Excess container ships

Last week I mentioned a recent report by Drewry Shipping Consultants stating

FAILURE to take the bold steps required to eliminate unwanted containerships will drive some lines out of business.

That is the verdict of Drewry Shipping Consultants in a report that urges ocean carriers to “act now” in order to survive the crisis which has seen freight rates plunge after a collapse of cargo volumes.

Box lines will have to lay up the biggest ships in their fleet and should be prepared to cancel newbuilding orders even if that means forfeiting downpayments.

The company has a pipeline of 26 vessels scheduled for delivery between 2010 and 2012.

As I mentioned

What Drewry is forgetting is a lot of the tonnage out there is not owned by the carriers. It is owned by companies whose business is just to charter out ships.

And today, we see this example in the press. Quote by Lloyd Fonds, a KG House in Germany.

Germany offers tax incentives for investing in ships. These KG Houses enable individual investors to buy a piece of a ship.

Lloyd Fonds is under pressure to find employment as 14 of the vessels that it has ordered have no charter contracts.

They include four 12,800 teu vessels that the company ordered with shipowner NSC Schifffahrtsgesellschaft from Hanjin’s Subic Bay facility.

So, what will they do with these ships? It will just add capacity in the world, and cause more problems for the international ocean container carriers. The carriers lay up ships, only to see KG house ships being delivered to compete with them.

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.

German ship banker predicts more bankruptcies around the corner

As per Lloyds List article:

DVD Bank head of shipping, Mr. Dagfinn Lunde, said the downturn in shipping would be “deep and long”.

In two years’ time “we will have a crisis very similar to that of the mid-1980s”, which some experts believed was the worst ever experienced by shipping, he said.

“There will be many more bankruptcies,” Mr Lunde told the Lloyd’s Shipping Economist Ship Finance & Investment Conference in London.

What I found interesting is he believes container operators will go bust, in addition to dry bulk.

“You can see this from the leverage of the companies and the charter rates. It is a question of weeks and months.”

Some bankruptcies were “very close around the corner” and could involve big names in the industry.
Collapses would not only involve dry bulk operators, but also other sectors such as containership operators.

I can't think which container carriers are likely to go bankrupt. I guess some of the smaller ones. We'll have to keep an eye on that.

Warning! Take Dramamine before viewing.

Follow the Container has an amazing video from You Tube onboard a containership.

It is filmed during a heavy storm. Watching this, one realizes how it is containers get washed overboard, as well as the perils of sailing.

I remember a guy I use to work with, Rainer, sailed on a tankers. He said they use to tie ropes around themselves during storms.
Good thing.

Enjoy viewing, but honestly, I almost got sea sick watching this.

click here to view