“‘Stupid shipowners’ must stop ordering ships we don’t need” – Lloyd’s List (26 January 2012).
“The fleet does not need more tonnage on the water. A lack of lending capacity this year could be good for the shipping industry in the long run as it will stop ‘stupid’ owners ordering more newbuildings that would add to the huge overcapacity already crippling chartering markets.
“‘We need to get rid of stupid shipowners ordering ships we don’t need,’ the report begins. ‘We need to raise the barrier to entry,’ Ship Finance International chief financial officer Erik Eide told the Marine Money London Ship Financial Forum today.
“With charter markets already proving in 2012 how seriously damaging vessel oversupply is to owners’ earnings, the fleet does not need more tonnage.
“For example, having boomed in the second half of 2011 on increased Asian iron ore demand, capesize freight rates in the first weeks of this year have collapsed from an average of around $ 30,000 per day to about $ 5,000 now, which is below operating costs levels.
“Weak chartering markets across all major shipping sectors over the last year have already restricted lending, though, according to Harold Kuznik, former head of shipping at HSK Nordbank.
“The value of newbuildings on order at shipyards plummeted and it was the banks left holding the majority of equity in contracts, which had already contributed to reduced lending.
“‘Lending capacity is even more restricted the worse the markets get,’ he said.
“This is compounded by the fact that the majority of the traditional ship finance still comes from European banks, which are impacted from the fallout of the euro sovereign debt crisis, and the fact that the ‘China card’ had not really materialised as it is a tiresome process that comes at a ‘horrendous cost’. With huge structural issues in the industry, consolidation is desperately needed and is the only solution because ‘otherwise there will be a lot of blood on the floor’.
“However, consolidation has to be driven by the world’s largest shipowners, which are the banks.
“‘Other industries have consolidated,’ he said. ‘Why is shipping so special?’
“Other speakers agreed and said that owners had spent a long time adopting a ‘wait and see’ attitude hoping the markets would improve, but now needed to start to clean up the mess within the industry.
“‘Now to 2015 will be cleaning up years and shipowners will finally need to make some tough decisions,’ said Naftilia Asset Management chief executive George Elliott.
“When asked what characteristics define those shipowners that survive the downturn, he said that successful companies were proactive, not lucky.
“Instead of being reactive, the survivors were those who had made efforts to improve their bank balances through examples such as the dilution of shares to increase equity.
“Mr. Kuznik added that being realistic was vital, and those in better positions now were those owners that had forecast what could happen. This includes those who had looked at locking in cargo supply rather than ordering ships but also those companies that had low leverage, which reduced their cost base and allowed them to make more money in weak chartering markets.
“But no matter what efforts owners and banks made, and despite weak players set to collapse, the biggest threat to the industry is overcapacity of shipbuilding facilities, a factor which is out of their control.
“Mr. Eide noted that newbuilding capacity had doubled since 2004.
“Even though some Chinese yards were likely to go bankrupt, ‘the scary thing’ was that China’s government would step in and save builders to secure jobs for workers.
“Watson Farley & Williams chairman Frank Dunne said that having spent a lot of time in China over the last couple of years he saw ‘very little chance’ of the country’s newbuilding capacity being taken out, which would mean that the return to balance on supply and demand would be much more difficult.”-
In spite of the above warnings from those who provide financing to “stupid” shipowners, those same shipowners insist on maintaining their senseless course and speed. Here’s what Cargo News reported earlier this week:
– “With the approach of the weak summer season, the idle containership fleet rose to 446,200 TEU in early July with carriers redelivering surplus chartered ships …
– “The idle fleet is expected to grow … the CKYH alliance, comprising Cosco, ‘K’Line, Yang Ming and Hanjin Shipping, has announced the four allies will lay up vessels from late July to mid-August, suggesting peak season demand is weaker than expected …
– “All eyes will be on Evergreen in the coming weeks as it takes delivery of its first 8,500-TEU ‘L’-class newbuildings later this month, with roughly one new ship from this series due every month over the next 35 months …
– “The industry observers also note that carriers are caught in a dilemma, with increasingly limited options to deploy all the newbuildings due to be delivered over the next 18 months.
Maybe what they say is true after all – “You can’t fix ‘stupid’. And what about those whining lenders who finance the “newbuildings”? Where were they when God was passing out brains?