of the services of a favored professional group is a symptom of and contributor to political corruption,” warned John P. Simpson, director general of the association, which represents UPS, FedEx, DHL and TNT.
Express carriers, with their capacity as both transporter and importer, believe they are technologically and regulatory sophisticated enough to interact with customs administrations directly.
“Customs brokers can provide highly valuable services and many importers choose to use the services of customs brokers even when they are free to submit their own declarations,” he added. “But customs brokers like all other professionals should rely on the market for their business, not government coercion. Governments should not be in the business of mandating use of private commercial services.”

I am not really sure why these express carriers are opposed to this. There are a lot of countries in the world, each with their own import regulations. International shipping can be quite complicated. And honestly, do these express companies really want the liability of filing entries for packages they don't actually own?

The BBC Box - on the rail to New Jersey

The NYK tracking site confirms the BBC box unloaded in Los Angeles at

00:27 Dec. 04

Container NYKU8210506 Container Size/Type 40'/DRY

Status As Of Event Location Mode
DEC-04-2008 00:27 Discharged from vessel at last port of discharge Los Angeles, CA, USA NYK Starlight/065

I tried to update the info to see if the container was on the rail, but the web-site doesn't connect. It's possible that NYK has now blocked access to this site.)

updated Dec. 7, 2008, 10:17 AM
The site is now up. This shows all the rail moves so far. Container is in New Mexico as of Dec. 6, 2008.

Container NYKU8210506 Container Size/Type 40'/DRY

Status As Of Event Location Mode
DEC-06-2008 07:56 Rail departure Belen, NM, USA Rail

Moves to Date Event Location Mode
DEC-05-2008 19:01 Rail departure Winslow, AZ, USA Rail
DEC-05-2008 08:05 Rail departure Needles, CA, USA Rail
DEC-05-2008 03:29 Rail departure Barstow, CA, USA Rail
DEC-04-2008 22:48 Departed from origin rail terminal Los Angeles, CA, USA Rail
DEC-04-2008 17:48 Rail loaded at origin rail terminal Los Angeles, CA, USA Rail
DEC-04-2008 12:31 Arrived at origin rail terminal Los Angeles, CA, USA Truck
DEC-04-2008 11:51 Departed from last port of discharge Los Angeles, CA, USA Truck

According to the BBC The Box is on it's way to New Jersey

PROJECT UPDATE
The Box has left Los Angeles by rail, bound for New Jersey via Chicago
The Box arrived in Los Angeles with a cargo of consumer goods including tape measures and fashion accessorieson Wednesday

Assuming the container loaded on the rail Dec. 5 or 6, I guess it should be in New Jersey somewhere between Dec. 12 and 16. It will most likely go to Chicago on BNSF (Burlington Northern Santa Fe), or Union Pacific, and then from Chicago to New Jersey on either CSX or Norfolk Southern.

The BBC now once again says the container is both tape measure and fashion accessories.

My hunch is this is what is called a "consolidated" container - meaning the contents are for more than 1 customer, and a freight forwarder combined the shipments into 1 container.

This container will probably go into a container yard (called a CY, for Container Yard), in South Kearny, New Jersey (really the armpit of New Jersey). I think The Sopranos filmed one of the "hit" scenes close to this CY.

Oh, by the way, a CY is where they take the containers off the trains and either put them on wheels (chassis), or just stack them on the ground until the trucker comes in to pick it up.

There is also something called a Container Freight Station (CFS) where the contents of containers are loaded or unloaded (or stuffed, or unstuffed, which it is sometimes called, to be more specific).

Review of publically traded dry bulk carriers

Below is a list from Google Finance as of Dec. 5., for dry bulk carriers listed on either the NASDAQ OR NYSE.

Almost all of these companies were listed in the last 2 years, when the shipping market started to heat up.

Every single one of these companies is Greek.

Yes, they are listed on U.S. exchanges, but they are all headquartered in Greece. London has much more to do with the shipping industry. Logically these stocks should be listed there. That right there should be a tip off. These folks were not courting informed investors.

Diana Shipping is the best of the lot. It just suspended dividends in order to have some cash. Star Bulk just issued an alert to investors.

In my opinion, none of these companies will make it through the next year.
They will either go bankrupt, or be taken over. Whether or not the stockholders will get anything is questionable.

I really hope I'm wrong. I'll make a note to check back on these stocks in a few months.


Name Name Exchange Symbol Last Trade Change Mkt Cap

Star Bulk Carriers Corp. NASDAQ SBLK 1.80 -0.09 (-4.76%) 101.12M

Euroseas Ltd. NASDAQ ESEA 3.99 +0.19 (5.00%) 121.73M

DryShips Inc. NASDAQ DRYS 4.75 +0.56 (13.37%) 299.18M
(the link for DryShips is now directing to Cardiff Marine, a sister company - I smell a rat)

Paragon Shipping Inc. NASDAQ PRGN 3.85 +0.32 (9.07%) 104.48M

Excel Maritime Carriers Ltd NYSE EXM 3.70 -0.21 (-5.37%) 159.84M

Navios Maritime Holdings Inc. NYSE NM 2.15 +0.23 (11.98%) 216.76M

Safe Bulkers, Inc. NYSE SB 3.89 -0.09 (-2.26%) 212.01M

Diana Shipping Inc. NYSE DSX 8.09 +0.46 (6.03%) 607.56M

OceanFreight Inc. NASDAQ OCNF 2.94 -0.08 (-2.65%) 48.28M

Star Bulk issues alert to investors

Star Bulk is latest to alert investors

Nigel Lowry, Athens - Friday 5 December 2008

NASDAQ-listed Star Bulk Carriers has become the latest publicly quoted dry bulk operator to warn on potential problems if the current crisis persists.

“If vessel values continue to decline, we may not be in compliance with certain provisions of our term loan agreements and we may not be able to refinance our debt or obtain additional financing.

Now, in a transcript from the conference call of Nov. 25 quoted by Seeking Alpha

At this time, we also have a liquidity of over $50 million in cash, a moderate debt level compared to our peers and strong cash flow generation. We face no issues with our loan covenants and enjoy an excellent working relationship with our lending institutions. We don not have commitments to purchase newbuilding vessels or similar capital expenditures that would require us to obtain additional financing. Therefore, we are confidence in our ability to meet our financial commitments for the foreseeable future.

My, what a difference a couple of weeks makes. But honestly, I didn't read all 10 pages of the transcipt, so maybe they back peddled on this statement somewhere later.

Importer Security Filing, or 10+2

The Journal of Commerce is offering a Live Teleconference, to discuss 10+2 on
Friday, December 12, 2008 1:00 PM - 3:00 PM,Eastern Time Zone. They are charging 99.00 to participate. click here for more info

These are the highlights they plan to address.

On Nov. 25, U.S. Customs and Border Protection published an interim final rule called the Importer Security Filing. While that’s its official name, it has become known in the trade as 10+2 because it will require importers and ocean carriers to report 12 data elements that are not included on a ship’s manifest. Customs says the data are essential for better targeting of cargo that may be a security risk to the United States. Customs issued a proposed rule in January, which caused a stir in the trade community. How will importers get the data? How would it be filed? How would Customs collect the data? How much was it going to cost to comply? The interim rule allows additional public comment on selected parts of the ISF until June 1, 2009. Customs will phase in enforcement of the rule over a year, and promises the trade a “soft landing” to mitigate the effects of the additional reporting requirements.

It might be worthwhile, but if you have a good customs broker, you might want to call them first. They can probably tell you all you need to know.

What's wrong with the Baltic Dry Index?

For one thing, many of the recent ship charters have been done on a spot or trip basis, at totally undervalued prices.

Ship owners are doing this with the theory that some cash is better than laying up the ships or having them sit idle. I even saw one comment that it was good for the crews to keep busy.

The Wall Street Journal had an article recently, stating that many of the indexes for the sale prices of homes in the U.S. were not including home sale prices for those sold due to foreclosure.

Perhaps the Baltic Exchange needs to consider "throwing out" some of these really cheap charter rates which do not really reflect what a normal charter rate would be.

The market has really been in a mess lately with people defaulting on contracts.

I discussed the problem with the freight forward contracts earlier this week.

Lloyd's List has a very good article today, mainly quoting Philippe Louis-Dreyfus, chairman of the European Community Shipowners’ Association, discussing these problems.

There has been a general loss of confidence in the markets, both economically and in counterparties,” Mr Louis-Dreyfus said. “It strikes me that we see more and more companies in shipping, and their clients, both talking about it and doing it: not sticking to their commitments.”

Plummeting rates, which in some cases have fallen more than 90%, were no excuse to walk away, he said.

“Some companies are claiming it is force majeure. That’s not force majeure, it’s business.”

I love that comment.

That’s not force majeure, it’s business.


I think that would be a good title for a college course.

10 + 2

Back in September I talked about the proposed U.S. Customs rule, 10 + 2.

Essential there are 10 data elements which must be filed with U.S. Customs (or now called Customs and Border Protection) 2 days before a shipment departs origin.

Which is why it is called 10 + 2. It does not equal 12.

There was such an uproar in the international shipping community that U.S. Customs decided to take a step back.

As reported in the Journal of Commerce

The rule establishes an interim six-month test of how the data elements can be provided, and allows U.S. manufacturers to provide the most difficult data elements on a "best available" status.

So, we shall see what happens after the 6 months are up. But, this change to the rule has yet to be approved by Congress, and those folks are busy with other things at the moment. Who knows, this could get pushed to the back burner, especially if funding gets cut.

Update 12/4 -
International Trade Law News gives all the information you want (and more) on this subject. click here
They say the phase-in is 12 months, not 6, so I have no idea what is the real deadline. I am sure it will be rather "fluid".

The M/S Nautica is not a U.S. ship

When I read the headline of Dec. 2nd, Pirates fire on U.S. cruise ship in hijack attempt, I was more intrigued by the fact that it was U.S. ship than the bit about the pirates.

The pirates are numerous and in the news everyday. A U.S. ship is much more rare.

Turns out it isn't a U.S. ship.

Yes, the company, Oceania Cruises, is based in Miami. It is part of Prestige Cruise Holdings, which is owned by Apollo Management, L.P., based in New York. So, in that sense it might be considered a U.S. ship.

The ship is sailing from Rome to Singapore, with stops at ports in Italy, Egypt, Oman, Dubai, India, Malaysia and Thailand. Oceania doesn't even call at U.S. ports.

The ship, M/S Nautica, is registered and sails under the flag of the Marshall Islands. The Marshall Islands is what is known as a "flag of convenience". It's cheap.

One reason it's cheap is because the Marshall Islands doesn't have a Navy to fight off pirates.

Some ship owners are considering re-flagging their ships to countries who do have Navies.

The BBC Box to arrive Los Angeles Dec. 3

Finally, the BBC has decided to tell us when
The Box, NYKU8210506, will arrive in the U.S.

Dec. 3rd.

PROJECT UPDATE
The Box's next port of call is Los Angeles, where it is due to arrive on Wednesday 3 December
The Box left Shanghai on Tuesday 18 November with a cargo of consumer goods including tape measures and fashion accessories

It's suppose to be on a vessel named the NYK Starlight. Let's see if that's the ship that unloads it in Los Angeles.

Baltic Exchange Forward Freight Agreements (FFA)

The Baltic Exchange Forward Freight Agreements (FFA) are futures.

But,this is an unregulated market, so they are not really traded, just agreements between parties.

There have been lots of problems as people were not fulfilling their contracts. Why not, you ask?

Well, as far as I know, they aren't required to put up money or collateral. The motto of the Baltic Exchange is "Our word Our Bond".

Now, I am not sure about the futures, but the Baltic Dry Index (an average of actual charter rates) dropped about 90% over the last 5 months. That's right folks, 90 percent! One week you are getting $100,000 per day charter on a ship, and 5 months later you are lucky to get $10,000 per day for the same ship.

Talk about a bubble bursting.

There was a meeting last month, organized by one of the brokers who deals in the FFA's. Everyone was to come together, show their cards, convince the ship owners (or whomever they owed money to) that they were serious players. Ok, maybe they were having a little cash flow problem at the time... but they are serious players in the crazy world of international shipping.

Anyway, the minutes of the meeting have been posted for everyone to see. The press was barred from the meetings, so there's not much other information available.

I thought the minutes were only for members of the Baltic Exchange, but, apparently not.

It's pretty boring, but here it is if you are interested.

Ships' crew refuses to sail Gulf of Aden

From Lloyds List

A V.SHIPS-managed vessel has been stranded in the Gulf of Aden for more than 72 hours after terrified crew witnessed the Biscaglia hijacking and refused to sail the ship further.

“We have a crew right now who won’t go any further and have stopped the ship,” said V.Ships chief operating officer Matthew Dunlop.

Mr Dunlop would not name the vessel involved, nor give crew numbers or location, because of security concerns, but he said the ship was fully laden.

Later in the article,Mr. Dunlop gives his opinion regarding security of vessels passing through the Gulf of Aden..

He did not criticise the crew’s action but he said the industry would have to face the industrial and safety concerns arising from transits in waters where pirates have attacked.

“But we should not have any armed guards on a merchant ship. Full stop. Not negotiable,” he said.

Wow. Easy for him to say.

Put this guy on a ship through pirate infested waters, and see if he changes his tune.

M/V Faina to be released by pirates

As I mentioned last Wed., Nov. 26, the ransom for the Faina had been dropped to $3 million U.S.

Today it is to be released. No ransom amount given. From the BBC

Gunmen seized the Kenya-bound MV Faina, carrying 33 tanks, grenade launchers and ammunition, on 24 September.

A pirate spokesman said releasing the ship was "a matter of time", but gave no details of a ransom payment.

I think by now the pirates just want to get rid of this ship. Besides, they are catching much bigger fish these days, having recently captured the oil tanker Sirius Star.

Where is the BBC Box? Is it stuck in Japan?

NYKU8210506 - where are you?

The BBC has either decided the public shouldn't know what's going on with THE BOX, or, whoever was in charge of this project at The BBC got reassigned.

According to the BBC site the box is in Japan, and has been there for more than a week (if I recall correctly).

So to all those folks who were encouraged by the BBC to track this container around the world, well, I don't know what to tell you.

I guess it's time to go back to playing "air guitar", or, whatever.

This looks fishy to me

This morning I made a post about the latest hijacking of a ship by the Somali Pirates. It was hijacked despite having security onboard. However, the security team was not armed, and obviously this is not going to do the trick.

Later in the day, Lloyd's List has an article stating the same things I said (Ok, this is NOT rocket science).

Maritime security sources stressed that while owners should not rush to get trigger happy, they need to be aware that simple three-man squads equipped only with non-lethal equipment were no longer enough to counter increasingly sophisticated and brazen pirate tactics.

But what really caught my eye was this

The commander of French frigate Nivose Jean-Marc Le Quilliec told Agence France Presse that the attack was mounted by five Somalians in a fishing boat. He said the three security guards jumped overboard and were subsequently picked up by a German helicopter.

It just seems fishy to me. Especially in light of recent comment by pirates that they are tipped off.

Onboard security did not stop this piracy

SOMALI pirates have hijacked the chemical tanker Biscaglia, despite the presence of three British guards onboard.

The guards were unarmed. Personally, I don't know what good it does to hire guards, but then not have them armed. I realize British cops don't carry guns, but it's not like these guys are walking a beat in London.

With all the piracy, the insurance rates have gone up dramatically for the ship owners. The international shipping industry will be greatly impacted by this, especially in today's market of falling charter rates.
More carriers are deciding to route their ships around the Capes, to avoid the Gulf of Aden, and the Somalian pirates.

Hamburg Sued or Hamburg Sud?

Here is a press release from Hamburg Süd. The complete name of this company is Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft, which translates something like Hamburg South American Steamship Company.

As the company is German, it has an umlaut. I don't really know what to do for typing it in English. I always thought it should be spelled Sued to show the phonetic pronunciation, but recently I was corrected and told it should be Sud.

But I have a real problem doing that. I'm not sure we Americans are able to know that Sud should be pronounced as something different that what you get when you use soap, ie: suds.

Hamburg Süd establishes own country organisation in Colombia

Hamburg, 27 November 2008. With effect from 1 January 2009, Hamburg
Süd will establish an own country organisation in Colombia. Hamburg
Süd Colombia Ltda., with head office in Bogota and a branch office in
Cartagena, will be responsible for all the shipping group's container
shipping operations from and to Colombia in the future.

Together with its long-standing partner Messrs Eduardo L. Gerlein
S.A., Hamburg Süd operates further offices in Medellin, Cali,
Baranquilla and Buenaventura.

With the establishment of Hamburg Süd Colombia Ltda., the shipping
group is taking into account the growing importance of the Colombian
market. At the same time it will further improve and strengthen the
relations with Hamburg Süd's Colombian customers.

Islamist group threatens Somali pirates

According to an article in Military.com, the pirates are now afraid, not because of all of the U.N. warships, but because of an Islamist group, which obviously does not adhere to international standards regarding prisoners.

Al Shabab announced it opposed the taking of ships owned by Muslims and promised to behead those who did.

Al Shabab "made it dead clear that any ransom that is collected they will take it; they will take away their money and kill them," Ballarin said.

There is an American woman involved in the negotiations, Michele Lynn Ballarin.

My goal is to unwind all 17 ships and all 450 people they've been holding," she said.

Ballarin said the involvement of the Somali Islamist group, Al Shabab, had helped turn the tide in her favor by putting the fear of death into the young pirates. She claimed the Islamist group had captured, tortured and killed a young male relative of one of the pirates in the last few days.

Today the pirates lowered their ransom demand for the M/V Faina down to 3 million US. They started out at 35 million, then down to 8, and now 3.

If it's true about the Islamists, I think pretty soon these pirates will be walking away, just hoping they escape with their lives.

Are pirates tipped off?

Apparently, the pirates themselves have confirmed they are being tipped off.

From Lloyd's List article (regarding hijacking of the oil tanker Sirius Star)

“We had to bear many expenses to hijack it and $500,000 was paid for information and expenses for the people who hijack ships,” said the 35-year old pirate, who identified himself as Jami Adam.

“We have countries that give us information about the ships in the sea, if there are commercial ships sailing our way,” he told the Arabic newspaper.

Asked how the pirates followed these ships, he replied that they had “collaborators” who provided information on vessel movements.

There is some speculation the pirates were tipped off about the Faina, the ship carrying tanks and arms with the questionable destination.

Personally, I always wondered if someone tipped them off regarding the M/V Faina. There are several parties who would have reason to do so; Russia, the CIA, various factions in Somali and Kenya.

On a lighter note, even the famous Scott Adams (author of the cartoon strip Dilbert) is writing about the pirates capturing the oil tanker.

Star Bulk Carriers - read the small print

Star Bulk is upbeat. They have declared a cash dividend of .18 per share. Their stock is trading today slightly above 2.00. Pretty good return.

I guess they passed out rose colored glasses to their management.

They say things are lookin' good, but if you read through their report, personally I wonder what this is based on.

Their average charter rate for 3rd quarter was $62,156 per day, but they adjusted it down to $45,756, which was closer to the market rates at the time.

An average of 12.1 vessels were owned and operated during the third quarter of 2008, earning an average Time Charter Equivalent, or TCE rate of $62,156 per day. Adjusted to exclude the effect of the amortization of time charters attached to vessels acquired at above or below market rates, the TCE rate for the third quarter of 2008 was $45,756. We refer you to the information under the heading "TCE rate and adjusted TCE rate" later in this release for further information regarding our calculation of TCE rate.

Ok, all fair and good. Now, let's look at what they are currently getting for their ships. Approximately $25,000 per day (I'll be generous)

New Charter Party Agreement

The Star Beta has entered into a short term period employment with Brazil's Companhia Vale do Rio Doce (Vale) for a minimum of two and a maximum of four months at the gross daily rate of $15,500 for the first 50 days and $25,000 for the days beyond 50 plus a repositioning ballast bonus of $525,000.

Yeah, sure. Things are really looking up. Actually the rates of $15,000 - $25,000 per day is closer to market reality.

It's almost becoming a penny stock as it is, with a 52 week low at USD 1.99. I guess they think by issuing the dividend it will keep the price up, and no one will read the fine print about all that other stuff, including the issuing of additional stock.

Know your customer

Last month I wrote about the need to be sure that a shipper does not pay a broker, and get left holding the bag for freight payment.

On the flip side of the coin is the need for freight brokers to be sure their customers are paying their bills in a timely manner. The American Shipper has an article outlining this problem.

In a follow-up interview with American Shipper, Clark described how Cargo-Master made a deal with the chief financial officer of a customer that owed about $400,000 in back payments. Under the new terms, the customer agreed to pay $25,000 per week of the outstanding debt and pay on time for booked freight going forward. After a couple of weeks the payments dropped to $12,000 per week and Cargo-Master decided to cut off the customer.

It's always hard to turn down a customer. Especially if you are in sales. But, it's a necessary evil, especially in today's environment.

Wall Street 101

This from the author of "Barbarians at the Gate" (written about the 80's - for you young'uns)

Wall Street is still governed by fear and, especially, greed today in the wake of the collapse of the securities, real estate and automotive industries. "I'll give you my 'Wall Street 101' lecture," Helyar said. "Then, the M&A artists were over-the-top in some cases but were still tethered to real corporate America."

Fast-forward to today: "Wall Street became more of a blue smoke-and mirrors" environment, Helyar said.

Helyar saw the Internet bubble-burst nearly a decade ago as a result of analysts acting as "carnival barkers." He assesses the current crisis as the work of "quants" inventing ways to exploit the financial markets.

Burrough's view is that the chaos and ruin on Wall Street is emblematic of history repeating itself. "It's exactly the same every time," Burrough said animatedly. "Wall Street produces a product that makes money. Then it is overused -- and by the wrong people."

The same thing can be said all over the world. One more thing we Americans have exported.

Korean dry bulk carrier is bankrupt

Lloyds List reports Parkroad Corp. is bankrupt. Parkroad had eight vessels, mainly Panamax and Handysize dry bulk ships.

SOUTH KOREAN dry bulk specialist Parkroad Corp confirmed that it has gone bankrupt and its vessels are being operated by Sinokor Maritime Co Ltd.

A spokesman Mr SK Chung from Sinokor in Seoul also confirmed that they are operating eight vessels owned by Parkroad.

Sinokor isn't a bulk carrier, they are in the liner business. I can only guess that the lender decided it was a good place to put the vessels for the time being. Or, perhaps Sinokor will start picking up dry bulk ships for pennies on the dollars in this down market.

It's not unusual for shipping companies to engage in both liner (with fixed schedules) and tramp (without fixed schedules) services. And, if you have the money, are already in the business of shipping, now is the time to buy some ships.

Breaking covenants

Forbes had an article last week regarding the dry bulk carriers.

Shippers Breaking Their Covenants
Ruthie Ackerman, 11.20.08, 07:45 PM EST
Falling prices for vessels creates technical defaults for battered dry-bulk industry.

Apparently the author has followed these stocks for some time. The article is worth reading.

At the end, this is how it wraps up.

Burk said that it appears that DryShips, Eagle Bulk Shipping (nasdaq: EGLE - news - people ), Excel Maritime Carriers (nyse: EXM - news - people ), and Genco Shipping & Trading (nyse: GNK - news - people )have technically breached their loan covenants.

Nonetheless Burk points out that all the companies have enough cash flow to cover their interest payments, which mean as long as their charters don’t default the companies themselves will be able to service their actual debt if their lenders aren't too insistent on the technicalities of the borrowing agreements.

The history of the shipping industry has been carriers must operate for some time not being able to cover their costs. This is why only those will very deep pockets survive, unless there are some sort of cartels or pools set up. That is probably no longer possible due to the change in regulations (although the Koreans are considering setting up a pool).

I particularly enjoyed one of the comments posted regarding this article. If anyone knows who "PoorandUnemployed" might be, give him or her my best.

Posted by PoorandUnemployed | 11/21/08 11:33 AM EST


Given the history of shipping finance, in times like these, owners make the interest payments but stop paying the crews, fuel suppliers, port costs and other suppliers. In it's uniqueness, all the debt is always incurred by the vessel regardless and the vessels can be arrested in different jurisdictions world-wide for a five dollar unpaid bill.

Expect banking style collapses, mergers, forced marriages and defaults. Given the past history, it is likely that the Publically held companies would not survive this storm. Once the market players have lost the interest in the sector, many will lose their NYSE or Nasdaq listings. Managements will purchase the stock at very low price (pennies) and eventually take them private in effect buying the underlying assets for pennies on a dollar. Same banks will refinance the assets to new owners at a discounted price with higher percentage ratio of private equity.

At this stage of the game, banks can neither foreclose on the ships and sell them at auction nor they can allow to companies to add on to debt to meet operating expenses. This calls for some ENRON type creative accounting!!!!!!!!!!!