Will Icelandic carrier Eimskip survive?

Back in October 2008 I wrote about Eimskip going belly up due to the financial problems of Iceland.

They are still in business, but even their auditor questions for how long.

Eimskip announced a loss of 648.4 million euros [$836 million] in the year to the end of October mainly due to asset writedowns and a loan guarantee for a failed airline.

Eimskip’s auditor KPMG said this casts significant doubt on “the company’s ability to continue as a going concern” as it may be unable to realize its assets and discharge its liabilities.

Because most of their international shipping business has involved refrigerated cargoes, they are not in as bad of shape as they would have been if their core business was in containers or bulk carriers.

Revenues rose 5.7 percent to 718.9 million euros [$927 million] from 680.3 million euros [$878 million] in the previous year, driven mainly by a big increase in shipping volume in the Baltic and new Asian operations

However, I think all this will do is allow some assets to be sold off, rather than just go bankrupt.

Maybe they can salvage something. Iceland needs transportation to and from their country, especially since all their unemployed bankers have gone back to fishing.

Surprise Surprise

I've been questioning the financial viability of DryShips for quite some time now, so I do not find any of this information surprising.

In a research note moving DryShips to ‘Sell’, an analyst at Dahlman Rose said that on a charter-free basis, DryShips’ current loan-to-value was beyond 100%.

DRYSHIPS’ ... admitted that $752m of its debt was in breach of covenants with two of its leading banks.

In addition, the George Economou led company was “in communication” regarding breach of loan covenants with a third lender holding $650m of debt.

The disclosure, along with news that three bulker sales the company negotiated last year have unravelled, was contained in a new shelf registration with market regulators to cover the possible issue of up to $500m in new shares.

In a similar exercise launched last November, DryShips filed for 25m shares but although most of the offering was sold its proceeds amounted to $167m rather than the $500m initially expected.

and DryShips is also having some problems with a dispute regarding a cancellation of a ship purchase

GEORGE Economou’s DryShips has been given extra time by a US district judge to present its side of the story in a maritime attachment dispute involving Canadian shipowner Fednav.

Fednav brought a Rule B attachment complaint in New York two weeks ago, naming DryShips associate Kerkyra Traders as the main defendant.

Fednav’s complaint, had it been granted on an ex parte basis, would have allowed it to attach DryShips assets in the US without informing DryShips.

However, Judge Leonard Sand of the US District Court for the Southern District of New York said in an order dated January 22, that “this question is too close to be resolved based only upon ex parte submissions by plaintiff”.

Sailing through Pirate Alley

Back in December, after the hijacking of the Sirius Star, the High Risk Area for seafarers was expanded to include all of the Gulf of Aden. This area is larger than the Maritime Security Patrol Area (MSPA).

The Europe-based International Maritime Employers' Committee, which represents over 100 companies, operates more than 5,500 ships, and employs more than 145,000 seafarers worldwide, said the decision of ship owners and seafarers alike for a bigger high-risk zone was due to "the attacks that have occurred outside the previously agreed zone, including the 'Sirius Star' which had been hijacked off the coast of Kenya."

Although this does not guarantee their safety, at least the crews will be getting a lot more money for sailing into this risky area.

"Wage bonus and other benefits" -- P100 percent bonus in wage and double death and disability compensation -- for those who pass by the area.

The Philippine Overseas Employment Administration announced that Filipino seafarers who passed by the specified zone would get double pay and could even refuse to board the ship at the last port if they so wish.

There hasn't been much in the news lately about the Somali Pirates. Of course, other types of Pirates have been occupying our news as of late.

520 Oil Tankers used for storage

I haven't talked much about the oil tanker market. This market hasn't had the financial crisis of other types of ships.

One of the main reasons is because as the demand for oil dropped, traders have been using the ships to store oil. This is because the future price of oil is more than the spot (contango).

One of the tanker owners, Euronav, is rather optomstic.

The oil price contango has seen oil traders book VLCCs for oil storage in recent weeks, with 22 from the global fleet of 520 presently used as floating storage according to London broker Gibson.

The move has boosted the Baltic Exchange’s average time charter for VLCCs to $47,600 per day by Friday, up from $28,000 seen earlier this month.

Mr de Stoop (of Euronav) rejected fears that VLCCs will flood the market when the oil price contango ended, depressing rates.

“All those ships will be in storage at different places in the world, not in the same location and they will all be booked for a voyage [when the contract ends],” he said.

I don't think the VLCC market will be improving in 2009. At the moment the future price of oil is more than the spot market, but I don't think that will continue for long. I suspect the tanker market will take a dip in about 3-4 months.

DryShips posts loss, suspends dividend

Lloyds List reports DryShips has cancelled orders for ships. However, I think the more interesting news is they have suspended their dividend payments (which is why most people bought this stock), and also announced a substantial loss in the 4th quarter of 2008. Wonder what this will do to their total 2008 performance.

... the company has suspended dividend payments on its common stock, beginning with the last quarter of 2008, in a bid to retain capital.

The “corrective measures”, as the company termed them, were revealed as DryShips also disclosed it expects to make a substantial loss for the last quarter of last year.

Though preliminary and unaudited, the company said it expects to post a net loss of between $380m and $431m after provisions to cancel ships, including a previously announced disposal of four panamaxes, as well as $177m in unrealised interest rate swap losses.

There is more gobbledygook in the article about how the monies for cancellations will be handled. What is really worrisome is they might issue more stocks to pay for the cancellations.

The company said the cancellation fee for that deal would include 6.5m shares issued to “entities unaffiliated with the company nominated by third-party sellers which will be subject to a six month lock-up period”.

Entities controlled by Mr Economou will only get 3.5m “out of the money” warrants, each entitling the holder to purchase one DryShips share.

It is understood that these will vest in three tranches over 18 months with strike prices of $20-$30 per share.

“In each transaction, counterparts are willing to take either some or all of their consideration in the form of DryShips equity securities,” said Mr Economou. “We believe these transactions enhance shareholder value, as the value recaptured from the cancelled transactions is dramatically higher than the consideration to be delivered by us for the cancellation.”

For the other three capesize disposals, about $36m in deposits would be forfeited, as well as $30m paid to an undisclosed buyer. Two further tranches of $25m may be paid in cash or by issuing 2.6m shares, the company said.

I need to look at the pictures, but I would guess that Mr. Economou's nose grows with each one of these announcements.

BBC Box due Santos, Brazil Feb. 7, 2009

Here's the update on the BBC box, NYKU8210506.

It sailed from New York on Jan. 12 with household goods destined for Santos, Brazil.

I finally found the vessel Iwato in the NYK web-site. It's due into Santos, Brazil on Feb. 7th.

ANS JAN-09 New York JAN-09 New York JAN-12 IWATO/017 Santos FEB-07 FEB-08 Santos 29d 10h

As of today the BBC site hasn't been update with the ETA, so I guess once again they want to keep this under wraps.

Plans for Kenya to prosecute Somali Pirates

Finally, a place to send pirates when they are captured, rather than just releasing them.

THE US government is understood to be nearing a deal with Kenya to detain and prosecute pirates captured off Somalia.

According to a statement issued on Friday by US Navy Vice-Admiral William Gortney, commander of the US 5th Fleet, the US State Department is now close to finalising an agreement with a partner country to prosecute pirates captured by US forces. Industry sources have told Lloyd’s List they understand this country to be Kenya.

Let's be honest, it is a problem what to do with them once they are caught.

A Danish Navy ship intercepted the Somalians in the sea on January 2 after the crew of the cargo vessel Samanyulo responded by firing flares at the pirates and a Danish navy helicopter opened fire on the pirates’ boat. The five Somalians are still on board the Danish ship Absalon.

The Netherlands will have to spend quite a bit of money to keep these pirates locked up for 12 years.

The Netherlands has signed an agreement with Denmark to extradite five Somalians held by the Danish Navy who attacked a Netherlands-Antilles cargo vessel in the Gulf of Aden. The Dutch public prosecutor has started proceedings against the Somalians for piracy, a crime which can fetch a maximum jail sentence of between nine and 12 years in the Netherlands

Plans for Punta Colonet Port put on hold

Back in September 2008, I wrote about a new proposed Mexican port, Punta Colonet. It was a great time for this idea.

There was an interesting article in the American Shipper last week about a new port planned for Punta Colonet on the Pacific Coast of Mexico. This could be a really big deal considering the costs of discharging containers in the U.S. with Union Labor is probably 3 -5 times more than what can be done in Mexico, not to mention the new restrictions being imposed on the carriers with air quality emissions etc.

The article talks mainly about how it will compete with the Southern California ports as of course most of the cargo discharged in Southern California does not stay there. The big sticking point is getting the rail connections from Mexico to other points in the U.S.

As was expected, this project has now been put on ice.

The Mexican government on Tuesday said it might have to postpone construction of the Punta Colonet megaport in Baja California due to financing issues related to the global economic downturn.
Mexico’s Transportation Secretary Luis Tellez said two U.S. banks are working with Mexican federal officials to determine if financing of the estimated $5 billion port project is still possible in the current financial environment.
Tellez also said the Jan. 26 deadline for firms bidding on the project is likely to be extended, though he did not offer more specifics. Bidding opened in August 2008

click here for complete article in American Shipper.

The original plans were a bit over ambitious (in my opinion). I hope the officials can come up with a scaled down version and put it out again for bids. I think it is a great idea, and would help Mexico immensely in the long run.

Hapag Lloyd sale in jeopardy

Lloyd's List reports the sale of Hapag-Lloyd has hit some problems. This is not unexpected as the sale was renegotiated just prior to the major downturn in international shipping. The only other bidder, NOL (APL) already saw this, and withdrew their bid.

The Hamburg-based Albert Ballin consortium, which bought Hapag-Lloyd, is seeking to renegotiate the terms of sale. At the same time, one of the banks supporting the action, Royal Bank of Scotland, is understood to be in the process of pulling out of the deal.

“The transaction changed and it no longer suited RBS to participate,” a source close to the deal told Lloyd’s List.

The container line was granted a $750 loan from an international banking consortium led by German banks HSH Nordbank and Hypovereinsbank to buy 29 container vessels from Tui, the parent of Hapag-Lloyd.

Hapag-Lloyd was valued at €4.5bn under the deal, including debt and the acquisition price for the vessels. Industry observers regarded the price as extraordinarily high, given the fact that the industry is in a major crisis.

Albert Ballin shareholders are due to €1.4bn as part of the transaction. Tui will continue to be a shareholder, with a stake of €700m. In addition, €2.4bn of debt was transferred to Hapag-Lloyd.

Maersk reduces Bunker Adjustment Factor (BAF)

Maersk announces they are reducing the Bunker Adjustment Factor (BAF) on 2 of their trade lanes.

About time.

Maersk Line announced plans to lower bunker surcharges imposed earlier on the trade from the Middle East and the Indian Sub-continent to the East Coast of South America.


Effective Feb. 1, the surcharges will be $55 per TEU and $110 per FEU compared with $80 and $160 at present, the Danish carrier stated in an advisory to the trade.

In a separate notice, Maersk said it plans to implement a similar reduction for cargo moving from the East Coast of South America to the Middle East and the Indian Sub-continent, also effective Feb. 1.

The revised charges will be $310 per TEU and $620 per TEU, down from $450 and $900 imposed earlier.

They would be better off getting rid of it in all of their trade lanes, as it must be a nightmare to correctly rate a bill of lading - which contracts it applies to, which ones it doesn't, etc. etc.

Furthermore, they look pretty stupid charging it now, considering today the WTI spot price is under 40.00.

I suspect this bunker adjustment factor is more than the ocean freight on some shipments. This kind of pricing severely reduces the credibility of the carriers.

Do they really think their customers are that stupid?

Armada files Chapter 15

Another bulk carrier has been hit by the downturn in the market. International shipping companies are really taking a beating. The bulk carriers are the first to be hit, but before long we will see other types of carriers in the same situation.

Armada, a Singapore based carrier filed for Chapter 15. I had never heard of Chapter 15 until recently. Apparently it allows foreign companies to reorganize outside of the U.S., and protects them from U.S. creditors.

Anyway, what is really interesting about this Armada problem, is they made money in 2008, but hit financial problems due to freight futures (FFA's).

The filing said the carrier's losses from derivatives would hit $375 million this year due to the bottoming out of charter rates. The company is the latest to be impacted by the drop in freight and charter rates for bulk cargo transportation. The benchmark index for the sector, the Baltic Dry Index, plummeted 92 percent from a record high in the summer to a record low in December as demand for raw materials dwindled in North America, Europe and Asia.
Armada actually turned a net profit of $130 million in 2008, according to the filing, but admitted losses on future freight contracts will be steep if rates continue to stay low, as analysts predict they will through at least the first half of 2009.

click here for complete article in American Shipper

Wind Turbines Unloaded at Corpus Christi, Texas

I'm vacationing in south Texas for the month of January, specifically Corpus Christi.

There is a port here, and of course I can't help but be a little nosy about what is going on.

Today when driving around I spotted some wind turbine blades being moved in one of the port areas. Apparently, according to the press release, Texas is the largest wind energy producer in the United States.

For some reason I am unable to link to their press release. I guess they don't want word to get out.

If you google corpus christi wind turbine you can find the press release. I can't be bothered to type out the link.

Maybe I should go apply for a P.R. job with the port while I am here.

BBC Box loaded on M/V Iwato voyage 017

According to the NYK tracking site, the BBC Box loaded onboard a vessel. M/V Iwato Voyage 017

However, there is no such vessel/voyage from New York to Santos, Brazil in the NYK sailing schedule. In fact, their web-site says this service has been discontinued.

The BBC site said it would take 3 weeks for the container to reach Santos, which is really too long of a transit, so my only guess is they are transhipping this container somewhere.

Here are the results from the NYK tracking site. If you want to look for yourself, you must input the container number - all letters and numbers with no spaces.

Container Search Results

Container NYKU8210506 Container Size/Type 40'/DRY


Status As Of Event Location Mode
JAN-12-2009 11:43 Loaded on vessel at first port of load New York, NY, USA IWATO/017

The BBC Box bound for Brazil

BBC advised The Box is loaded and going to Brazil. They aren't giving out much information. I don't know if it's because they don't have the staff to cover this story, or if everyone is trying to keep the info under wraps.

PROJECT UPDATE
The Box will be leaving New York next week bound for Santos in Brazil. The journey should take about 3 weeks. It will be carrying a cargo of household goods

Even the NYK tracking site only shows a location as NYC. It really should show the terminal location, so probably this data was forced into the system.

Container NYKU8210506 Container Size/Type 40'/DRY


Status As Of Event Location Mode
JAN-09-2009 11:28 Arrived at first port of load New York, NY, USA


It's interesting that the goods in this container are Household Goods. Probably some Brazilians moving back due to the downturn in the U.S. economy. I don't really know how the Brazilian economy is doing, but you can live pretty cheap in Brazil if you choose. Retire to a small seaside town. Not a bad life.

Will Scanning Ocean Containers make us safe?

The short answer is no.

After 9/11, all of the U.S. wanted to make our country safe.

One of the less bright ideas was to scan all the ocean containers coming into the U.S., prior to their departure at the foreign port.

Having worked in international shipping for a number of years, I can say this is one of the dumbest ideas put in place.

First of all, what would they really be looking for? Supposedly trained professionals looking at baggage miss half the stuff they should find - you know things like guns and knives. How can someone look at a container full of "department store merchandise" (which is the description of the contents of many containers), and have any idea what might be dangerous to the American public.

In a Lloyd's List article it states they don't expect it to be repealed, but at the best, delayed past it's 2012 implementation date. Hopefully by then our representatives will listen to those with experience, and cancel this new mandate.

Perhaps, someone will even read this blog post.

More downgrades for Dry Bulk Carriers

I've been harping about how bad it is and will be for dry bulk carriers, but the stock prices have gone up, which made start to wonder if I was correct.

Oppenheimer has just downgraded their forecast for this sector, so I guess I'm not alone. Not that being alone would bother me, I don't generally agree with the crowd.

“ANAEMIC” demand will see dry bulk spot rates only rise slightly above break-even levels in the first half of 2009, according to US investment bank Oppenheimer & Co which has downgraded forecasts for the troubled sector

.

Mr Burk also said bankruptcy risks were greater in the dry bulk sector with the potential for listed dry bulk companies to face charter renegotiations and the “violation of collateral coverage loan agreements”.

“Management teams on the dry bulk side may begin considering the potential implications of one or two years of day rates at cash break-even levels,” he said, urging them to cancel or delay newbuilding orders and repay debt if possible.

He cited anecdotal evidence that between 100-200 larger bulk carriers were currently anchored without employment, and a further 500 smaller ships also idle and awaiting better charter rates.

Maybe we can retrain the Somali Pirates from capturing ships for ransom, to maintaining them during lay-ups.

Bunker Adjustment Factors should come down

Today's price of oil at WTI Cushing Spot price is around 43.00.

Here is part of a chart with the Historical Crude Oil Prices (adjusted for inflation)
1996 $20.46 $28.01
1997 $18.64 $24.95
1998 $11.91 $15.70
1999 $16.56 $21.30
2000 $27.39 $34.16
2001 $23.00 $27.92
2002 $22.81 $27.22
2003 $27.69 $32.34
2004 $37.66 $42.80
2005 $50.04 $54.99
2006 $58.30 $62.11
2007 $64.20 $66.40
2008 Partial $97.98 $98.66

So, although the 2008 total average will probably be around 80.00 (I am just guessing), today's price is around the 2003-2004 levels.

I realize none of the carriers want to give up ANY revenue - they need every penny they can get, but I also think it is wrong to say you have a surcharge based on the price of oil, but then don't hold it to that basis.

One group has decreased their bunker surcharge, but not as much as the price of oil has dropped. It wouldn't surprise me if the bunker surcharge is more than the ocean freight, considering the market these days.

The Canada Transpacific Stabilization Agreement’s 11 member shipping lines on Wednesday dropped bunker surcharges 10.9 percent beginning Feb. 1.
The new fuel recovery charges will be:
• $292 per TEU.
• $365 per FEU.
• $411 per 40-foot, high-cube container.
• $462 per 45-foot container.
• $8 weight/measure adjustment.
CTSA’s currency adjustment factor will be remain at 0 percent in February.
CTSA member lines are APL, COSCO Container Lines, Evergreen Line, Hanjin Shipping, Hapag-Lloyd, Hyundai Merchant Marine, “K” Line, NYK Line, OOCL, Yang Ming and Zim Integrated Shipping Services.

We should start seeing other carriers and/or agreements reducing their bunker surcharges, or BAF (bunker adjustment factor) very soon. Either that, or we should see pictures of their pricing staff with egg on their face.

New Year's Predictions

I'm not usually one to do predictions, but this year it seems like a good time to "guess".

Back on Oct. 8th, 2008, this is what I said

I expect the stock market will continue to drop. My guess is the Dow will get down below 8500 before it bottoms out. And, I am thinking the recession will go on for 3 years.

Well, we certainly hit the 8500 mark, and even lower.

The economists have now said we have been in a recession for 1 year, so I guess if we go on for 2 more years I will be pretty much on the mark.

So, just for fun, here are my guesses

1) U.S. will be in a recession until 2011
2) Unemployment will hit 10%
3) Stock market? Maybe a bottom around 7500-8000

As for international shipping, I guess 10% of the carriers in existence today will be gone. Probably bought by someone else, but in several instances (especially in bulk and tankers) bankrupt.