These are certainly not boom times for shipping. Freight rates are still low. Share prices remain depressed. Yet somehow, US-listed shipowners are raising unprecedented sums on Wall Street via equity and debt sales. How to explain this dichotomy?

The answer, at least in part, is counter-cyclical speculation on the dry bulk recovery. This should set off alarm bells and stir a sense of déjà vu, because if money keeps flowing into dry bulk at the current pace, we know from recent experience where that leads, and it’s not good.

A Fairplay data analysis found that between 1 January and 15 March, US-listed shipowners grossed USD2.455 billion from the sale of equity and debt securities. In the first 10 weeks of this year, these companies raised more than they did in the first 10 months of last year. If this pace continues through year-end, 2017 would actually top 2014 as the best-ever year for shipping in the US capital markets, despite the fact that freight rates and asset values are tepid.

Of total proceeds through 15 March, money raised by bulker owners represented the largest share: USD1.12 billion or 45.7%. As this money is being raised, bulkers are being purchased in the second-hand market through en bloc deals by Golden Ocean (acquiring the fleet of Quintana) and Eagle Bulk (acquiring the fleet of Greenship Bulk Trust), as well as through individual ship deals by others such as Star Bulk and Norwegian OTC-listed Songa Bulk.

The shift toward capital raising and asset acquisitions appears set to intensify. Stifel analyst Ben Nolan recently pointed to “four or five private equity firms looking to raise more than USD500 million collectively” to invest in dry bulk.
It doesn’t take a soothsayer to see what could happen next. Sellers of on-the-water bulkers can and will raise prices. At a certain point, which could be very soon, it will make more sense to order a newbuilding than buy second-hand, given attractive pricing and financing offered by hungry Asian yards. Newbuildings will be alluring because freight rates have yet to recover and buying on-the-water bulkers exposes speculators to a greater risk of pre-rate-recovery losses. The consensus is that a dry bulk recovery is still two years away, in 2019, roughly the time when a newbuilding ordered today would be delivered. For an investor, that timeline implies a potential to order a newbuilding and ‘flip’ the contract for a profit before delivery.

The flaw in this thinking is that the market recovery in dry bulk has been two years away for over a half-decade. In 2011, dry bulk was recovering in 2013. In 2013, it was recovering in 2015. In 2015, it was 2017. Today, it’s 2019. Like clockwork, the dry bulk investment thesis of buying low and selling high continually re-emerges following a brief mourning period after each false start. When renewed enthusiasm translates into newbuilding orders, incremental capacity smothers the recovery.

The concept of ‘self-cancelling predictions’, the opposite of self-fulfilling prophecies, offers insight into how investment flows stifle shipping upturns. In a self-fulfilling prophecy, a belief in the future alters human behaviour and creates that predicted future – for example, personal failure induced by a lack of self-confidence. In a self-cancelling prediction, a belief that something will happen prevents it from happening (or from persisting, if it does happen). For example, if too many commuters use GPS devices to pick the least-congested route, that route becomes congested.

With so much money flowing into dry bulk in 2017, the risk of yet another self-cancelling prediction for this sector is escalating. It is time to watch the yards very carefully. If public companies, private Greek families, or private equity groups starting inking orders, the best course for owners of bulkers on the water could be to sell.

It was the historic case of Smith v M’Guire (1858) 3 H & N 554 that established the prima facie for the measure of damages that can be recovered by a shipowner in case of repudiation of a voyage charterparty by a charterer. In the Smith v M’Guire case, the damages were calculated on the basis of the usual compensatory principle intended to financially reimburse the innocent party for the repudiatory breach. Specifically, the owners were able to recover, as damages, the amount of freight which the ship would have earned if the charterparty had been performed, less operational expenses, as well as what the ship earned over the period she was performing the voyage. This long established rule has been reviewed by the English Courts in MTM Hong Kong (2015) EWHC 2505 (Comm)1 (MTM Hong Kong), following an appeal of an arbitration award.

The MTM Hong Kong voyage
The vessel MTM Hong Kong commenced her ballast voyage to South America on 19 January 2011 in accordance with the voyage charterparty. Two days later, whilst en route, the charterparty was terminated by the charterers via a wrongful termination which was accepted by the owners. The vessel continued to sail towards South America as the owners intended to find a substitute fixture for their vessel to help mitigate their losses . The vessel arrived in Uruguay on 2 February 2011 where, rather unexpectedly, the vessel was left to wait for three weeks later before a fixture from Argentina to the Netherlands with a cargo of sunflower oil and soya methyl ester was secured.

The substitute fixture was completed on 12 April 2011, almost a month later than the initially agreed voyage charter which, had it been performed, would have been completed on 17 March 2011. The vessel would have then subsequently carried a cargo of urea ammonium nitrate from the Baltic to the United States, followed by a chemical cargo from the United States to Europe, completing this run of fixtures by approximately the same date as the completion of discharge under the substitute fixture. Furthermore, the North Atlantic chemical trade between Europe and the United States commanded higher freight rates than the vegoil cargo.

The owners claimed damages not only for the profit which the vessel would have earned under the original voyage, but also for the two subsequent voyages (Baltic to United States and United States to Europe), minus the profits earned on the substitute voyage from Argentina to the Netherlands.

The charterers challenged the owners’ claim for damages, disputing the method of calculation used. The charterers argued that they should not be held accountable for the losses incurred from the substitute fixture terminating almost a month after the original voyage would have terminated.

The Tribunal
The Tribunal accepted the owners’ case and the charterers appealed under s.69 of the Arbitration Act 1996. In their appeal, the charterers applied the Smith v M’Guire principle and contended that the right approach to the calculation of damages would be to apportion the earnings under the substitute charter so as to reflect the amount earned up to the date on which performance of the original voyage charter between the parties would have been completed.

The Judge held that the principle on calculating damages remains the usual basic compensatory principle, and a deviation from the Smith v M’Guire prima facie measure may be required in order to give full effect to it. The Judge proposed that the facts and circumstances of each case ought to be examined on a case by case basis, specifically identifying whether the owners suffered a loss of profit different from the principle set in Smith v M’Guire case. There is no reason for this different type of loss of profit not to be recoverable in damages, subject to the principles of causation, mitigation and remoteness. The Judge noted the following:

“Cargoes typically shipped from one location may command higher rates of freight than cargoes shipped from another location. Such differences may exist permanently or only in particular market conditions. These are important commercial considerations which the law of damages needs to recognise. The package of rights for which an owner contracts when concluding a voyage charter includes not only the freight to be earned from performance of that charter but also the right to have his vessel back again and ready for her next employment at the stipulated discharge port or range. The Smith v M’Guire measure of damages compensates the owner for loss of the freight but does not address any loss which may be suffered if the vessel is less advantageously positioned as a result of the charterer’s repudiation”.

Conclusion
The charterers’ breach resulted in the owners’ loss of the higher freight, as well as a further loss of earnings due to the completion date of substitute fixture disabling the owner from carrying out two subsequent voyages to the U.S.. These were two separate heads of loss and both, a direct consequence of the charterers’ breach. The owners’ calculations for damages were found to be in order by the Judge and it was held that they should be able to recover damages for both heads of loss in full. Nonetheless, the Judge underlined that each case shall call upon its own facts, as damages claimed for loss of employment after the date a voyage would have concluded may not always succeed. Time will tell.

It seemed a bit of a joke in the press, as they reported that a bulk carrier had been asked to leave New Zealand waters because of a dirty bottom. Then she was banned from Fijian waters too, which became a bit more serious, leaving the ship operators obviously wondering where they could take their vessel for a legal scrub of the barnacles and tube worms that had so alarmed the New Zealand authorities.

A couple of hundred years ago, energetic mariners would rig up a big coir mat and with half the crew on the port rail and the other half to starboard, they would drag the mat back and forth under their ship, to remove the marine growth that would have been slowing them down to a crawl. Sadly, no such strategy was available to the modest crew of the 33,500 dwt DL Marigold, which will now go down in marine history as the first victim of such a rejection.

But it is a salutary reminder that this is yet another environmental issue which has been boiling away for hard-pressed ship operators, to add to the hard decisions on ballast water systems and how to control all the various atmospheric emissions. Just slap a coat of anti-fouling on the underwater hull and forget it to the next dry-docking? That is a policy for the past, since the 2011 IMO “Guidelines for the control and management of ships’ biofouling to minimise the transfer of invasive aquatic species” was published, and in the intervening years, quietly creeping up on the industry. May 2018 marks the date when these rules, which the New Zealanders have “promoted” from mere guidelines, come into force, but their Ministry for Primary Industries is now empowered to take action in cases of “severe” biofouling.

How severe must severe be before the divers surface and demand that a ship leaves port forthwith? Years ago, I was in a drydock in Singapore, where a tanker that had been laid up for several years was being cleaned prior to reactivation. There were tons and tons of long goose-necked barnacles being scraped off the bottom of this ship, to be collected up in a stinking mass, along with the weed that had grown on the vertical surfaces. They were using a bulldozer to put it in great skips for disposal, but it was not a job for the faint-hearted.

You don’t think of Port State Control frogmen routinely inspecting the underwater parts of the ship, at least not until now, but fouling is just one more bureaucratic hurdle to be surmounted, with its own certification regime, record books and “management plan” to be revealed to the questing authorities.

The waters around New Zealand are beautiful and clear and the authorities obviously want to keep them that way. And if the operators of the bulker thought that they could get the underwater cleaners to work, once the ship was sheltering inside the reefs of Fiji, they were quickly appraised of the unacceptability of that plan. Rolling around in a long Pacific swell far from land is not a suitable location for a scrub, so a visit to a dry dock would seem to be the most likely (if more expensive) solution.

These may only be IMO Guidelines, but look for this more prescriptive interpretation by other countries sooner rather than later. In New Zealand, the definition of “severe” is quite explicit – either the vessel has a 40% coverage of barnacles or tube worms over a continuous portion of the hull more than 4m in length, or if any anemone, bivalve, crustacean, sponge, sea snail, sea squirt, sea star or marine worm is present, you better make arrangements for a rapid departure.

It makes you wonder whether a marine biology module ought to be added to the statutory certification of a ship master. After all, do you categorically know that, before you arrive in a port after a long passage, that your bottom is clean, your sea valves and intakes unsullied by marine growth? How on earth would this be established? There is some money to be made in underwater hull inspection and the provision of frogpersons, that’s for sure.

Second-hand bulker deals by public players are piling up. After market close on 14 March, NASDAQ- and Oslo-listed Golden Ocean announced the purchase of 16 bulkers averaging four years of age in a USD412.4 million non-cash transaction, comprising USD285.2 million in assumed debt and USD127.2 million in Golden Ocean stock (based on 17.8 million shares at the 14 March closing price).
Fourteen of the bulkers will be purchased from Quintana Maritime (six Capesizes and eight Kamsarmaxes/Panamaxes) and two Panamaxes will be purchased from an affiliate of Golden Ocean’s largest shareholder, John Fredriksen. The switch to fleet expansion follows Golden Ocean’s postponement of 10 newbuilding deliveries in the fourth quarter of last year and the postponement of eight deliveries in the first half of 2016.

Golden Ocean began a USD60 million equity offering to raise funds for the pre-payment of debt assumed in the acquisition. On the same day as the Golden Ocean deal announcement, Angeliki Frangou-led Navios Partners disclosed that it had priced a USD100 million registered direct offering to fund ship purchases.
In general, the strategy has transitioned to vessel acquisitions among public companies that had previously been divesting ships to assuage their lenders. On 8 March, NASDAQ-listed Star Bulk announced the acquisition of two 2013-built Kamsarmaxes for an aggregate price of USD30.3 million, after closing a USD51.5 million private placement the month before. The Petros Pappas-led company had sold 26 vessels and newbuilding contracts in 2015–16. Following Star Bulk’s latest acquisitions, Stifel analyst Ben Nolan said that the company “has potential for several similar transactions during a cyclical trough”.
On 28 February, NASDAQ-listed Eagle Bulk confirmed that it will buy between six and nine 2012- to 2015-built Ultramaxes from Norwegian OTC-listed Greenship Bulk Trust. Assuming all nine sister vessels are acquired, the aggregate purchase price will be USD153 million, implying an average price of USD17 million per vessel. Eagle Bulk, which closed a USD100 million private placement in January, restarted its vessel-acquisition programme in November 2016 when it acquired a 2016-built Ultramax for USD18.9 million, the company’s first fleet addition in six years. It followed that later in the same month with the purchase of a 64,000 dwt newbuilding resale scheduled for delivery this year for USD17.9 million. In 2016, Eagle Bulk sold four older Supramaxes for a total of USD13 million; the transaction with Greenship Bulk Trust would bring its fleet to 50 vessels.

In the Oslo market, OTC-traded newcomer Songa Bulk raised USD100 million through a private placement in February following a USD74 million capital raise in November 2016, and has been actively deploying capital for vessel purchases. In the US market, ‘blank-cheque’ newcomer Hunter Maritime, backed by the Saverys family, is on the prowl for an initial bulker fleet.

Yet another publicly traded dry bulk owner, NYSE-listed Genco Shipping, is poised for acquisitions after concluding the sale of 10 older vessels. On its 2 March conference call, Genco CEO John Wobensmith said, “One of our main focuses right now is where we go from here in terms of growing the company. We think from a historical asset value standpoint, these are very attractive prices on vessels and we also think the industry is in need of consolidation going forward and we want to play a major role in that.”

He noted that asset values for Ultramaxes and Supramaxes have increased 20–25% year on year, but values have only increased 9–10% for Capesizes, implying that the purchase of second-hand Capes appears more attractive. “As the market recovers, we expect all asset values to move up, but probably a little more for the Capes,” said Wobensmith.

In light of widespread buying interest in the public dry bulk arena, the broader concern is that the rapid-fire second-hand deals presage a shift in interest towards newbuildings that could jeopardise a rate recovery.
In a recent research note, Nolan pointed out that “over the past three months, there has been a surge of public and private capital raising to fund dry bulk acquisitions”. In addition to the recent equity raises by public players Eagle Bulk, Star Bulk, and Songa Bulk, he said, “We understand there are four or five additional private equity firms looking to raise more than USD500 million collectively. If successful, in combination with what has already been raised, there could be nearly a billion of new equity capital for second-hand vessels.”
According to Nolan, “In the past three months, 153 dry bulk vessels were acquired for approximately USD1.8 billion, which drove up five-year-old asset values by about 10%, 10-year-old assets by 20%, and 15-year-old assets by 25% – all this with very little of recent capital raising or potential capital raising having yet to be deployed. The risk is that the gap between second-hand and new vessel prices is close to the point at which ordering again makes sense, particularly as owners look to prepare for the new emission regulations,” said Nolan. “Currently, average five-year-old vessels are about 65% of new vessels prices. Typically, when the ratio rises to 70%, ordering activity picks up. That does leave some room for further inflation, but with eager shipyards, more capital, and higher asset prices may have a nasty side effect.”

Contract language has put Bangkok-based Precious Shipping on the losing side of a $32m dispute with Taizhou Sanfu Ship Engineering.

The Thai shipowner revealed this week that it will have to pay the Chinese shipyard $32m after London-based arbitrators ruled that it could not withhold payments because the fuel consumption of super-eco bulkers was higher than specified in the contracts.

Precious managing director Khalid Hashim explained to TradeWinds that the crux of the legal dispute lay with the wording of the contracts for the series of six 63,000-dwt ships.

The contract specified that fuel consumption would be determined during shop tests, when the engine would be tested at its place of manufacture before being installed onboard the ship.

“The consumption was as per specification during the shop test but sea trials showed that consumption was over warranty,” Hashim said.

At the time, Precious estimated that the fuel consumption was between 11% and 17% above what was warranted in the contract, depending on the individual ships. They were delivered between 2015 and this year.

“Our view was that the ships did not meet specifications based on the sea trials but the yard’s view was that the contract stipulated that the only test that counted as per the contract was the shop test,” Hashim said. “We agreed to disagree and took the matter to arbitration.”

However, the tribunal agreed with Taizhou Sanfu, ruling that as the contracts stipulated that if the fuel consumption of the ships was to be determined only from engine shop tests, then only the result of those evaluations would apply.

“The way the contract was written meant that the sea trials had no meaning. The arbitration was fair. We accept the ruling and won’t be appealing it,” said Hashim, who notes that Precious continues to maintain good relations with the shipyard.

Initially, Precious had ordered a series of 10 ultramaxes at Taizhou Sanfu but later reduced that to six ships.

It will now have to pay interest of 6% per annum on the $32m it withheld from the shipyard. It will also be responsible for their legal fees, which were capped at $750,000.

“The money is on the balance sheet so we are able to pay them,” Hashim said. “The only impact to the company will be the interest and legal costs.”

The outcome of the arbitration was made known as Precious revealed it had reduced its third-quarter net loss to $5.23m from the $24.75m it lost in the same quarter of 2016. Average daily earnings per ship increased by 35% to $9,399, while operating costs continued to drop.

The Ballast Water Management Convention (the Convention), aimed at establishing standards and procedures to prevent the spread of aquatic organisms, enters into force and takes effect on 8 September this year. While it represents a significant environmental milestone for our planet, the Convention also means that the maritime industry has to gear up for a huge operational change.

Under the Convention, ships trading in international waters will need to ensure they are fitted with a ship-specific Ballast Water Management System (BWMS), according to the agreed implementation schedule. The BWMS installed must be approved by the Flag State in accordance with approval process defined by the International Maritime Organization (IMO). Even vessels from countries which have not acceded to the Convention are required to comply with the standards when entering the ports of IMO Member States that have ratified the Convention.

In addition to meeting the requirements of the Convention, ships entering U.S. waters will also need to meet the stringent standards laid down in the U.S. Ballast Water Regulations and enforced by the U.S. Coast Guard (USCG). The U.S. has not acceded to the Convention but adopted its own ballast-water regulations in 2012. This disconnect in requirements has left many shipowners wondering if their vessels will be able to operate in U.S. waters when the Convention comes into force. The uncertainty in this area has been compounded by the fact that only three equipment makers – Optimarin, Alfa Laval and Ocean Saver – have systems that are approved and considered fully compliant with both the Convention and US Ballast Water regulations. A fourth system is currently being considered by the USCG for full approval.

With the Convention entering into force in less than 7 months, the pressure is certainly on for shipowners who must find a suitably robust BWMS for their operations and in the case of existing ships have the system installed by the date of their first International Oil Pollution Prevention (IOPP) Renewal Survey after 8 September this year.

Absorbing costs
Industry watchers expect that the global maritime industry will spend upwards of USD75 billion on equipping their vessels with ballast water treatment systems. Depending on the size of the vessel, its ballast water capacity and type of treatment, estimates show that the cost of implementation of the treatment systems can range from half a million to five million USD per vessel with some 40,000 ships to be equipped. This is in addition to other maintenance and operational costs. Given these costs, there is the consideration that it may be more economically feasible to scrap a substantial number of older ships rather than modify them to meet the Convention’s standards. Moreover, individual shipowners will also need to invest in training crew members to handle new equipment, ensuring that appropriate safety protocols are well established, and costs associated with disruptions due to dry-docking and equipment installation are contained. In the current depressed market, these compliance costs, and other ancillary costs have been of significant concern to shipowners. For many countries, they have even been a barrier to ratification.

Making progress
In spite of the nervousness about the ratification, shipowners are generally confident of meeting the standards in time. Having a firm date for the Convention’s implementation provides certainty for timelines and budget. Furthermore, faced with the pressure of the Convention, equipment manufacturers and engineering companies are innovating to ensure that effective equipment and systems are made commercially available to help shipowners move forward. Currently, there are over 60-type approved systems, some of which make use of UV.

To spur greater trust in ballast water systems, the International Chamber of Shipping (ICS) has also been collaborating with the IMO to ensure a more rigorous type approval process exists and as a result, the IMO adopted the more robust 2016 Guidelines for the Approval of Ballast Water Management Systems (G8) in October 2016. The IMO also agreed in 2016 that the approval guidelines should be made into a mandatory code and the Convention amended accordingly following its entry into force. As a result, the availability of commercial equipment that can be considered to effectively treat ballast water in conditions normally encountered in the daily operation of ships should grow as systems gain approval in accordance with the latest revision of the approval guidelines (G8). The availability of systems approved in accordance with the 2016 Guidelines (G8) and with USCG approval will fuel confidence in the Convention.

Navigating the way forward
It has taken 13 years to take the Convention from adoption to ratification and while there have been significant concerns and challenges in its ratification, the long-term benefits should outweigh the costs. The risks to aquatic biodiversity and human health arising from the transfer of harmful aquatic organisms in ballast water will be eradicated with the implementation of treatment systems. As an aside, some in the industry are saying the Convention may address existing vessel over-supply in the market, by encouraging shipowners to consider scrapping vessels that are over 15 years old.

More importantly, compliance with the Convention offers shipowners the opportunity to feedback on the efficacy of treatment systems, to help shape the Convention, and the industry as a whole. Here, the ICS provides a key avenue for shipowners to collaborate with other industry players and the IMO to refine the Convention and help facilitate implementation. The success of the Convention is ultimately dependent on multi-level collaboration within the global maritime industry. On a macro level, inter-agency coordination amongst the flag States is necessary for effective enforcement of ballast water management strategies. On a micro level, careful planning and coordination is vital if shipowners are to meet the requirements of the Convention while minimising preparatory and compliance-related costs. This multi-level collaborative approach will also be in action during the Sea Asia 2017 conferences. Held in April in Singapore, Sea Asia 2017 will bring together leaders from across the industry and around the globe to analyse, debate and find solutions to issues confronting the maritime industry. One of the areas we will discuss is the Convention and its expected impact on the sector. I look forward to continuing the discussion on how we can work together as an industry to navigate these challenges moving forward.

Dry bulk shipping companies are crossing their fingers that strong demand underpinning a recent increase in the Baltic Dry Index will hold, although a worrying slowdown in scrapping levels means it would not take much to drag the market straight back down.
The BDI rose past the psychologically significant 1,000 point mark, a level it has not seen since mid-December 2016, on the back of increased activity in iron ore trade and shipments of coal and steel products.

But in a vastly oversupplied dry bulk shipping market, demand will never be able to improve enough to absorb all the capacity currently available or coming online, so a significant level of scrapping is necessary before any supply-demand balance will be achieved.

Unfortunately, when demand increases, dry bulk shipowners immediately put the brakes on scrapping unnecessary tonnage and this threatens the fragile recovery.

Khalid Hashim, managing director for Precious Shipping, conceded that the increase in demand recently had been stronger than the net increase in supply, leading to the BDI “crashing through” the 1,000 point mark. But he warned that future trends in demand would continue to shape the BDI as the supply side has basically “given up” trying to influence the outcome with barely any scrapping taking place this year.
“So if demand were to slow down even a tad, you will see the BDI giving up all its gains very quickly indeed. We have to pray that demand doesn’t flatter to deceive as the irresponsible shipowners have already stopped scrapping, which is the only sustainable solution for a return to a decent market,” he said.

IHS Markit’s Sea-web data show that so far this year, just 43 bulk carriers of 3.66 million dwt have been scrapped, sharply down from the 116 bulk carriers of 8.44 million dwt that were demolished during the same period in 2016.

Pacific Basin CEO Mats Berglund said he was optimistic about 2017 following the record scrapping and new building cancellations that were driven by the weak spot market. “New orders in 2016 amounted to a record low – 1.7% of existing capacity. In the absence of new ordering and a reduced orderbook, this should result in reduced deliveries in the coming year,” he said in the bulker’s 2016 results announcement.

“Looking forward, market conditions have been improving since the worst market conditions in February 2016. [This year] has started stronger than 2016 and market sentiment is improving.”

However, a number of brokers have warned that there are significant numbers of vessels to be delivered, so although there has been some small improvement in the returns and the commodities markets have apparently changed, owners should hold off ordering new ships.

Brokers said that owners have started taking slightly longer positions this year and for some commodities there may be some optimism, particularly as China has banned coal from North Korea. Although it is uncertain how China will replace that coal, it is certain that it will increase tonne miles.

According to Allied Shipbrokers in Greece, the BDI rise has been driven by “increased activity having been seen in the iron ore trade, while the firm prices being noted in the price of steel are likely to continue to boost trade in both steel products and metallurgical coal”.

That increase in demand has consequently led to increased optimism and that in turn has seen rumours beginning to circulate that some owners are starting to talk to yards and, if that results in more vessel orders, “it will be a good party, but it won’t be a long one”, said one broker.

The Radziwill group is continuing to stockpile capital for low-cycle buys in dry bulk with the launch of a $120m private placement in the US. The campaign by debut vehicle GoodBulk is just the latest in a series as owners seek to raise capital for counter-cyclical plays in the long-distressed but improving sector. Entities connected with John Michael Radziwill’s C Transport Maritime (CTM) have been stalking dry bulk assets since last summer.

TradeWinds reported in October that CTM had made a $125m run at New York-listed Genco Shipping & Trading only to see the target recapitalised by its top insider shareholders.

The Pareto-led private placement shows Radziwill has not given up. This time he proposes to sell five capesizes and one ultramax from his affiliated Carras Ltd to GoodBulk for $97.5m, while pursuing more acquisitions and an initial public offering within 12 months. The seller is to receive $80m in cash from GoodBulk on completion of the offering and 1.5 million shares in the new entity. GoodBulk would use $18.5m of the proceeds for further secondhand buys, and $4m for working capital, according to a prospectus circulated in connection with the effort.

The capesizes include the 180,700-dwt Nautical Dream (built 2013), 182,000-dwt Aquavictory (built 2010) and 171,000-dwt Acquabeauty, Aquacharm and Aquajoy (all built 2003). The ultramax is the 61,400-dwt Aquapride (built 2012). Three independent brokers valued the fleet at an average of $99.4m, according to GoodBulk.

Aside from the targeted fleet, GoodBulk has an existing complement of three ships in the water. Its capesizes are the 182,000-dwt Aquamarine (built 2009) and 177,000-dwt Aquadonna (built 2005). GoodBulk also has the 55,000-dwt supramax Admiral Schmidt (built 2007), which it acquired in February from a third party for $9.8m.

The Aquamarine was contributed by Carras as “equity in kind” with an acquisition price of $18.5m, while Aquadonna was acquired from a third party for $12.5m as part of the original equity financing. They all were acquired after an initial GoodBulk capital raise in December, documents show.

A company related to investor Lantern Asset Management “has indicated an interest to participate in the deal” for $10m, while CTM employees and Radziwill are in for $750,000 each, the prospectus states.

GoodBulk is targeting bulkers between the supramax and capesize classes aged five to 15 years, “currently believed to offer the best risk/reward profile”. GoodBulk promises an all-in breakeven of $9,000 per day for its capesizes and low leverage below 50% loan to value (LTV). CTM would provide technical and commercial management, building on the 100 vessels it currently has under management. The completed deal would make GoodBulk the world’s eighth-largest public capesize owner with seven — trailing only Golden Ocean, Bocimar, Diana Shipping, Star Bulk Carriers, Navios Maritime, Genco Shipping & Trading.

GoodBulk holds a $60m amortising term loan with five-year tenor at 325 basis points over the London interbank offered rate (Libor). The lender is not identified. The company hopes to complete its investor book next week.

Pacific Basin Shipping saw its 2016 net loss widen to $86.5m from $18.5m previously as record low dry bulk market conditions significantly undermined its ability to generate satisfactory results and revenue slid 14% to $1.09bn from $1.26bn previously.

The company’s core dry bulk business generated a net loss of US$87.6m compared to a net loss of $34.7m in 2015. “2016 was an extremely poor year for dry bulk shipping. Average market rates were even weaker than in 2015, dragged down in the first quarter by rates not seen for 45 years,” chairman David Turnbull said in a stock market statement. However it added that “conditions improved over the remainder of the year, and sentiment in the industry is recovering”.

While Pacific Basin again outperformed the market in terms of vessel earnings and generated positive operating cash flow, given the weak market, it still produced a significant net loss.

Pacific Basin ceo Mats Berglund said: “Freight rates were undermined at the start of the year by the general seasonal slowdown in demand, lingering oversupply of dry bulk tonnage and reduced movements of coal.”

He noted that freight earnings then improved over the remainder of the year, benefitting from increased South American grain exports in the second quarter and stronger US grain exports in the second half, as well as growth in trades such as cement into North America.

Berglund said Chinese industrial activity was significantly down at the start of the year, but improvements from March onwards drove a revival in the iron ore and coal trades and minor bulks such as logs, cement and copper concentrates in the remainder of the year.

“In this difficult environment, we generated average handysize and hupramax daily TCE earnings of $6,630 and $6,740 per day net, outperforming the BHSI and BSI indices by 34% and 14% respectively,” Berglund pointed out.

Looking ahead, Berglund said: “2017 has started stronger than last year, and we believe the worst of the current market cycle is behind us and that supply-side corrections have begun to lay the foundations for an eventual market improvement.

“We believe 2017 will be better than 2016,” he said, however Berglund reiterated that the group still expects “continued uncertain markets in 2017 and will continue to conduct our business efficiently and safely while astutely combining ships and cargoes to maximise our margins”.

Berglund continued the usual mantra that market recovery needs lower net growth in the global dry bulk fleet. He noted however that negligible new minor bulk ship ordering and non-delivery of some existing newbuilding orders should help alleviate the situation somewhat in the next few years.

Pacific Basin is also joining other shipping related firms such as maritime law firm Ince & Co in moving out of costly offices in downtown Hong and will be relocating to more cost-effective premises in Wong Chuk Hang outside of the central business district in May.

Posted 28 February 2017

Greek owners have shown a big appetite for resale and secondhand bulkers in the past week, with some analysts saying this may reflect anxiety to act before prices rise to levels no longer considered dirt cheap. A fear of missing out on ultra-low prices seems to be gripping the secondhand market. Even owners inactive for years are taking the plunge, says Intermodal analyst George Iliopoulos in a report to clients. Iliopoulos says potential buyers might see it as “just before the window of opportunity to buy at fairly attractive levels closes”.

It is telling that names such as Diamantis Lemos Ltd, which has not made a dry bulk purchase for at least 15 years, are appearing in brokers’ sale-and-purchase (S&P) reports. Some suspect the London-based owner and its Piraeus affiliate, Diamlemos Shipping, is the buyer of the 75,000-dwt Conti Spinell (built 2011), acquired from Germany’s Conti Group for about $10.5m. It would be the first S&P move by Diamantis Lemos since 2002, when it assembled its current four-ship panamax fleet built at Hudong Zhonghua Shipbuilding. However, Diamlemos spokespersons were unavailable to comment and other brokers suggest that South Korean interests have picked up the Conti Spinell instead.

Vessel prices have already appreciated significantly since the multi-year lows they hit during the freight rate crisis early last year. Adjusting for inflation, secondhand values may even have hit record lows then. Average reference prices cited by Clarksons for 10-year-old capesizes have gained one-third over the past year; the price of 15-year-old panamaxes has almost doubled over the past 10 months; ultramax resale prices gained nearly 30% over the same period; and five-year handysizes climbed by half. Ship values are expected to increase further, Clarksons says.

Positive expectations for the remainder of the year come on the back of improved forecasts for iron ore and coal demand in 2017. Newbuilding activity in dry bulk remains practically non-existent. This, combined with high levels of dry bulk scrapping that reached a combined 59.4 million dwt over the past couple of years, has brought the dry bulk newbuilding-to-fleet ratio to a 15-year low of about 9%. Intermodal expects that ratio to drop even lower, to a record low of 6% in the second quarter of this year.

“Whoever moves now, moves wisely,” a senior executive of a big dry bulk operator, whose principals purchased a capesize in recent weeks, told TradeWinds. Another Greek owner who dipped into the market is Ismini Panayotides. Her Athens-based company, Pavimar, confirms it has bought the 81,000-dwt Epson Trader II (built 2009). Brokers believe the Nisshin-owned ship changed hands for $12.25m. It was one of several whose purchase had been initially attributed to Greek peer Chartworld. However, Lou Kollakis-led Chartworld is still believed to have purchased the sistership Epson Trader I (built 2009), again from Nisshin, at a higher price of about $13.2m. However, George Economou has also been touted as a possible buyer of that vessel.

Nisshin is said to have sold another two kamsarmaxes – the 82,000-dwt Bergen Trader I (built 2012) and sistership Bergen Trader II (built 2013) – en bloc last week for $32m. Brokers say these ships were sold to Koreans, with the deal being on subjects until the end of February. Unidentified Greek owners have been linked to another two Japanese-held dry bulk vessels: the 60,200-dwt Red Sakura (built 2017), which reportedly changed hands for $23.2m, and the 76,300-dwt Red Gardenia (built 2005), which went for more than $7.5m. Keishin Kaiun, owner of the Red Gardenia, had attempted to sell the ship last July but held back from doing so after failing to secure a sufficiently high price.

In the smaller ship classes, many Greeks are active as sellers, taking advantage of buying appetite from Chinese and Middle Eastern buyers. Madias family interests are said to have offloaded the 53,400-dwt MIM Supramax Vivi (built 2008) to Chinese buyers for $7m. Sources are already listing the ship in the fleet of China’s Nanjing King Ship Management under the name of KSL Deyang. The vessel was last listed under the management of Maria Madias-led Axis Bulk Carriers. It had been previously managed – since its delivery as a newbuilding – by Chian Spirit Maritime, an Athens-based company run by Nicholas and Panayiotis Madias. The sale of the MIM Supramax Vivi leaves Axis Bulk Carriers with two panamaxes in its fleet.