A re-balancing of the dry cargo market is likely to continue next year but both an unwinding of slow steaming and the possibility of further newbuilding orders could complicate the improving picture, says Clarksons Platou.

Henriette Van Niekerk, head of dry bulk analysis at the brokerage, says the 360% improvement in freight rates since the 2016 trough needs to be kept in perspective.

Speaking at the Baltic Exchange Freight and Commodity Forum on Wednesday, Van Niekerk noted help on the supply side may come from scrapping linked to new legislation, while it could also be “an opportune time” for the 53 remaining converted VLOCs to head for demolition.

However, given the dry cargo fleet has yet to speed up in response to the improved market, an additional 10% to 14% of fresh capacity could be added by the unwinding of slow steaming, she told the London International Shipping Week event.

On the newbuilding front, Van Niekerk says there have been 195 new bulkers placed this year, up from the record low of 56 in 2016.

However, despite excitement around coal fueling fresh kamsarmax contracts, the orderbook as a percentage of the trading bulker fleet is at the lowest since 2003, she says.

For 2018 Van Niekerk expects dry cargo demand growth of 4% when ton-miles are factored in, ahead of the projected 3.4% fleet expansion.

“By those two numbers the market should start to improve,” she told the audience.

‘The question is just, in terms of those efficiencies, in terms of the slow steaming, will that limit the recovery? Will it take longer?

“And at what stage will people come back to the market and over-order again?

The Combined Maritime Forces (CMF) are setting up a security corridor Gulf of Aden and Bab Al Mandeb in response to recent attacks in the region.

The busy sealane has become the focus of both renewed pirate attacks and instability from the conflict in Yemen.

“Recent attacks against merchant shipping in the Gulf of Aden and Bab Al Mandeb (BAM) have highlighted the risks associated with transiting these waters,” CMF said.

“The multiple types of risks and the broad expanse of ocean on which these attacks can occur dictate that Naval Forces must be used in the most efficient manner possible. To assist in this, CMF is establishing a Maritime Security Transit Corridor (MSTC).”

The MTSC encompasses the Internationally Recommended Transit Corridor (IRTC), the BAM traffic separation scheme (TSS) and the TSS West of the Hanish Islands, and a two-way route directly connecting the IRTC and the BAM TSS.

The CMF said it recommended that all vessels use the MSTC to benefit from military presence and surveillance.

“All vessels transiting the Gulf of Aden and Bab Al Mandeb should follow the guidance of BMP4 to the maximum extent possible and consider the use of embarked armed security. Recent piracy attacks in 2017 serve to emphasise the importance of robustly following this guidance,” CMF added.

Vessels calling at ports in countries that have ratified the Ballast Water Management Convention are under extra scrutiny by port state control inspectors now that the convention has entered into force as of 8 September. Countries that are parties to the BWM Convention under the International Maritime Organization (IMO) must now impose the requirements of the convention on all vessels, whether those vessels are flagged by countries that have ratified the convention or not. Port state control can check to make sure a ship has a valid BWM Convention certificate issued by the vessel’s flag administration. They can also inspect the ship’s Ballast Water Record Book, and/or sample the ship’s ballast water.

According to the convention, if port state control finds evidence of non-compliance, they are now authorised to carry out a more detailed inspection, and to “take such steps as will ensure that the ship shall not discharge ballast water until it can do so without presenting a threat of harm to the environment, human health, property, or resources”.

Because the United States is not a signatory to the convention, it cannot regulate compliance for either US-flagged vessels or foreign flagged vessels operating in US waters. However, the US Coast Guard issued a policy letter on 7 September establishing a voluntary inspection scheme for US-flagged vessels trading with countries that are party to the convention.

Jeanne Grasso, a partner with the law firm Blank Rome, “highly recommended” US operators to participate in the programme. “If I were a US flag shipowner, it would be unwise to enter a country without being able to demonstrate compliance with the convention,” Grasso told Fairplay. “Any prudent shipowner would want to go through this process, or risk being detained.”

For shipowners, the biggest cost to complying with the convention has been addressing the “D-2” standard, which requires installing a ballast water treatment system (BWTS). Since the one-year countdown to enforcement began last September when the convention was ratified, owners have been working more intensely to weigh compliance strategies, from investment in various types of available BWTS to assessing whether to scrap the vessel altogether. For vessels that are eligible for decoupling their International Oil Pollution Prevention (IOPP) certificate from other major surveys, they will be able to take advantage of a two-year compliance extension approved at MEPC 71.

Commenting on the extension on 6 September, Esben Poulsson, chairman of the International Chamber of Shipping, noted that shipowners collectively could end up spending roughly USD100 billion to install ballast water treatment equipment. “Shipowners must make full use of this additional time to identify and invest in far more robust technology to the benefit of the environment,” he said. “And in view of the significant concessions that IMO has now made in response to the industry’s representations, shipping companies should not anticipate any further relaxation to the implementation schedule.”

George Economou, the founder and chief executive of DryShips, emerged last week as the biggest winner, perhaps the only winner, in the company’s reincarnation as a going concern. He did so by choosing when to tap the market for public funds, when to stop the public offerings and more importantly when to step in and buy the company’s stock. The biggest loser, sadly, is corporate governance and shareholders’ rights.

After narrowly escaping bankruptcy, DryShips has raised more than $700m since the aftermath of the US presidential election, effectively recapitalising the company. It did so through a series of controversial at-the-market offerings, billed as “purchase agreements” between DryShips and Kalani Investments, an entity registered in the British Virgin Islands.

The fundraisers were controversial because Kalani appeared to be an investor in DryShips when in fact it acted as an underwriter, by buying and simultaneously selling new shares to the public. Kalani has not registered as a broker-dealer with the US Securities and Exchange Commission, based on a legal opinion that exempts it from such registration.

The second coming of Mr Economou
While these “purchase agreements” were taking place, Mr Economou abstained from buying any shares. When that money well was about to go dry, he swiftly stepped in and reclaimed majority control of the company with a $100m private placement.

He will now own 53.6% of common shares at a fraction of what the remaining 46.4% were cumulatively sold for. Mr Economou will buy 36.4m shares at $2.75 per share. Lloyd’s Lists estimates that since last November DryShips sold 31.5m shares at an average share price of $22.33. These figures take into account several reverse stock splits.

Reverse stock splits have the effect of lowering the share count and raising the share price. Dryships has done five reverse stock splits so far in 2017. Shares of Dryships have rallied since the announcement of the private placement and the termination of the purchase agreements with Kalani. They closed on Tuesday at $3.53 per share.

But any stock rally will be of little consolation to the early buyers. For example, shares purchased through December 2016 for a total of $100m have an average cost of $24,500.

Shares purchased through January 2017 for a total of $200m have an average cost of $6,000, while shares purchased through March 2017 for another $200m have an average cost of $1,700. All these purchases, which collectively account for $500m of equity capital, have incurred heavy losses with very little chance of ever breaking even considering today’s stock price. Even the shareholders who participated in the final equity offering are in the red. They invested $194m at an average cost of $6.17 per share.

The shareholder with the lowest acquisition cost is Mr Economou, who was the last one to buy at $2.75 per share. For added emphasis, DryShips announced a shareholder rights offering to the hoi-polloi — everybody but Mr Economou — to buy up to $100m of DryShips shares on the same terms as the private placement. The rights offering appears equitable but it will not make up for the previous losses. In addition, it is back-stopped by Mr Economou, giving him the opportunity to acquire more shares should some shareholders opt out.

There have been several lawsuits, or lawsuit investigations, filed in the US and the Marshall Islands, where DryShips is incorporated. They are challenging Kalani’s exemption from US securities laws, among other allegations. So far none of the lawsuits have been successful, with DryShips vowing to vigorously defend itself.

Corporate governance
As we are awaiting the outcome of legal action, we must address the biggest loser in this saga, corporate governance. DryShips is a public corporation and like all corporations it is governed by a board of directors. Their fiduciary duty is to look after the interests of all shareholders. This is true especially for independent board members. In fact, all board decisions, purchase agreements with Kalani, reverse stock splits, private placement, shareholder rights offering, were expressly authorised only by the independent members, with Mr Economou and other executive board members abstaining from voting.

Were the interests of all shareholders served as the independent members kept authorising successive equity offerings and reverse stock splits? Was it imperative to raise $700m at all costs? There are certainly many shareholders who lost their money in DryShips. While it is tempting to scold them for not doing their due diligence, what about the due diligence of independent board members who serve to look after their shareholders’ rights?
One of the basic auditing standards is being independent in both fact and appearance. Or as the proverb says, “Caesar’s wife must be above suspicion”. It is time for shareholders to demand that companies adopt the same principle for all independent board members.

The crew of a bulk carrier have been evacuated after raised temperatures were detected in the vessel’s cargo of ammonium nitrate-based fertiliser.

The Isle of Man-flagged, 56,598 dwt bulk carrier Cheshire, loaded with a full cargo of the fertiliser, was on passage from Norway to Thailand, said owner Bibby Line.

The port authority at Las Palmas denied the vessel permission to enter. It was directed to head southwards.

At around 1500 hrs on Sunday, the vessel was at a safe position 45 miles south of Gran Canaria.

Light wind conditions mean that fumes from the cargo were not being carried away from the ship, so the crew of 20 seafarers were evacuated.

Bibby Line said Cheshire was experiencing elevated temperatures in Nos 4 and 5 cargo holds. Local authorities were offering assistance and the cargo’s manufacturer had sent a representative to Las Palmas to advise on cooling.

The temperature in No 4 cargo hold has risen enough to cause damage to the hatch cover. Professional salvors, Resolve Marine, have been appointed to attend the vessel and cool the affected cargo.

An access ladder has been rigged and a stand-by tug is to stay with the vessel, which is drifting in a southerly direction away from land.

Lloyd’s List Intelligence automatic identification system data placed Cheshire 66.1 miles from the port of Arguineguin at 0155 hrs on Tuesday.

Cheshire is one of three vessels owned by Bibby Line.

According to IMO estimates, the 0.50 per cent sulphur limit for marine fuels in 2020 will affect as many as 70,000 ships. Choosing the most economically feasible option for compliance is difficult. DNV GL provides decision support.

The introduction of the new global sulphur cap in 2020 is causing nothing short of a paradigm shift in marine fuel. It is more than just another regulation — it is a complex challenge, and how you choose to comply may ultimately impact the future competitiveness of your assets. There is a great deal of uncertainty related to enforcement, fuel availability and technological solutions.

It is challenging to make exact predictions regarding the most cost-efficient approach. DNV GL has compiled and thoroughly analyzed available information to give shipowners a comprehensive overview of the various compliance options. Every ship is different and so is its operational profile. The ultimate decision between HFO and scrubber, distillate fuel (MGO), LNG, low-sulphur fuels (0.50 % S) or other, alternative fuels should to be evaluated individually.

Depending on the underlying assumptions, the calculations lead to different conclusions. DNV GL has established scenarios that can be used as a guidance for investment decisions. Needless to say, any unexpected event, such as volatile changes of fossil fuel prices, can substantially change the outcome. It should however be noted that by 2020, a vast majority of ships will continue to run on whichever compliant fuel, that can be supplied in a port. This will be a higher-valued product compared to conventional HFO, thus inevitably will increase the operating costs. It is in owners’ best interest to investigate all compliance options which may increase their competitive edge.

ECA ZONES – Independent of the 0.5 per cent global fuel cap, the emission controlareas (ECAs) in Europe and around North America, possibly followedby China in a few years, impose a 0.1 sulphur limit in ship fuel today.
The status quo

Emission Control Areas (ECAs) in European and North American waters already impose a 0.1 per cent sulphur limit today, and new domestic control areas are being established in ports and areas in China. Most ships switch from HFO to MGO to ensure compliance. For alternative means of compliance, regional restrictions and limitations must be taken into consideration. Factors such as suitable scrubber technology, scrubber water disposal or availability of specific fuels need to be evaluated.

Looking towards 2020, it is challenging to make precise predictions of the future fuel availability and its pricing. The refinery industry will carefully evaluate its future production capacity investments by examining the market expectations and the demand. Shipowners on the other side, tend to assume that refineries will be able to provide enough of the compliant fuel to satisfy the increased demand. The researchers and industry experts do not seem to agree either. A 2016 IMO study indicates that the refining capacity will be sufficient to provide adequate quantities of low-sulphur marine fuel by 2020. There are other sources however, which are more sceptical, pointing to the fact that desulphurization is technically difficult, costly and may discourage refineries from such investment. All of those different opinions and strategies trigger off a lot of uncertainty.

Enforcement of the sulphur cap comes with new requirements. EU member states will be obliged to check 10 per cent of all ships calling at their ports for compliance with the EU Sulphur Directive. There are also reporting duties related to fuel sample analyses and surveys. In order to raise awareness of the sulphur control issues, inspectors and crews will have to be appropriately trained. Enforcement on the high seas is still an open question.

The options
It is clear that every owner has an interest in identifying the most economical and competitive strategy for sulphur cap compliance. DNV GL has prepared special evaluation lists presenting all of the available options. These lists are sensitive to various factors such as ship age, operating regions, trade patterns, as well as cost development diagrams accounting for the CAPEX and OPEX of each solution.

It has turned out that based on our assumptions for future cost of fuels and the corresponding investment, a SOx scrubber installation may prove to be the most cost-efficient choice over a ten year period. It must be noted however, that the experience with respect to scrubber technology is mainly limited to some passenger and ro-ro vessels operating in ECAs. Retrofitting a scrubber system can be technically challenging. Furthermore, certain local restrictions regarding the discharge of scrubber wash water or sludge disposal may apply in addition.

On the fuel side, it is expected that new 0.50% S-compliant blends will be introduced. Similar to hybrid fuels used in ECAs today, a diligent use and handling of them will be important for safe and successful operation.

Among alternative fuels, LNG will probably get more traction as availability and bunkering infrastructure improve. This however, applies mainly to the newbuild tonnage, especially for ships which will operate extensively within NOx ECA regions. Beyond being a sulphur-free fuel, LNG also offers a reduction in NOx emissions particulate matter and CO2 footprint compared with conventional fuels. Given the present regulatory outlook, these fuel characteristics will probably become more and more attractive in the future.

Another question in the feasibility equation is the proportion of time a vessel spends inside the ECAs. Furthermore, there is also an element of the fuel consumption which partly defines the attractiveness of the ship in the charter market. A free DNV GL guidance paper “Global Sulphur Cap 2020” is available for download. In addition, DNV GL offers a wide range of advisory services to help find the most cost-effective compliance strategy, including ship-specific calculation services and feasibility studies.

USCG Type Approval of Ecochlor’s unique, patented treatment technology now offers an alternative to UV and Electrochlorination. No treatment on discharge or neutralization is required with the Ecochlor® BWTS! Ecochlor is pleased to announce that its patented BWTS has received USCG Type Approval. The Ecochlor BWTS uses a two-step process that includes filtration and treatment with chlorine dioxide (ClO2). It is completely effective on all aquatic invasive species regardless of water turbidity, salinity or temperature.

Tom Perlich, President and Founder said, “The Ecochlor BWTS works just as effectively as it did when first installed in a ship in 2004 without any fundamental changes. Since that first system was sold, the Ecochlor System has undergone extensive testing and received International Maritime Organization (IMO) Type Approval (2011), US Coast Guard (USCG) Alternative Management System (AMS) Acceptance (2013), and numerous classification society approvals including Lloyd’s Register, American Bureau of Shipping, Class NK, Bureau Veritas, and RMRS. USCG Type Approval, Ecochlor’s final benchmark, validates all the hard work we expended to ensure there is a reliable, efficient, cost-effective treatment system available to shipowners.”

The Ecochlor System provides shipowners with several unique features. One of these is low power consumption, perhaps the lowest in the industry. Typical power requirements for the Ecochlor System capable of treating a total flow rate of 8,000 m3/hr is 12 kWh, with maximum requirements reaching only as high as 35 kWh.

“Not only does the Ecochlor BWTS have low power consumption, it is highly effective in all types of waters, said Steve Candito, Ecochlor’s CEO. The system was engineered with many safety and redundancy features, such as pressurized double wall storage tanks, flow controls and a vacuum mixing chamber where the chlorine dioxide is generated on-demand. Along with supplying a highly effective, safe technology, Ecochlor is committed to offering a more efficient retrofit experience. We are pleased to now list USCG Type Approval Certification among our many achievements.”

Another important feature of the Ecochlor System is a small footprint, which makes it extremely space efficient, even for larger capacity systems. The BWTS offers a modular approach providing further flexibility in tight spaces. Typically, only a single treatment system is required, with up to three chemical injection points connected to the vessel’s ballast lines. USCG Type Approval has been issued for Ecochlor Systems capable of treating ballast flow rates from 500 m3/hr to 16,200 m3/hr.

Marcie Merksamer, Vice President of EnviroManagement, Inc. adds, “For all system manufacturers, getting through the USCG Type Approval process is a long journey, with challenges and successes along the way. I’m pleased to have assisted Ecochlor and collaborated with DNV GL, Golden Bear Facility, and the USCG during the process, and I congratulate the Company on successful completion of USCG Type Approval.”

Perlich said, “Ecochlor’s focus has always been to help shipowners meet regulatory requirements in the most effective and efficient way. In the past year, we have seen significant activity from shipowners who recognize the value of all the benefits in the Ecochlor System. As one of only five USCG Type Approved BWTS in the world, this approval adds Ecochlor to a group that has successfully demonstrated that they can meet the most rigorous testing requirements worldwide.”

Source: Ecochlor

Precious Shipping is the second Asian bulk carrier to report a narrowing of losses as its earnings were lifted by an improving market, increasing daily vessel rates and the disposal of older ships that cut operating expenses.

The Bangkok-based shipping company posted a second quarter loss of USD150,000 compared to a USD13.48 million loss for the same period in 2016.

It’s results follow those of Hong Kong-listed Pacific Basin Shipping that reported first half net losses narrowing to USD12 million compared with a loss of USD49.8 million for the year before. This was attributed to improved market freight rates compared with the historic lows of a year earlier, while at the same time demand was outpacing supply.

Those same market fundamentals improved Precious Shipping’s earnings in the first half, with its net loss declining from USD50.7 million in 2016 to USD1.9 million this year. Average earnings per day per ship during the second quarter were USD9,206, 46% higher than in the same quarter of 2016. By segment, the daily earnings were also well above last year’s levels for Handysize, supramax and ultramax vessels, the Bangkok-listed carrier said.

Precious Shipping’s net vessel operating income for the first half of 2017 increased by around 32% compared to the same period of 2016, even though the income was earned from an average of 36 vessels during the first half of 2017 against an average of 43 vessels in the same period of 2016. This was mainly down to the increase in the average earnings per day per vessel during the second half increasing from USD5,519 in 2016 to USD8,899 for the same period of 2017 as a consequence of the market improvement.

Vessel running expenses in the first six months of the year were lower by about 21% compared to the same period of 2016, mainly due to the decrease in the number of ships being operated. The decrease is also a result of operating expenses per vessel decreasing from USD4,523 in the first half of 2016 to USD4,265 this year as a consequence of the sale of old vessels that on average were more costly to operate than other vessels in the fleet. Those vessel sales resulted in an impairment loss of USD18 million.

However, Precious Shipping Managing Director Khalid Hashim pointed to a Banchero Costa report that said market conditions may have improved compared to the lows of 2016, but that the slowdown in demolition activity and continued large deliveries could cap substantial rate increases this year.

“Supply side developments in the world bulker fleet show a rather pessimistic situation,” Hashim said. “If we were to apply a slippage factor of 16.7%, annualised from the 8.28% in first half 2017, to these scheduled deliveries and further assume that scrapping reaches 17.44 million dwt, we would be left with a net fleet growth of 3.67% (819.42 million dwt) in 2017 and net fleet growth of 0.56% (824 million dwt) in 2018.”

Scrapping in the dry bulk fleet in the first six months is now 50% behind that of the same period last year, but the analysts expect scrapping levels to increase in the second half as market rates come down.

Pacific Basin Shipping CEO Mats Berglund said more demand than supply was forecast this year for the first time since 2013. “The worst of the current dry bulk cycle is behind us,” he said after the carrier’s earnings announcement.
Berglund expects the shrinking orderbook to have a positive impact on dry bulk shipping in the long term, but says that more time, scrapping, and limited ordering are required for a more normal market balance to be sustained.

However, a factor that could influence the scrapping decisions of shipowners is the International Maritime Organisation (IMO) agreeing to delay enforcement of the Ballast Water Management Convention (BWMC) compliance for existing vessels from September 2017 to September 2019.

Ship brokerage Charles R. Weber said compliance for existing vessels called for the fitting of Ballast Water Treatment systems from their first International Oil Pollution Prevention (IOPP) renewal survey after the enforcement date.

“Given the cost and lost time associated with ballast water fittings, it had been an industry wide assumption that the mandate would hasten the phasing‐out of older vessels, which already faced higher maintenance costs than their younger counterparts,” the broker said.

That assumption could be challenged by the extending of the BWMC compliance date, with slowing scrapping levels threatening the fragile dry bulk market recovery. BIMCO has warned of a false dawn in the dry bulk shipping industry as strong demand and rising rates lift sentiment in the market, but also raise the risk of a wave of newbuilding orders that would kill a recovery in earnings.

“No shipping company went bankrupt because it was unprofitable,” said Citi global head of shipping Michael Parker in Lori Ann LaRocco’s Dynasties of the Sea. They go bankrupt when they “run out of cash”.

Profits and losses are accounting terms that incorporate amorphous intangibles, non-cash items that are open to interpretation, and estimated timing of payables and receivables. Financial history is rife with creatively massaged quarterly accounting of profit and loss. But there’s no way to massage away the true ‘acid test’: cash.

“In shipping, cash is king,” Goldin Maritime head Randee Day told Fairplay last year, asserting that “there has been way too little focus on cash flow” and “the ability of shipping assets to generate cash flow”. Seward & Kissel partner Gary Wolfe, a top attorney in the US shipping securities business, highlighted cash in an interview with Fairplay this month. “It’s a very easy industry [to value],” he said. “It’s money in, money out. Cash in, cash out.”

For most shipping sectors, 2017 is shaping up to be a transitional year, a relative calm after a series of storms. To gauge where Dry Bulk could be headed next, Fairplay analysed the most basic questions that any business faces: How much cash do you have? How much are you making? How much do you need to pay your bills?

Because shipping is largely commoditised and most players generally earn similar rates and pay similar costs, and because there are detailed quarterly reporting requirements in the US public markets, the Fairplay analysis used US-listed companies as a global proxy.

Three measures were examined, using quarterly data compiled by online financial data platform Ycharts: cash and equivalents, net cash from operations, and the current ratio. Trends were measured over nine quarters, from the first quarter of 2015 (1Q15) through 1Q17 (2Q17 numbers were also analysed for those companies that had reported them).

A temporary drop in cash is not necessarily negative. It could simply indicate that a company is deploying previously raised cash to buy attractively priced ships that will earn high returns in the future. However, if total cash is clearly declining over an extended period and cash from operations is simultaneously falling, it is likely a negative indicator – and vice versa if the numbers are positive.

The current ratio, which is a rough ‘back of the envelope’ barometer, is calculated by dividing the current assets – cash, accounts receivable and liquid assets – by the current liabilities, i.e., debts and other obligations due within one year. A ratio of 2.0 or higher is generally considered healthy, while a ratio of under 1.0 is a possible cause for concern, implying that a company may need to raise more debt or sell more equity to meet its near-term obligations.

In shipping, the need to maintain a high current ratio differs by sector and business model. An LNG carrier owner does not need (and should not have) a high current ratio if it has a fleet on long-term charter, prodigious bank debt capacity, a policy of paying out dividends to investors, and a proven ability to tap capital markets. In contrast, a dry bulk owner that is entirely exposed to the spot market, has a low stock valuation, and is operating under a temporarily renegotiated debt agreement with its bankers should have a high current ratio.

In general, the Fairplay cash analysis found that shipowners are in a relatively stable position as of mid-2017.

Dry bulk owners experienced historically low freight markets in early 2016 and suffered huge cash outflows due to below-breakeven rates. Despite this, the sector does not appear to be facing a severe cash crunch in 2017.

The Fairplay analysis examined the cash positions and cash flows of eight US-listed companies: Diana Shipping, Eagle Bulk, Genco, Golden Ocean, Navios Holdings, Safe Bulkers, Scorpio Bulkers, and Star Bulk. In aggregate, these companies suffered a quarterly cash outflow of USD202.9 million in 1Q16, at the peak of the rate collapse. Rates have recovered since then, and some positive cash flows have resumed in 4Q16 and the first half of this year.

Overall, the cash levels of these dry bulk companies are surprisingly resilient this year given how bad the freight market was in 2016. The aggregate cash of these eight companies in 1Q17 was almost back up to levels seen in 3Q15. The dry bulk companies that have announced 2Q17 results – Scorpio Bulkers, Diana, and Safe Bulkers – posted further improvements in cash levels and cash from operations. Safe Bulkers booked US26.6 million in cash from operations during the first half of this year, compared to a cash outflow from operations of USD1 million during the same period last year.

Dry bulk companies survived last year’s slump by renegotiating bank agreements (reducing near-term debt amortisation payments) and raising cash by selling ships and equity. The surveyed bulker owners’ current ratio at the end of 1Q17 averaged around 4.5 (i.e., current assets were 4.5 times higher than current liabilities), confirming that there is ‘breathing room’ and no imminent bankruptcy threat.

The debate now is whether it is time to call the ‘all clear’, or whether it is too soon. Scorpio Bulkers has resumed previously deferred amortisation payments, and in return, lenders have removed restrictions on dividend pay-outs.

According to Scorpio Bulkers president Robert Bugbee, the normalisation of the lending agreement signals that “management believes we are through the worst”. But Deutsche Bank analyst Amit Mehrotra called the decision “a head scratcher” and pointed out that “current rates are still not high enough to generate much in the way of surplus operating cash flow”.

US commodities giant Cargill is being linked with a $250m order for up to half-a-dozen capesize bulkers in China. Industry sources say the order is being placed through an offshore subsidiary called Great Wave Navigation and involves three firm 180,000-dwt newbuildings at Singapore-listed Yangzijiang Shipbuilding for delivery between the last quarter of 2018 and late 2019. The deal includes three options.

Sources suggest Great Wave Navigation is the same offshore company that was set up six years ago in a joint venture between Cargill and a Mitsui group company, understood to be Tokyo trading giant Mitsui & Co.

In May 2013, Cargill was reported to have teamed up with the same Japanese partner and ordered three capesize bulker newbuildings at state-owned Shanghai Waigaoqiao Shipbuilding for delivery in 2015 at a reported price of $47.5m each. Within six months of signing the contract, it sold the trio to Scorpio for $57m each, pocketing a $28.5m profit.

Executives at Yangzijiang decline to comment on talk of the Cargill capesize order, citing confidentiality clauses. However, they confirm that the yard is in serious discussions with several shipowners for all types of vessels.
Cargill also declined to comment about details of the order when contacted by TradeWinds. It is also understood that each of the Yangzijiang newbuildings is priced at $41.5m and will be constructed to the International Maritime Organization Tier II standards.

Observers believe the US-Japanese partnership is again taking advantage of low newbuilding prices to dabble in asset play by ordering the capesizes — and some are not happy about it. “If they do not sell the newbuildings, they could always use them for carrying their own cargoes,” one dry bulk expert suggested. But he added: “This is an unwelcome move to the industry… as it is, there are already too many ships, and with a commodities company like Cargill capitalising on low shipbuilding prices and ordering new tonnage, the recovery of the dry bulk market will take even longer.”

Concern is growing over speculative orders, as Cargill is not alone in making such a move. Other trading companies and investment banks have taken advantage of low newbuilding prices to acquire cheap tonnage. These include Trafigura, JP Morgan and Chinese leasing companies. VesselsValue lists CarVal Investors — the investment arm of Cargill — with a fleet of 17 ships, of which 12 are capesize bulkers built between 2005 and 2012.

On the sale-and-purchase front, CarVal was an active player in 2013 and 2014, acquiring four medium-range products tankers and 13 bulkers. Its most recent acquisition was in March last year, when it bought the Imabari-built, 182,000-dwt Spring Zephyr (built 2010). It sold the 176,400-dwt Portage (built 2002) four months ago to Winning Shipping in Singapore for $8.6m. Cargill, the world’s largest agricultural commodities supplier, logged $2.84bn in net profit in 2016 to 2017, a 19% year-on-year increase.