Friday, February 27, 2009

Four More Years

That's probably how long before we see a recovery in the containership market, according to Offen, one of the major shipowners in Germany.

CLAUS-Peter Offen, one of Germany’s largest shipowners, expects massive lay-ups of containerships in the next three years.

“About 1m teu is already idle. This number will double in 2009 and triple in 2010,” he said during the 8th annual German ship finance forum in Hamburg.

He estimated that 25% of the worldwide container fleet would be put out of work by the end of 2011.

He expects the overcapacity in container shipping to peak around 2011 as there are a lot of newbuildings due for delivery in the next three years.

From 2012 the market for newbuildings will be completely dried up and overcapacity will decrease.

“Four years from now the charter rates may rise again and another two years later supply and demand may be in balance again,” he said. “In 2014 we could be back in good markets.”

Thursday, February 26, 2009

11 percent of aircraft in storage

I don't blog much about air transportation. Probably because it's mostly people, not freight, going by air. However, I do live in the "Air Capital of the World", and aircraft building is the main industry here.

According to Traffic World

A total of almost 2,300 jet airliners, the highest number ever, are now parked, according to data from aerospace consultant Ascend. Most of those aircraft, 1,167 of them, were added to the list during 2008. That was the highest annual number since 2001. More than 11 percent of the global aircraft fleet of 20,293 is now in storage.

Although, it's not as bad as it was after 9/11, when 13% of the fleet was grounded.

As new deliveries of approximately 1,000 aircraft arrive in 2009, airlines will be forced to ground even more of their older aircraft, said Chris Seymour, head of market analysis at Ascend. The proportion of the fleet grounded by the end of 2009 may match the 13 percent reached at the end of 2001, following the September 11 terrorist attacks on the United States. That would be a total of more than 3,000 idle planes.

Wednesday, February 25, 2009

Vessel will store cars

Toyota has run out of space in Malmo, Sweden, so they have chartered a RO/RO (roll on roll off) ship, a car carrier, owned by Wallenius, to store 2500 cars.

As the business for transporting cars has dropped dramatically, this works out for both companies.

Wallenius Wilhelmsen operates a fleet of 166 vessels shipping cars around the world. The company warned last month that it would be forced to scrap dozens of vessels. The sales slump would have a “strong negative impact” on profits this year, the company said.

I still like my idea posted back in December, to have a lottery for cars.

On Wheel of Fortune they always give away cars. Tonight one was an American made, and the other was a Saab.

It started me thinking that it might be good for the American car companies to start giving more of their cars away for promotions. Especially as there are so many unsold ones sitting around.

There was a house raffled off just this last week in California, so perhaps this will be a new trend.

Tuesday, February 24, 2009

TUI determined to sell Hapag-Lloyd

On Jan. 15, 2009 I made a post stating the sale of Hapag-Lloyd was in jeopardy.

The parent company TUI is bound and determined to get rid of Hapag-Lloyd, even if they have to pull off a shot-gun wedding.

TUI likely will acquire a bigger stake in Hapag-Lloyd than it originally planned in order to finalize the sale of the world’s fifth-largest ocean carrier.

The German tourism group bought back a 33.3 percent stake in Hapag-Lloyd after agreeing to sell the carrier to the Hamburg-based Albert Ballin investor group for 4.45 billion euros ($5.7 billion) in October.

TUI spokesman, said the price would not be renegotiated.

TUI continues to talk with the Albert Ballin consortium about the size and conditions of a loan it has offered to Hapag-Lloyd after the sale to ensure the carrier’s liquidity during the downturn in the container market. After the deal closes, Hapag-Lloyd will hold loans totaling around 2 billion euros ($2.6 billion), including 1.3 billion euros transferred from TUI.

TUI is prepared to lend Hapag-Lloyd an additional 1billion euros, according to reports in Germany.

Despite the latest hitches, TUI said it is confident the deal will close before the release of its full-year earnings on March 25.

click here for complete article in Journal of Commerce

Monday, February 23, 2009

Dryship Vessel seized by Pirates

I saw the headline yesterday that the Somali Pirates had hijacked another ship.

It really didn't seem blog worthy, until I saw today that this ship belongs to
the company Dryships, one of my favorite companies to blog about.

The folks who chat about this stock on Yahoo Message Boards had this to say

Sorry it's an LTC Vessel with 1300 days left on LTC

I have the ship value based on the January 2009 bulk report.
Saldanha 2004 5 Year Old $24,375,000

Here's the story from the BBC

It will be interesting to see who ends up paying the ransom, the owners or the charterers.

Maybe their P & I (insurance) will cover the costs.

If so, it makes one wonder if this will be a bad deal for Dryships, financially speaking.

Revised Economic Forecast

Here's what I said back on Jan. 1, 2009

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.

Today that doesn't sound so radical, but back then the experts were saying we would start to recover end of 2009.

Almost 2 months later, the experts are starting to agree with me.

WASHINGTON – Brace yourself: The recession is projected to worsen this year. The country stands to lose a sizable chunk of economic activity in 2009 as consumers at home and abroad retrench in the face of persistent economic troubles. And the U.S. unemployment rate — now at 7.6 percent, the highest in more than 16 years — is expected hit a peak of 9 percent this year.

The Fed said the unemployment rate could stay elevated into 2011. Some analysts think the jobless rate won't drift down to a more normal range of around 5 percent until 2013 — at the earliest.

And we think it's bad in the U.S. Americans are such whiners. China has it much worse.

More about that later.

Sunday, February 22, 2009

What's it really gonna cost to ship?

This statement from the Economist would make one think you can ship a container from China to Europe for almost nothing.

$0.00, not counting fuel and handling: that is the cheapest quote right now if you want to ship a container from southern China to Europe. Back in the summer of 2007 the shipper would have charged $1,400.

But wait, how much exactly is the cost of fuel and handling today?

I can't be sure, but the last Bunker Adjustment Factor (which I assume is the fuel charge mentioned) was 1220.00 per 40ft container. And that's just for the bunker, the handling (generally called THC) could run you another 200 or more. So, it could be more than 1400, the cost mentioned from 2007.

The Economist doesn't even mention if the rate quoted is for a 20ft container or a 40ft container. I guess for their purposes it doesn't matter - they are assuming today the price is almost for free.

The ships are sailing at half capacity, so the carriers aren't making any money.

In response to this, tonnage is being pulled out, ships are being laid up.

That's what one does, get the supply down to more closely match the demand.

Here's one example MOL has pulled out 30 percent of their capacity.

TEN per cent more capacity is to be stripped from Japanese shipping giant MOL's tonnage starting in April in response to the global downturn, reported Nikkei, Japan's largest business daily.

This is in addition to the 20 per cent previously cut on the Asia-North America route and by 10 per cent on the other routes, the report said. Nikkei also said MOL had previously slashed Asia-Europe capacity by 30 per cent, but will not make any additional reductions.

"We plan to make an additional cut in our container transport capacity from April ahead of other shipping companies, as demand has been slumping globally since last autumn," an MOL spokesman said.

And I just got a press release from Hamburg Süd announcing capacity cuts and rationalization in their Asia to Mexico service.

Total nominal capacity will be
reduced by 2,500 TEU per week in the period from February 24 through
to August 2009. Hamburg Süd, CCNI and MSC will review the trade
prospects in June 2009. Should the trade situation improve
sufficiently to warrant additional capacity the lines will revert to
their original service set up.

Looks like everyone will see how things are going in mid-2009 before they make any more changes.

It's a real pain, and costs quite a lot of money, to move ships in and out of a service.

Saturday, February 21, 2009

The BBC Box to go from Brazil to Japan

The BBC Box is empty in Santos. According to the NYK web-site it has been empty in Santos as of Feb. 11.

To check the latest status click here and input the container number, prefix and numbers, no spaces. NYKU8210506

Here's the latest article from the BBC giving an overview of the trade woes in Brazil.

In a few weeks the BBC Box will leave the port of Santos for Japan, another example of a promising market for South America's biggest country that has now been hit by the crisis

Brazil has been booming for some time now. It too has slowed down, but iron ore shipments are now picking up.

Friday, February 20, 2009

I still don't get it.

People who use to work with me will smile when reading this, but I still don't get it. Why don't ocean carriers invest in computer systems?

I just don't get it.

Here's an article from the American Shipper harping on the same theme, although their focus is "LSP", or Logistics Service Providers. I guess they don't really understand the uniqueness of each type of service provider.

Unless the logistics company (who is not the carrier) has installed some sort of tracking device with the shipment, they are at the mercy of the actual transportation company to provide status information.

. provide essential nuts-and-bolts services to their customers. The vast majority of respondents listed “tracking and tracing,” “shipment booking,” “electronic booking” and “electronic shipping documentation” as the most critical transactional usages of their current TMS - all core foundational functions of TMS technology, or as one expert put it, “TMS 1.0.”
Worryingly, another key finding of the survey showed few LSPs have a long-term plan in place to upgrade or replace their current TMS.
Less than a quarter of the LSPs surveyed have budgeted funds for a TMS upgrade or replacement within the next 24 months. Another 21 percent said funds have not been budgeted, but are addressed within their firm’s five-year plan. A whopping 55 percent, however, said they have no plans to replace their current TMS within the next five years.
At the same time, LSPs are finding customers’ demands growing. The reason, as one industry expert explained, is simply the high-tech age in which we live.

If any of these companies had a brain, they would just contract with Amazon to handle their system needs.

When an LSP customer can order a book on Amazon, pay for it with a few clicks, and track the whole transaction from store to door via the Internet, this customer’s service expectations when it comes to its business shipments increase exponentially. Non-business world expectations are rapidly becoming business world demands that are being laid squarely at the door of LSPs.
The ultimate question is how long can this laissez-faire attitude persist towards TMS investment - something even LSPs acknowledge is a critical component of their daily business?
It is a challenge that LSPs, even with their freshly minted modern personas, must address with greater investment, more insightful long-range planning, and a commitment to current technology that places long-term customer satisfaction over short-term savings of simply doing nothing.
Success, whether it be in technology investment or in the maturation of their own business, will only be afforded to those that are proactive, that aggressively look beyond the curve, and recognize the importance of embracing innovation for every ounce of advantage it can possibly give them.
Darwin was right in more spheres of thought than he realized - only the strongest and the most intelligent will survive.

Thursday, February 19, 2009

Sure, let's call it negative growth

Lots of folks are trying to put a good spin on how bad things are everywhere.

I found it interesting that today the U.S. Fed made an announcement about how inflation will only be about 2% a year.

Are these folks nuts? Even I, a simple minded person living in Wichita, Kansas has figured out we are already in a state of deflation. Just look at the car ads, and the going out of business sales.

An article in American Shipper caught my eye regarding the overcapacity in Chinese ports.

China’s ports could suffer from extreme overcapacity this year and next, according to a new report from AXS-Alphaliner.
The report, China Container Ports Review 2009, suggests that the excess supply of terminal capacity in China's container ports could reach 35 million TEUs by 2010. The ports in the Pearl River Delta and Bohai Bay regions would be especially hard hit, as most major ports in China have expansion plans on the books despite declining demand.
"Both the Bohai Rim and the Pearl River Delta/Southeast coastal region could see a significant overcapacity challenge in 2010 as the excess capacity projected is three times more than the actual growth seen in the 2000-2008 period,” the report said. “With growth slowing considerably for 2009, it is unlikely that demand would grow sufficiently to absorb the excess capacity within the next two years."

No kidding Sherlock. The last line of the article was my favorite.

The reduced volumes and tariff erosion would have an adverse impact on the operators, with many terminals facing the prospect of negative growth.”

Negative growth. Humm.

I guess that's kinda of like what happens when you get old and you get shorter.
Negative growth.

Just so one doesn't have to say they shrunk. "Yes, I am going through a negative growth spurt".

Wednesday, February 18, 2009

When will container shipping rebound?

Not until 2011 or later.

Currently 8.8% of the worldwide container fleet is laid up.

It will most certainly get worse before it gets better. If we are lucky, maybe by 2012 - that's 3 years, but the cycle for shipping is normally around 7-10 years, so my guess is not really until 2016 plus.

More ships likely will be laid up as the rebound in Chinese exports failed to materialize after the Lunar New Year. As a result, shipments likely will fall by 15 to 20 percent in the first quarter compared with a year earlier. “Large ships continue to gather up in Asian roads as they end their rotations on the closed services on which they were employed,” AXS-Alphaliner said.

It said container traffic must grow at annual rate of 15 percent for three years to bring the supply-demand balance into equilibrium by January 2013.

A less optimistic but more reasonable average 10 percent annual growth would delay a return to equilibrium before 2014.

click here for complete article from Journal of Commerce.

Tuesday, February 17, 2009

Charterers refuse to pay contracted rate

One of the dry bulk shipowners, Excel, had disclosed several of the parties who have their ships on charter are paying only 50% of the agreed charter hire.

It's impossible to know what were the conditions of the charter party - I am sure nothing allows for this. It might be the contracts allowed for early return with penalties, and maybe the charterers told Excel I'll keep your ship, but only at market rates.

That's just a guess on my part.

Anyway, it's affecting Excel Maritime Carriers financial situation, and they won't be paying dividends.
I expect we will see this in all of the dry bulk sector.

Those idiots should have suspended dividends long before this, but that's another story.

From Lloyds List

Contract defaults force Excel to axe dividends

Toby Anderson - Tuesday 17 February 2009

DRY bulk carrier Excel has axed its dividend payments after unveiling potential losses of over $100m thanks to charter hire contract defaults.

The Stamatis Molaris-led company today revealed that two of its clients are refusing to pay agreed charter rates for ships they are already contracted and that other charterers have already approached the company in order to renegotiate charter rates.

In a stark warning submitted to the New York Stock Exchange, Excel admitted that it could no longer “assure that charterers will continue to pay hire at agreed rates, reduced rates, or at all”.

As a result the operator suspended company dividends, citing “challenging conditions in the freight market”.

“Two charterers, with long-term charters on three of the company’s vessels, have recently unilaterally started to pay approximately 50% of the agreed charter rate to the company,” Excel explained in a statement.

The company did not disclose which of its vessels were affected.

Excel said the financial implications of the loss of hire, should the company keep receiving the reduced rates, will be about approximately $107m, of which $32m would affect 2009 cash flows and $35m would affect 2010 cash flows.

The company will “carefully evaluate all its alternatives, including the full enforcement of its legal rights.”

In view of the charter disruptions, Excel’s board said that it would be suspending dividends, beginning with the fourth quarter payment for 2008.

The company said the decision was aimed at preserving cash and “enhancing liquidity, and is considered to be a precautionary measure in view of the disruptions arising with some of thecompany’s charters”.

While the dividend policy will be “regularly assessed by the Board of Directors” it will ultimately depend, among other things, on the Company’s obligations, leverage, liquidity and capital resources.

The Company said today it would also consider “other means of enhancing liquidity and strengthening its capital base.”

China will finance Ship Building

Last week the bankers of the world told everyone there is no more money coming for building ships.

China State Shipbuilding is taking care of this problem by issuing bonds themselves.

China State Shipbuilding to issue $439m in bonds

By Sandra Tsui in Hong Kong - Tuesday 17 February 2009
CHINA State Shipbuilding Corporation plans to issue Yuan3bn ($439m) worth of five-year bonds this month.

The bonds, will each be worth Yuan100, and are intended to be sold on the interbank bond market from February 23.

CSSC, parent company of Shanghai-listed China CSSC Holdings Limited and Hong Kong-listed Guangzhou Shipyard International, said it would use two-thirds of the fund raised to finish new and unfinished newbuilding orders and complete core supporting projects. It will also spend Yuan500m on buying raw materials and equipment, as well as Yuan500m on repaying bank loans.

As one of the two largest shipbuilding companies in China, CSSC has gained a quota for the issuing of a total of Yuan9.6bn of mid-term notes this year.

It is common practice for large Chinese state-owned enterprises to raise funds at parent-company level and then cascade the funds to subsidiaries including some of their listed entities in order to save administration costs.

Monday, February 16, 2009

Rule B gives companies a reason to register in New York

This gets stranger and stranger.

It's all because most of the business in international shipping is in U.S. Dollars, so monies move through the U.S., if only for a Milli-second. The way to keep from having these funds attached when they are in the U.S., is to register your foreign company in New York. This is because your company would then be able to be considered "found" in New York.

This is just a bunch of lawyers figuring out a way to use old laws, which have never been updated. Seriously, with communications today, can you not "find" a company wherever it is registered? I guess if this court ruling holds there will be a rush to register companies in New York, so the lawyers make out any way it goes.

Or maybe not.

Personally, I think it's a bad idea for the U.S. If I were doing deals in London, or anyplace else in the world, I would now insist everything be quoted in Euros.

This from Lloyds List

THE use of Rule B attachment lawsuits may soon come to an end after the US Court of Appeals for the Second Circuit ruled on Friday that registration in New York would protect defendant companies from such litigation.

As the triangle of charterers, cargo interests, and shipowners has tangled up in recrimination over idle ships, unpaid charterhire and cargoes committed but not delivered, lawsuits — notably arbitration in London — have mushroomed.

According to standard industry practice, the amounts due and defaulted are usually denominated in US dollars.

Since all dollar-denominated payments in the world, no matter where the originate, must necessarily pass, even if momentarily, through the electronic funds transfer network in the US, Rule B attachment lawsuits have gained notoriety.

By using Rule B attachments, plaintiffs are able to capture monies belonging to defendants, more precisely dollars, as they pass through New York.

Rule B attachment lawsuits are technically meant to be security cover for arbitrations ongoing in London as per standard shipping clauses. But the fact that shipping finance deals are denominated in US dollars means Rule B has been applied to with greater scope.

Rule B attachments, when granted, allow plaintiffs to intercept third-party funds that have a connection with the defendant.

The catch is that Rule B attachments can only be brought against companies that cannot be ‘found’ in New York.

Foreign shipping companies have been seeking to get around this loophole by registering themselves in the district.

With scores of lawsuits brought since last autumn, the dozens of New York district court judges obliged to deal with such cases have been swamped with work. Simultaneously, theories have begun to emerge on how individual judges might have different takes on Rule B.

The appellate court on Friday heard the case of STX Pan Ocean (UK) vs Glory Wealth.

Glory Wealth attorney James Power of Holland & Knight told Lloyd’s List that against the grain of events and rather spontaneously, the appellate court decided to consider comprehensively the issue of ‘registration’ in New York vis-à-vis the technicality of ‘found’ versus ‘not found’.

Although the written verdict would not be available for at least a couple of weeks, Mr Power said all indications point to the appellate court having issued a clear precedent that companies that have registered as a foreign business with the New York state government would get protection against Rule B attachment lawsuits.

Mr Power said this ruling was a potential “game changer”, as it has levelled the playing field between those claiming to be owed money that just happens to pass electronically through New York and people owing it.

It's all so complicated - those Rule B attachments

From Lloyds List

SAMSUN Logix Hellas, a Greece-based owner linked to troubled South Korean bulker operator Samsun Logix, is facing a raft of rule B attachment applications in a New York court that seek to freeze more than $11m to cover unpaid charter payments.

The largest has been filed by Malta’s Hope Shipping which is seeking $10m to cover unpaid charter fees for the 1981-built, 24,030 dwt Ist. Hope Shipping is linked to Croatian shipowner Jadroplov.

Samsung Logix Hellas manager Kurt Kim told Lloyd’s List that negotiations were taking place with Hope Shipping to reach a “commercial settlement”, but said the outstanding amount was “much, much less” than the $10m.

He was also unaware of two other rule B attachment applications that had been made on behalf of two other owners. “We have not been informed by any other owners or charterers of legal action,” Mr Kim said.

Turkish owner Er Denizcilik Sanayi Nakliyat ve Ticaret is seeking to freeze $681,000 related to the 1985-built, 27,652 dwt Fuat Bey. Racing Shipping, which is linked to Greek owner Sea Force Shipping, has applied to secure $399,000 allegedly owed on the 1985-built, 43,479 dwt Alkistis.

All three applications have been filed in New York’s southern district court.

ER Denizcilik declined to comment. When contacted by telephone, one executive said: “We can’t comment on anything.” He said talks were taking place to resolve what he said “was not a real dispute” between the firms.

Mr Kim expressed surprise that action was being taking over the Fuat Bey. “We are now trading the vessel. We are paying the hire,” he said.

Racing Shipping confirmed that its rule B application covered outstanding charter and other payments related to the Alkistis.

Explaining the circumstances leading up to the application, one source said Samsung Logix Hellas started having problems making payments on the vessel in October. The company redelivered the ship at the end of last year and later negotiated a lower charter rate with Racing Shipping. But after that agreement the source said Samsun Logix Hellas was “unable to pay in January and February”.

He added the company approached Racing Shipping to renegotiate “but by that time the trust was gone”.
Hong Kong’s Winland Shipping has also made a rule B application but no details of the amount being sought has been released, while the shipping company could not be contacted.

Mr Kim said Samsun Logix Hellas was a legally registered company in Greece that had no direct contact with Samsun Logix Corp in Seoul. This was disputed by several sources, who said there was “definitely a relationship” between the two firms, which share the same business logos.

Mr Kim added that Samsun Logix Hellas was a shipowner and operator with three owned vessels and four chartered vessels, comprising four handysize ships, one handymax and two panamax vessels.

Sources with Samsun Logix, which applied for court protection a week ago, said most of the chartered-in tonnage of around 60 mostly handysize and handymax vessels, would be redelivered to owners because the company is prevented from seeking new business under court rules.

“Some of the vessels are at anchor, some have been redelivered to owners, some are trading, completing voyages,” the source said. He declined to give details of the ships.

I'm sure this will keep the lawyers busy for awhile.

Sunday, February 15, 2009

Straight talk from bankers

Lloyds List has a very stark article outlining just how bad it is for financing. I am quoting the article in entirety, in case they change it to subscription access only.

Here's a short summary for you - if you don't have cash, don't be ordering any ships. And, it could be a DECADE for things to improve.

All the economists (and even laypersons as myself) have been saying there should be some improvement starting in 2010.

Maybe not.

SHIPPING investors wishing to start new projects will have to inject “100% equity” for the foreseeable future and make do with significantly lower returns, as bank financing disappears under a “new paradigm”.

Leading shipping bankers and investment advisors were unanimous in delivering this stark message at Mare Forum USA 2009 in Houston this week.

The world has seen trade volumes and money markets collapse simultaneously – the “mother of all coincidences”. A huge overhang of ship supply and pending newbuilding deliveries across all ship types, alongside shrinking global cargo volumes, means the weak freight markets will probably continue for at least five years.

As if these bleak fundamentals are not enough, all major banks are in serious trouble. Having written off scores of billions in bad loans, they have seen their ability to sell off their troubles disappear as the syndication markets collapsed.

The spectre of bank nationalisation – already being officially seen in Britain, with many other jurisdictions following suit even if tacitly – would lead to “prioritised” lending under state auspices to domestic projects, or for more bail-outs.
International trade, and shipping in particular, is likely to find itself marginalised almost completely as a borrower from banks under this scenario.

AMA Capital Partners managing director Robert Bowers said his firm is promoting a “100% equity” model – which means only people with ample cash in their pockets need apply.

“You can still find these people, but without bank financing there are significant limitations,” Mr Bowers said. “Even these investors with cash to invest will have to overfund [with their own money] up front, and hope to refinance and put leverage on these investments only at a later date.”

First International chairman Paul Slater said this date could be as much as a decade away, as the banking industry works through its current crisis.

Two bankers corroborated Mr Slater’s pessimism. DVB managing director Geir Sjurseth said the banking crisis will “get worse before it gets better”. Fortis managing director Harris Antoniou said this is banking’s “worst crisis since the Great Depression”.

The $1trn in credit losses taken by the world banking network will make even the most ambitious bail-out recapitalisations inadequate and banks will remain reluctant to lend for a long time to come, the audience was told.

Mr Sjurseth agreed that shipowners which have not yet financed their newbuildings under construction – with the world orderbook estimated at anywhere from $200bnn-$350bn – will have a tough time getting bank loans now.

Seemingly letting the audience in on a trade secret, he said no bank would give a penny today to a company that has bonds maturing within the next 18 months.

“Do not order any ships,” he advised.

Mr Bowers, Mr Slater and Mr Sjurseth were unanimous in saying the days of high returns and high leverage were over. Mr Sjurseth said he still has to deal with clients who have the old “25% equity and 75% leverage” mentality and expect big returns.

Mr Slater said today’s reality makes it impossible to plac massive amounts of debt on small chunks of equity. When it came to returns, he saw a fundamental realignment in the offing. The days when investors routinely demanded 30%-50% returns are also over, he said.

A very large crude carrier purchased at $125m is not going to be economically viable in the rate environment expected into the foreseeable future. It is only after a considerable capital write-down – and an accompanying lowering of expectations on returns – that such assets will seem viable again, Mr Slater said.

Mr Antoniou said recessions were necessary, and were the safety valves created by nature to absorb value erosion.

“The deleveraging stage is yet to come,” he said. “Investors need to be happy with lower returns.”

Mr Sjurseth concluded: “Banks and equity providers will have to find ways together. The latter need to change their mindset. As for banks, the revival will only start when the interbank market regains its operability – and that could be a while coming.”

Saturday, February 14, 2009

What to do with empty ocean containers?

Idled ships used for empty box storage

It appears liner carriers are trying to make use of all the containerships idled by poor global demand by using them as floating container storage yards.
“Over the course of the last two months, several large units sitting at Far East anchorages were spotted with deck-loads of empty boxes,” maritime news service AXS-Alphaliner reported Monday. “Some carriers figured that is was cheaper to pay a handling charge once and have their empties loaded onto their ships, rather than paying the daily per-TEU storage fees charged by terminal and container depot operators (used when the carrier's own depots are full).
“State-of-the-art containerships have thus become mere storage hulls, anchored in roads in the vicinity of Singapore, at Hong Kong’s anchorages or in the Hangzhou Bay. Empties storage at sea allows carriers to save significant amounts of money, since storage fees -- though individually rather modest -- add up over time and with an ever-growing inventory of unwanted empties.”
Last week, Ben Hackett, a consultant with IHS Global Insight mentioned the phenomenon in an interview with American Shipper.
“Laid up ships are being used to store empty containers as these build up at both ends of the trade,” he said.
The use of idled vessels for empty container storage is both an innovative solution to an ongoing problem, but also a sign of how low the market has sunk, and how little faith carriers seem to have in any sort of quick rebound. —

Of course, there are several cases of containers being used to build houses.

Friday, February 13, 2009

Tally of Pirates Caught - U.S. 16, Russia 10

Yesterday I posted that the U.S. had captured 16 Somali Pirates.

Today Lloyds List reports the Russians have captured 10.

Russian navy capture suspected pirates

Martyn Wingrove - Friday 13 February 2009
THE tide is turning against pirates operating in the Gulf of Aden after the Russian navy seized 10 suspected pirates off the coast of Somalia.

News agencies reported the capture of three pirate boats by the Peter the Great nuclear-powered warship today.

This comes after reports yesterday that nine suspected pirates were seized by a US warship and another seven were caught earlier in the week.

A Russian navy spokesman told new agencies that a helicopter saw the Somali citizens throwing weapons into the sea before the Peter the Great cruiser arrived on the scene.

He said the navy managed to confiscate grenade launchers, automatic rifles, landmines and narcotics during the raid on three pirate boats.

The presence of navies from the US, Britain, India and Russia is having a positive effect on the number of successful pirate attacks in the Gulf of Aden.

The International Maritime Bureau said today that three more attacks on shipping in the area were thwarted by naval intervention.

Thursday, February 12, 2009

U.S. issues Counter-Piracy Execute Order

I don't think it's a coincidence that the U.S. has stepped up their operations against the Somali Pirates just after the M/V Faina was released.

This from ABC NEWS

A total of 16 Somalis captured in two separate boats this week were taken into custody today aboard the USNS Lewis and Clark.

The arrests also may mark the beginning of a pirate crackdown. According to a U.S. official speaking on background, the Joint Chiefs of Staff issued a "Counter-Piracy Execute Order" for the Horn of Africa last Thursday, creating a vast operating zone to go after pirates.

Most of us have forgotten that the U.S. has a history of chasing pirates.

The first frigates the U.S. Navy ever built were intended to go after Barbary pirates, which ravaged American shipping until two wars in the early 1800s ended their reign of terror. The naval offensive is memorialized in a line in the "Marine Corps Hymn": "From the halls of Montezuma to the shores of Tripoli."

Many of the pirates in those years used Tripoli, on the North African coast, as their base.

Lt. Commander Charles Daniels of the U.S. Navy Information Office said American ships battled pirates in the Gulf of Mexico before and after the Civil War, and chased pirates in the South Pacific in 1858.

The Navy was also was called upon to battle pirates around the Philippines in the early 1900s, in Asia from 1908 to 1930 and in the South China Sea in the late 1940s.

How independent is Global Ship Lease?

Global Ship Lease, a publically traded company, just declared a dividend for 4th quarter 2008.

Global Ship Lease, Inc. (NYSE: GSL)(NYSE: GSL.U)(NYSE: GSL.WS) a rapidly growing containership charter owner, today announced the Company's Board of Directors has declared a fourth quarter dividend of $0.23 per Class A common share and unit and Class B common share. The dividend is payable on March 5, 2009 to Class A common shareholders and unit holders and Class B common shareholders of record on February 20, 2009.

What I did not know is this company was formed by the French container carrier CMA CGM.

The French carrier (CMA CGM) transferred 17 ships, including new vessels, to Global Ship Lease when it established the company as an independent ship-owning unit in 2007. It retained a 23-percent stake in the firm following its initial public offering in New York last August.

So they declared a dividend to keep their shareholders from running away, because at the same time they realized they were in trouble with their loan covenants.

Global Ship Lease, a leading container ship charter owner, has renegotiated the terms of an $800-million credit facility to avoid defaulting on covenants linked to the value of its fleet of vessels.

The New York-listed company, whose main shareholder is French ocean carrier, CMA CGM, also has agreed to pay a higher interest rate on the existing loan.

This is the official statement from their CEO. I am always suspicious of long explanations.

Ian Webber, Chief Executive Officer of Global Ship Lease, commented, "We are pleased to have declared our fourth quarter dividend, the Company's third $0.23 distribution since going public in August of 2008. In response to the unprecedented volatility in the financial markets and in appraised ship values, we proactively approached our lenders in order to reduce our risk with respect to our loan to value maintenance covenant under the Company's credit facility. Working closely with our bank group, which has significant experience with ship lending, we have favorably amended our credit facility at attractive borrowing rates with modest upfront cost in a very challenging economic and financial environment. With the amended facility in place, Global Ship Lease has significantly reduced its exposure to pressures on ship valuations and enhanced its ability to continue providing shareholders with attractive dividends. The declaration of the fourth quarter distribution and the successful conclusion of our negotiations with our lenders further demonstrate the stability of our business model, which is focused on securing all of our vessels on long-term fixed rate contracts to generate stable and predictable cash flows."

It's going to be a rocky 2009 for container carriers. International shipping is down across the board for all types of carriers. I wouldn't be surprised if CMA CGM doesn't sell their stock in this company, and then renegotiate their charter rates. Well, they would probably sell their stock after they renegotiated. They didn't get to be the 3rd largest container carrier without being rather clever.

Wednesday, February 11, 2009

REIT ProLogis reports losses

In December 2008 ProLogis reported they sold some of their far east operations at a loss. This from my blog posting.

“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.

Their stock hit it's 52 week low around that time, down to 2.20.
Apparently it rebounded to over 15 in January, but has been dropping, and I would guess the news of of these losses will make it take a dive.

ProLogis, the distribution facility developer and real estate investment trust, reported a fourth-quarter net loss of $887.1 million, directly related to the collapse of its common shares in the waning months of 2008.

The Denver-based company was pummeled by the slumping economy and real estate market, along with the financial and credit crisis. It posted net earnings of $113 million during the same period ending Dec. 31 in 2007.

For 2008, ProLogis lost $432.2 million on revenue of $5.6 billion.
Funds from operations or FFO during the fourth quarter were only slightly better, a loss of $645.9 million including significant non-cash items, compared to a gain of $211.3 million in the 2007 quarter. FFO is a financial measure used by REITs to define their cash and operating performance.

In November, ProLogis announced various actions designed to reduce debt by about $2 billion this year. They include a reduction of its development pipeline, asset sales and a halt in all but previously committed development starts.

But who knows, maybe investors think they have hit bottom. This stock is 95% institutionally owned, but I don't really know what effect that might have on the future of this stock.

Understanding "Rule B attachments"

Back in January, I blogged about Armada filing for Chapter 15

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.

Recently I have been reading about "Rule B attachments", and the surprise some shipping companies got when suddenly monies were taken because of these.

Rule B Attachments are popular because they are effective. In Winter Storm Shipping, Ltd. v. TPI, the Court of Appeals for the Second Circuit held a Rule B Attachment can intercept and attach an electronic funds transfer (EFT) in the hands of an intermediary bank, including the New York Clearing House banks in Manhattan that process virtually all transfers of U.S. currency (or USD transfers) made worldwide. Because shipping industry transactions are generally in U.S. currency and usually pass through one of the New York Clearing House banks, Rule B Attachment proceedings have become exceptionally popular in the Southern District of New York (which includes Manhattan) where they now comprise approximately 30% of all new cases filed.

And, one way to avoid this is to file Chapter 15

Foreign companies can protect themselves through Chapter 15 of the Bankruptcy Code. Although Chapter 15 does not commence a full-blown bankruptcy case within the United States, it can provide a foreign debtor in an insolvency proceeding outside of the United States with certain protections, including the automatic stay, to protect assets in the United States. Specifically, a foreign shipping company that has commenced an insolvency proceeding abroad, may be able to stay all actions against it, including pending Rule B Attachments, by filing a Chapter 15 case soon after the commencement of its foreign proceedings. The Board of Directors of Armada (Singapore) Pte. Ltd. recently filed a chapter 15 petition in the Bankruptcy Court for the Southern District of New York for recognition of the company's insolvency proceeding in Singapore, for exactly that reason – to protect its assets against potential Rule B Attachments.

Tuesday, February 10, 2009

BBC updates story of "The Box" in Brazil

The BBC Box was picked up in Santos, Brazil on Feb. 7th., although the NYK web-site didn't show this until today (it's obvious this information is being kept closely guarded).

NYKU8210506 Container Size/Type 40'/DRY

Status As Of Event Location Mode
FEB-07-2009 07:30 Picked up for delivery at destination Santos, BRA Truck

Moves to Date Event Location Mode
FEB-07-2009 07:00 Discharged from vessel at last port of discharge Santos, BRA IWATO/017

Originally the BBC stated the cargo was Household Goods, but from their article it appears to be a mix-container, most likely consolidated by an NVOCC (or OTI), or a freight forwarder, it get's complicated. The acronym OTI stands for Ocean Freight Intermediary and was coined by the FMC a few years ago.

The OTI list includes those OTIs that have complied with Commission regulatory requirements, as follows:

* Ocean Freight Forwarder OTIs that have obtained a license and submitted the necessary proof of financial responsibility
* NVOCC OTIs that have obtained a license, submitted the necessary proof of financial responsibility and reported the publication of a tariff by filing a current Form FMC-1
* Non-US-based NVOCC OTIs that have submitted the necessary proof of financial responsibility and reported the publication of a tariff by filing a current Form FMC-1

Maybe in a couple of days they will update the story and confirm the destination of these goods.

Monday, February 9, 2009

Samsun Logix in financial trouble

Lloyds List reports another bulk carrier is in severe financial trouble.

SAMSUN Logix, one of South Korea’s largest bulker operators, has become the latest shipping company to apply for court protection following a cash flow crisis caused by the financial difficulties at Armada (Singapore), Britannia Bulk and Industrial Carriers.

The company, which owns 15 bulkers and has another four newbuildings on order, lodged an order for court receivership, similar to bankruptcy protection, at Seoul’s central district court Feb. 6th.

The demise of Armada and others had a major impact on Samsun.

We are a victim of the recent maritime casualty that caused the collapse of Britannia, Armada, ICI and others,” said the source.

Samsun Lunix is believed to have been owed about $40m alone by Armada (Singapore)

They might be liquidated, or, the bank might decide to find someone to operate their ships until the market improves.

If the Seoul district court approves Samsun Lunix’s application, the court will appointed a group of representatives from the company and creditor banks to work out a reorganisation and restructuring plan. The shipping company’s largest creditor bank is Shinhan Bank.

The restructuring could involve the sale of vessels, redundancies or the sale of the business.

The firm’s fleet comprises capesize, panamax and handysize vessels built in the 1980s and 1990s. The oldest vessel is the 1982-built, 21,289 dwt Ataraxia, while the youngest is the 1999-built, 69,406 dwt Clio.

There are four newbuildings on order including two 57,000 dwt bulkers at STX Shipbuilding that are due for delivery in 2010 and two vessels on order at a Chinese yard, the company insider said.

Remember Homeland Security?

Although Dick Cheney said last week the U.S. was in danger of another attack, I really doubt this is foremost on people's minds.

The withering U.S. and world economies have taken first place.

The possibility of an attack is not in the top 10 list of concerns for most people. Not even for New Yorkers on Wall Street, who were only blocks away from the World Trade Center on 9/11.

In the recent publication of American Shipper magazine, James Carafano, senior research fellow of Heritage Foundation is quoted regarding all the new procedures being put in place by the U.S. Department of Homeland Security.

"We live in a country of infinite vulnerabilities and if you want to spend $100 billion to take one type of vulnerability off the table, well, let me do the math. Infinity minus one."

All of the so called "security measures" passed by congress impact first and foremost the international shipping community. The 10 + 2 rule has gone into it's initial phase. This is the one which requires more data on the shipping manifest.

The other big, stupid, initiative was the call for 100% screening of imported ocean containers. What I did not know until now, is this wasn't even one of the recommendations by the 9/11 commission. I can only guess that someone who sells the X-Ray equipment had a good lobbyist.

Saturday, February 7, 2009

BBC Box arrives Santos, Brazil

The vessel carrying the BBC box has arrived in Santos on Feb. 6 (1 day earlier than expected). However, the NYK web-site does not yet show the container unloaded from the vessel M/V Iwato, voyage 017.

Container NYKU8210506 Container Size/Type 40'/DRY

Status As Of Event Location Mode
FEB-06-2009 12:30 Vessel Arrival Santos, BRA IWATO/017

You can check the status yourself on the NYK web-site. You must input the full container number (prefix and numbers, no spaces) NYKU8210506.

Thursday, February 5, 2009

Pirates release M/V Faina

Finally, after 5 months, the ship carrying tanks and arms will be released.
Kenya says the cargo is theirs. I am sure there will be intense interest as to where this armament ends up.

NAIROBI – Somali pirates said Thursday that they were freeing a Ukrainian ship carrying tanks and other heavy weapons after receiving a $3.2 million ransom. The U.S. Navy said it was watching the pirates leaving the ship.

The MV Faina was seized by bandits in September in one of the most brazen acts in a surge of attacks on shipping off the Somali coast. Vessels from the U.S. Navy's 5th Fleet surrounded it after it was seized to make sure the cargo did not get into the hands of Somali insurgent groups believed to be linked to al-Qaida.

A spokesman for the owners said that the pirates had received a ransom but it was far below their original demand of $20 million.

Mikhail Voitenko said the pirates were leaving the ship in small groups on boats carrying portions of the ransom. U.S. seamen were inspecting the departing boats to make sure they weren't taking weapons from the Faina's cargo, Voitenko said.

Cmdr. Jane Campbell, a spokeswoman for the 5th Fleet in Bahrain, said the Navy was not taking action against the pirates because it did not want members of other crews still in captivity to be harmed.

More Jones Act Carriers to be charged

Peter Baci of Sea Star Lines was the first to be sentenced.

If one believes a report from Fairplay, there will be many more folks going to jail, as well as customers lining up to file suit (as they paid more for ocean freight because of the collusion).

US-flag container lines, not just their management, also face the strong possibility of criminal prosecution. On the civil liability front, shippers have already filed class actions against carriers in the four main Jones Act trades: Puerto Rico, Hawaii, Alaska and Guam.

Potential civil settlements to compensate for over a half-decade of alleged collusion – plus a thinning of executive ranks due to imprisonments – could transform the Jones Act container industry.

The "Jones Act" is actually the Merchant Marine Act of 1920.

The cabotage provisions restrict the carriage of goods or passengers between United States ports to U.S. built and flagged vessels. In addition, at least 75 percent of the crewmembers must be U.S. citizens. Moreover foreign repair work of U.S.-flagged vessels' hull and superstructure is limited to 10 percent foreign-built steel weight.[1] This restriction largely prevents American shipowners from refurbishing their ships at overseas shipyards.

The Jones Act is the reason you can't board a cruise ship in Miami and get off in Long Beach.

Horizon Lines is the carrier who will be hard hit by this, and they are a public company and trade in all of the Jones Act trades. I wouldn't be recommending their stock.

Wednesday, February 4, 2009

BDI is up, but for how long?

The BDI (Baltic Dry Index) closed over 1300 on Feb. 4, 2009. This is certainly up from a low in the 800's just a month ago or so.

However, this may be short lived.

Norwegian broker Lorentzen & Stemoco said yesterday that an estimated 100 capesize vessels from the global fleet of 821 were at anchor, propping up chartering rates on the spot market.

If the owners are smart they will keep those ships laid up so they can make some money.

But then, shipowners are not always smart.

We shall have to wait and see.

Senator Line closes

BREMEN-based box carrier Senator Lines, controlled by South Korea’s Hanjin, will go out of business at the end of February.

Apparently it wasn't the lack of business, but the low rates.
“Rates are so low that you cannot make money on it,” a company spokeswoman said. “With rates around zero it is not enough that you are as well utilised as we are.”

The spokeswoman said that Senator was not insolvent but will be wound up. “We will fulfil all of our commitments so that all transport orders will be executed and all containers will be delivered,” she added.

Because Senator mainly used slots on Hanjin vessels, they only had 2 of their own.

The line has only two vessels under charter, the 2,100 teu Genoa Senator, which is owned by a German KG fund, and the 2,100 teu Montreal Senator, chartered from Greece-based Danaos Shipping.

The owners certainly won't be happy to have these ships returned.

Tuesday, February 3, 2009

Pleading Stupidity

Back in October, I posted about some people going to jail for anti-trust violations.

This week the first one was sentenced to jail time. In his defense, he pleaded he was only following orders.

Former Sea Star Line executive Peter Baci, the first person sentenced in a federal antitrust investigation of Puerto Rico carriers, claims that he participated in a price-fixing scheme under orders from an official at Saltchuk Resources, a part-owner of Sea Star.

Baci was senior vice president, yield management, at Sea Star until he was fired last year after the federal investigation became public. He was sentenced today to four years in prison, a $20,000 fine and two years of supervised release after pleading guilty to antitrust conspiracy.

As we know all too well, lots of people do things they shouldn't, in order to keep their job.

“Mr. Shapiro was powerful; he threatened and directed the termination of employment at others at Sea Star and he significantly intimidated Mr. Baci,” the memo said. “Mr. Baci believes Mr. Shapiro hatched the idea of collusion with the other carriers. Later, Shapiro ordered him to collude with his counterpart at Horizon…”

“Peter Baci did not originate the idea, create the concept or hatch the plan,” Houlihan wrote.

Houlihan’s memo, which sought leniency in Baci’s sentencing, said Baci did not profit from the price-fixing scheme, but participated only to keep his job.

While I certainly don't condone what he did, it does appear the government has done this to set an example, but 4 years is really a bit nuts. Furthermore, think about how many tax payer dollars will have to go to pay for this jail time. Don't we have better things to do with our tax dollars?

“To the extent there was any financial gain, it would have been realized by corporations who are likely to be charged in subsequent indictments,” the memo stated.

The Justice Department said Baci's jail sentence was the longest ever imposed for a single antitrust charge.

I think our government should be pleading stupidity as well.