Bloomberg news - bulk shipping rates to drop 50%

Lengthy article from Bloomberg, basically stating bulk shipping rates will reduce by 50 percent, due to contraction in China.

Aug. 31 (Bloomberg) -- Just as global trade starts to recover, the shipping market is crashing for the second time in a year as China reduces raw-material imports and record numbers of new vessels set sail.

The rate for leasing capesize ships, boats three times the size of the Statue of Liberty, will drop about 50 percent from the current price of $37,865 a day to as low as $18,000 before the end of the year, according to the median in a Bloomberg survey of six analysts and fund managers.

click here for link to complete article

MOL looking for cheap bulk carriers

Mitsui OSK (MOL) says now is the time to buy bulk ships, and they think they can raise the cash to do so.

“We’re willing to spend several tens of billions of yen on an acquisition,” Kenichi Yonetani, a senior managing executive officer at the company, said in an interview in Tokyo yesterday. He declined to elaborate further on possible targets.

Japan’s most profitable shipping line expects to be able to borrow funds as it has avoided the worst of a collapse in commodity-shipping rates by locking in fees through long-term contracts. The rates meltdown, caused by rising capacity and slower Chinese demand for iron ore, has pushed at least four dry-bulk shipping lines into bankruptcy.

“This year is a chance for people who can buy,” Yonetani said. “We don’t see a problem in getting financing from banks to pay for our investment.”

click here for article from Bloomberg

Will Dryships survive?

Dryships auditors have some concerns.

In a note to the Athens based company’s accounts, auditors Deloitte, Hadjipavlou, Sofianos and Cambanis said the company’s breach of financial covenants, negative working capital and other considerations raised “substantial doubt” about its ability to continue as a going concern.

Of course, George Economou says otherwise.

DRYSHIPS boss George Economou has said that the dry bulk and drill ship company’s “proactive approach” to problems has re-engineered it for the long term, in spite of an auditor’s note registering some doubt about the future.

Industrial Carriers Bankruptcy in question

Industrial Carriers Inc. filed for bankruptcy in October 2008.

This from Bloomberg

Industrial Carriers, based in the Marshall Islands and operating from Odessa in Ukraine, has sought protection from creditors, Michael Ivanov, a senior chartering officer in Odessa.

The shipper's operating office is in Odessa, with a financial office in Athens and representative offices in Shanghai, Moscow and Rio de Janeiro, the Web site showed. The bankruptcy filing was made in Piraeus, Greece, according to TradeWinds.

Since Sept. 26, Industrial Carriers has been sued or is suing other parties in 13 lawsuits in New York and London, according to legal filings data compiled by Bloomberg.

Oh - but not so fast.

Now, 5 months later, the Greek Courts say no,

The Piraeus court threw out the petition on jurisdictional grounds, finding that on the balance of probabilities ICI — which had offices in Ukraine, Greece and elsewhere — had its seat in Odessa rather than Athens, it has emerged.

The appeal filing includes “new evidence”, including greater detail of the Greek residency and background of two of ICI’s three directors, said its lawyer, Andreas Nassikas.

An appeal hearing has been scheduled for May 28 this year.

There's a lot more to this, which you can read in Lloyd's List, but this is my personal favorite.

Staff at the defunct chartering entity have claimed that moves by a handful of owners and charterers to freeze its assets cut short its efforts to settle with more creditors.

Surprise, surprise.

The Problem with Bulk Carriers

Yesterday I made a post concerning Dryships, and at the end mentioned you shouldn't be buying this stock.

It's not just Dryships, it's the entire industry. An article in Lloyds List details the problems besetting bulk shipping. It's rather lengthy, so I will try to put it in a nutshell.

Orders were placed for ships, for which there is no longer a demand. But, the ship yards are not accepting cancellations, nor delays in deliveries.

Here's the official version.

THE world’s bloated bulk carrier order book “spells disaster” for shipping markets and could produce “a wave of destruction for banks to rival the sub-prime crisis”, one of London’s most respected shipbrokers forecast on Wednesday.

Howe Robinson’s annual dry cargo report for 2009 appealed for owners, banks and shipyards to urgently and responsibly work together to “re-order” newbuildings and keep shipping solvent over the next decade.

“The newbuilding profile needs putting back in a tube, from whence it can be squeezed out again over many years to come,” the report said.

“If this does not happen the road to recovery will be littered with many more bankruptcies — and they will not just be shipowners.”

The warning comes as many owners remain embroiled in contentious talks with shipyards in Asia to scale back, cancel or delay orders made at the height of the six-year shipping supercycle.

Shipping is in “the eye of the storm” as the global economy and world trade faces its most serious crisis in 60 years, Howe Robinson said.

At the same time there are more than 3,000 bulk carriers on order at 155 different yards in 15 countries by 479 known owners. All are scheduled for delivery by 2011.

“Yards, owners and banks must realise that it’s not going to rosy in the future unless they do something about this,” said one of the report’s authors.

Dryships is busy

Dryships gave an update today on four items

* Reduces sale price of M/V Paragon to $30.8 mln (half or original price)

* To recognize $2.4 mln gain on sale in Q1 2009

* Settles dispute with the buyers of M/V La Jolla

* Commences arbitration against Samsun Logix

It's rocky times for everyone, not just bulk shipping carriers, but I would bet this news is just the tip of the iceberg.

Also, I just realized, they make no mention of their ship, M/V Saldanha, which was hi-jacked by pirates.

Humm, that makes me wonder if they are trying to "throw us off the scent".

DRYS stock closed at 2.79 today, which is a 5 year low, if not an all time low.

And, to any of you thinking about buying this stock because it's so cheap.

Don't.

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.

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.