Grim outlook continues for shipping - Lloyd's List

The saviour for any Blogger with 'writer's block' is to re-post articles written by professionals. I liked this one because it goes to the fundamentals of shipbuilding's capacity to renew the global fleet faster than it depreciates. The logical extension of this premise is that ships, like cars, will become technologically redundant (and scrapped) at ever younger ages.

AM

Grim outlook continues for shipping
Sector has become a non-industry for banks that are in no rush to return

Paul Slater
Lloyd's List, Wednesday 14 November 2012

THE third quarter of 2012 has come and gone and various public company reports show the financial results continue to worsen.
As I have said many times, shipping economics is primarily driven by the economics of its customers, the ups and downs of world trade and the macroeconomics of nations for which shipping is an essential service to support their industries.
It is shipping’s ability to respond to these changes that preserves its vitality, but when shipowners get ahead of the markets for their services and order thousands of new ships without contracts for their use, they create their own economic disaster.
Manufacturing industries can stop production, and mines and other mineral producers can slow their activities when demand for their products declines.
Shipping is saddled with fleets of ships of all types and sizes which, unless sold for scrap, can trade globally for 20 years or more. New ships on average take two years to deliver from the date they are ordered and a lot can change in two years.
The cause of the boom in all markets in the middle of the last decade was China’s surging economy. However, although China’s economy is not centralised, its policies are, while its industrial economics are driven regionally.
Thus the extraordinary growth in China’s regional demand for shipping services exceeded the overall requirement, as individual industries needing shipping were themselves governed by the demand for their products, mostly from outside China.
Put simply, China’s own recession was caused by the recessions in Europe and then the US, and Beijing’s new government is unlikely to stimulate its industries financially until the other nations’ economies recover.
Shipowners old and new took advantage of the ignorance of equity investors and the carelessness of the banks to order thousands of new ships of all types.
The abundant supply of public equity acted like a magnet to banks, which grossly overlent to shipping companies to order more and more new ships. These could only be paid for if the freight markets expanded above and beyond the unprecedented levels of 2005 and remained there for another decade.
Worse still, shipyards — mainly in South Korea and China — expanded their capacity to double the levels of the late 1990s and today can statistically replace the world fleet every seven years.
The results of all this are clearly and painfully seen today.
Except for shipping companies in smaller markets or those with ships on long-term charters, as in most of the liquefied natural gas fleet, most are losing money every day.
Bankruptcies and restructurings are the daily norm: “too big to fail” is a mantra that does not exist in shipping. Past collapses in the 1970s and 1980s show that fleet size is no protection if the charter revenues are not there.
Few, if any, public shipping companies have any franchise or goodwill value, and today most have little or no remaining equity value.
As an investment, shipping is viewed today as one of the worst industries and, despite the vitality of the services it provides, it will take a long time for investors to return.
The very recent collapse of Overseas Shipholding Group’s share price, which dropped 90% from its high in 2008 to October 1 this year, then fell a further 80% in the rest of October, leaves a market capital value of only $38m from its five-year high of $2.7bn.
Torm, another very large tanker company, has undergone major restructuring. Its banks now own 90% of a company that in 2008 had an MCV of $3bn. It will probably liquidate its fleet under bank governance.
Another major failure has been Excel Maritime, partly owned by the former major shareholder of Torm. Its peak MCV in October 2007 reached $7bn and it is now just $35m.
There are numerous other public companies whose values have collapsed and that operate under a mountain of debt that greatly exceeds the market values of their assets.
Behind the scenes, numerous private companies are facing similar problems. Even the major Asian owners are reporting sharply reduced revenues and growing losses.
As with all previous market collapses in the 1970s, 1980s and 1990s the shipping landscape changes and the recoveries take longer than upturns.
We still have a way to go before sustained recovery in freight markets is seen. Some are saying the capacity of the wet and dry fleets will need to contract by at least 30% for it to begin.
The container sector was looking to cope with the dramatic increase in ship sizes when the overall demand for slot spaces began to decline.
Today there are more containerships laid up than at any time before, yet the orderbook for jumbo-sized ships still shows a 50% increase by the end of 2013.
Companies such as Seaspan may reduce or defer some of their huge newbuilding programme as their customers face the problems that oversupply is causing.
Some factors may assist fleet reduction over the next few years, however.
The experience of investors in publicly traded shipping companies is as bad as the collapse of the dot.com bubble. Institutional investors are totally absent and short-term traders are very disillusioned.
The shipping banks are all carrying large amounts of non-performing debt, much of which will soon fail altogether. Thus shipping is a non-industry for most banks and it will be a long time before they return.
Private equity is also in short supply, demanding unachievable returns and short-term exit strategies that will mostly not occur.
In summary, there is no new money for new tonnage unless it is covered by charter contracts with real end-users.
The shipyards are already looking at a near 50% reduction in orders from a few years ago and, despite a significant reduction in prices, face further reductions.
The eventual outcome will be smaller fleets of more fuel-efficient ships that can trade profitably in the markets of post-recession economies, but these are far away.
The problems of today’s oversupply of ships will continue to haunt the industry for several more years.

Lloyd's List: Telling lies about cargo can cost lives

The article below is by Michael Grey, a columnist for Lloyd's List. The Antipodean Mariner has always respected Michael Grey's bluntness - his column on the loss of the Vinalines Queen is as good as you'll ever read.


Wet nickel ore in a ship's hold

Telling lies about cargo can cost lives

Liquefaction of hazardous cargo has claimed four ships in the past year

Michael Grey

Lloyd's List, Thursday 5 January 2012

WE KNOW the hazards and the very real risks that certain cargoes can be fatal. The hazardous phenomenon has been recognised, analysed and codified, along with the precautions that really do need to be taken.

But there are still people prepared to risk the lives of others, to play the percentage game. Perhaps it is a game of Russian Roulette to these people, who hope earnestly that the chamber is empty when the trigger is squeezed. Perhaps they just don’t care.

There have always been seafarers who take dangerous bulk cargoes to sea, or people who insist that they do so because the cargo has to get to the steel mills somehow, and if your ship won’t carry it somebody else’s jolly well will.

“Men must work and women must weep, and there’s little to earn and many to keep, though the harbour bar be moaning,” wrote Charles Kingsley.

But Mr Kingsley’s poem The Three Fishers was written in Victorian times, when loss of life at sea was taken for granted. This is the 21st century, when you don’t really expect 56,000 dwt, five-year-old bulkers to roll over and drown their crews.

And yet Vinalines Queen , which lost all but one member of its crew on Christmas Day, was the fourth modern ship to be lost due to cargo liquefaction in just over a year. The last mail I received before Christmas brought greetings cards along with a timely safety alert from the Standard P&I Club about cargo liquefaction, and an explanation of the phenomenon.

Cargo liquefaction is not new, but it seems to have become a latter-day plague, the recent casualties claiming 44 lives. Bulk carrier association Intercargo has made a huge effort to publicise the problem.

Now, the Standard Club has launched a drive to publicise the problem, explaining its causes and the precautions needed to ensure the safety of ships, crew and cargo.
Too many people around the world are prepared to lie like flatfish about a cargo if it is expedient to do so to get it on board ship and away.

Just as there are reptiles ashore who are quite willing to change the name of calcium hypochlorite to something innocuous to bamboozle carriers, so there are people prepared to misdeclare hazardous dry bulks such as iron ore fines and nickel ore as Group C cargoes under the International Maritime Solid Bulk Cargoes Code. But these are Group A cargoes that can liquefy.

The Standard Club names Indonesia, China, the Philippines, India, Brazil, Ukraine and Venezuela as countries prepared to take a cavalier attitude to IMSBC declarations. Keen geographers might note that in most of these countries, when it rains, it pours down in stair rods.

Then again, apart from places where cargo interests are prepared to indulge a certain laxity in cargo declarations, the same loading ports and others can host people prepared to go to any lengths to persuade a doubtful master that his prime role is to do what he is told by the charterers, load the cargo and take it obediently to sea.

It takes a shipmaster of genuine authority, one who has experience and strength of character — not to mention full support from the owners and managers — to resist bullying and blandishments, threats of ‘blacking’ or to end his employment, and to refuse to load dubious cargo.

Does this happen? Damn right it does: you only have to speak to owners, managers and masters in this business who can give you chapter and verse.
The Standard Club advice is practical and to the point. It includes a list of frequently asked questions about the rights of the carrier and the responsibilities of the shipper under the IMSBC Code, along with those of the master, whose absolute right to say “no” the code upholds.

In these cases, the master needs friends in the shape of the club correspondent and an experienced surveyor acting for the owner, not the shipper. It makes clear that where there is doubt, water content of cargo should be ascertained by an independent laboratory and not by some crude ‘can’ test to determine whether cargo is safe to load.

All this is absolutely clear, but the reality may well be a ship fixed to take a cargo out of some rain-sodden ore port operated by the cargo owner who has dug the stuff out of a nearby hill.

Local facilities may be limited and the master can face immense pressure to comply with stevedoring bigwigs brandishing bits of paper in unfamiliar languages.

To an inexperienced shipmaster, unsure of his position, that situation can be overwhelming. It is the jungle, and that is where the law originates. But the real law ought to be on the side of the ship in such cases and, as the Standard Club’s advice makes clear, it is. There are proper procedures, and those procedures are there to be used.

This is 2012 and seafarers’ lives must not be sold cheaply.