Operators of smaller dry bulk carriers are set to be the biggest winners as the rise in grain shipments is expected to keep handysizes to supramaxes busy, with a large overflow to the panamax sector. A strong demand for wheat in Asia has led to record activity in the global wheat trade, driven by strong demand from China, Vietnam and India.

In a global grain report published this month, the United States Department of Agriculture (USDA) said that wheat imports have more than doubled over the past decade in Southeast Asia alone, to over 25 million tonnes. “Milling-quality wheat demand has grown as diets have shifted towards more wheat products. Furthermore, feed and residual use has more than doubled due to rapidly rising demand from the livestock, poultry and aquaculture sectors,” it said.

The report says that demand in Thailand and Indonesia has recently dropped slightly due to low feedstock requirement. However, this has been more than compensated for by Vietnam, where the USDA predicts wheat imports will surge 67.4% year-on-year to five million tonnes for the 2016-2017 marketing year, which runs from July to June. India has also been importing record amounts of wheat. It has bought more than five million tonnes since mid-2016, its biggest annual purchase in a decade. However, grain traders say India is cutting back on imports ahead of the April harvest, so purchases in the preceding months will depend on the size of the crop.

On the wheat production side, shipbroker Banchero Costa (Bancosta) said in a recent report that Brazil, traditionally a wheat importer, has exported several shipments recently. A large crop and a government subsidy make Brazil’s exports more competitive. Bancosta reported that Brazil exported 338,000 tonnes of wheat in December and January and is expected to ship 244,000 tonnes more during February, with China, South Korea and Vietnam being the main destinations. But Brazil’s wheat exports remain a miniscule amount of the entire global grain trade, which the USDA calculated at 172.1 million tonnes for the 2015-2016 marketing year. The USDA expects total wheat exports will grow to 178.3 million tonnes in 2016-2017.

The USDA forecasts that the rice trade will rise in 2017 due to larger imports by Asian and Middle Eastern countries, along with Brazil. Global trade in 2016 stood at 40.8 million tonnes and the trade this year is projected to climb 3% to the third-largest level on record. This is said to reverse the recent two-year contraction that occurred as countries sought to increase domestic production and self-sufficiency, sometimes through restrictive-trade measures. Although the global rice trade is predicted to grow, several shifts in trading patterns are underway. Growth in Thai and Vietnamese exports has slowed due to increased competition from India, which exported 10.43 million tonnes in 2016, making it the world leader. Thailand shipped 9.88 million tonnes of rice and Vietnam 4.95 million tonnes. In fourth place was Pakistan at 4.3 million tonnes and the US fifth with rice exports of 3.5 million tonnes.

The Thai Rice Exporters Association said shipments should drop slightly to 9.5 million tonnes for this year, while Vietnam is expected to register a slightly larger decline. Thailand and Vietnam claim that their exports have been affected by India, which has muscled its way into the African markets that have traditionally been major buyers of rice produced by the two Southeast Asian nations.

Over in the Americas, rice producers in the US are getting increasingly concerned that president Trump’s war of words with Mexico could result in the largest foreign buyer of US rice going elsewhere for its supply. Trump has been threatening that Mexico will pay for the construction of a wall along the US-Mexico border and his administration has floated the idea of a 20% to 35% tariff on Mexican imports to foot the bill. In retaliation, Armando Rios Piter, a Mexican senator who leads a foreign-relations committee in the government, said he intends to introduce legislation to shift the country’s grain import supplies elsewhere. Mexico takes one-quarter of the US export crop. Mexico also bought about 23% of the 51.2 million tonnes of corn exported by the US in 2015-2016. If these threats become a reality, Mexico will probably have to source its rice from Asia and its corn from Argentina and Brazil. “That would be very good for the tonne-mile ratios,” said Thailand’s Precious Shipping managing director Khalid Hashim.

Something is not quite adding up in China’s iron and steel markets, with the reasons for the current rally in prices for both commodities jarring uncomfortably with actual data.

Iron ore futures on the Dalian Commodity Exchange on Tuesday hit the highest since the contract was launched in 2013, reaching an intraday peak of 741.5 yuan ($108) a ton, ending 3.2 percent up on the day, taking the gain since the beginning of 2016 to 258 percent.

The simple explanation is that iron ore is merely tracking gains in steel rebar futures, the main Chinese benchmark traded on the Shanghai Futures Exchange.

Steel futures closed on Tuesday at 3,589 yuan a ton, having earlier reached their highest level since February 2014. Their gain since the start of 2016 stands at a fraction over 100 percent.

The main reasons cited for the rally in steel are strong growth in demand because of Chinese infrastructure spending and fears over supply, given Beijing’s plans to cut excess capacity and enforce stricter pollution controls.

While it’s fair to say demand for steel has been boosted by increased spending, and that steel capacity has been cut, there is little evidence that this is creating any shortage of the alloy.

Production is still strong, with China’s crude steel output reaching 67.2 million tonnes in January, up 7.4 percent from the same month a year earlier, the World Steel Association said on Tuesday.

Production for 2016 was 808.4 million tonnes, up 1.2 percent on the prior year, confounding expectations at the start of last year that output would decline as the industry was forced to rationalize capacity.

Some 45 million tonnes of excess capacity was shut in 2016, part of a plan to shutter as much as 150 million tonnes by 2020.
But it’s clear that shutting excess capacity has had zero impact on steel mills’ ability to increase production.

In fact, it may have the opposite effect, as the capacity that has been closed was older, less efficient and generally loss-making, meaning the mills currently operating are more profitable and thus incentivized to boost output.

Certainly, there appears to be no shortage of steel in China, with rebar inventories rising to 8.397 million tonnes in the week to Feb. 17, the highest for almost two years and more than double the recent low of 3.508 million recorded on Nov. 18 last year.

It’s much the same story with iron ore, with inventories surging to 127.5 million tonnes in the week ended Feb. 17, the most since at least 2004, according to data compiler SteelHome.

INVENTORIES TO PROMPT CORRECTION?
What has happened in recent months is that China’s output of steel, and its imports of iron ore, have been robust on the back of the rise in steel prices.

Steel production has been incentivized by the solid profits being made by steel mills, and this has led to strong gains in iron ore imports, with January’s 92 million tonnes being the second highest on record.

The question is how long can the current situation be sustained?

It certainly doesn’t seem logical that prices can continue to rally when inventories are reaching uncomfortably high levels.

At some point the volume of steel and iron ore sitting at Chinese ports and warehouses will overwhelm even the most optimistic traders, but picking that point is far from an exact science.

In the past, peaks in inventory cycles have been matched by falling prices, but the last five years are tricky given the market was also suffering from persistent oversupply in iron ore and steel, whereas now it’s more fundamentally balanced.

Certainly, Andrew Mackenzie, chief executive of BHP Billiton, is cautious on iron ore, telling reporters on Tuesday that the world’s No.3 producer of the steelmaking ingredient sees risks to the downside in the short term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply.

So far, the paper markets for iron ore and steel have been happy to forego a cautious approach to the outlook in 2017, but optimism in the face of contradictory data may well lead to a sharp reality check.
Reuters (Editing by Joseph Radford)

CHINA suspended coal imports from North Korea for a year from February 19, 2017 — a development bulker owners hope may translate into more shipments from other producers such as Australia, and help sustain the dry bulk market recovery.

The sanctions may translate to as much as a 20% increase in seaborne coal imports and are beneficial for panamaxes and capes — the larger vessel sizes — bringing this product from Australia to China. Other coal-exporting countries that could benefit are Vietnam and Russia.

However, those benefits for overseas producers are unlikely to materialise any time soon. It will be easier for Chinese steelmakers to source domestic coal to cover near-term requirements. One of the benefits of North Korean coal was its proximity, which made freight cheap.

Most of the North Korean supplies to China consist of anthracite, which is a higher-quality grade mainly used for steelmaking or in higher-value industries such as ceramics and chemical industries. The closest material to anthracite is pulverised coal injection (pci) coal, and Australian companies producing this grade include Macarthur Coal, Wesfarmers and Jellinbah.

Around 22.5m tonnes of anthracite was imported by China from neighbouring North Korea in 2016, up 14.5% year on year. The shipments were worth almost $1.2bn, Chinese customs data shows. This made North Korea the fourth-largest exporter to China after Australia at 70.5m tonnes, Indonesia at 39.1m tonnes, and Mongolia at 26.3m tonnes.

Downplaying the potential for more coal imports from elsewhere, a few analysts even warned the move could hurt the freight market, even though seaborne trade in coal is forecast to improve this year.

“In China, they use North Korean anthracite for steelmaking only because it is cheap. They would not otherwise use anthracite as it is more expensive and therefore more inefficient than using standard coking coal,” said Banchero Costa head of research Ralph Leszczynski.

“If they cannot import North Korean anthracite, for most uses they would just go back to using standard domestic or imported coking coal and thermal coal,” he asserted.

If China adheres to the restriction for the rest of the year, there is a possibility that Chinese importers will face a shortage of about 20m tonnes of coal, assuming demand from the steel and other sectors remains steady. However, with the recent recovery in coal prices, domestic coal production in China is now expected to rebound a little as the New Year holidays are over and winter is coming to an end, Mr Leszczynski added.

China is targeting production of 3.65bn tonnes this year, the National Energy Administration said in a report on Friday. “Therefore, probably the shortfall in Korean coal will simply be replaced by slightly higher domestic Chinese coal production, and the result will be neutral on ‘mainstream’ imports from Australia and Indonesia,” he conceded.

Certainly, China will seek the higher grade of coal from Australia but it is unlikely the nation could fill up the gap in the short term and Indonesia would not be considered because of the high ash content coal it produces.

So it is a worrisome scenario for bulker owners if China is able to substitute North Korean material with imports from neighbouring Mongolia, as the land-locked supplier sells its coal well below the seaborne price.

According to mining.com, China paid $63 per tonne for Mongolian coking coal in December last year as compared with the seaborne price, which was averaging above $230 per tonne.

The Chinese Commerce Ministry suspended coal imports in accordance with the United Nations National Security Council resolution that targets North Korea’s commercial trade to curb the country’s nuclear and ballistic missile programme.

The move was preceded by a North Korean intermediate-range ballistic missile test on February 12 this year and the alleged assassination of Kim Jong-nam, the half-brother of North Korean leader Kim Jong-un.

China’s steel mills and traders were scrambling to find alternative supplies of coking coal for steel making on Monday after Beijing slapped a surprise ban on coal imports from its isolated northern neighbour.

Chinese prices of steel, coking coal and coke all rallied, as traders and analysts said mills will likely be forced to buy more expensive domestic material or seek alternatives further afield from Russia or Australia, driving up costs.

While North Korea accounts for only a small portion of China’s total coal imports, it is the main foreign supplier of high-quality thermal coal, called anthracite, which is used to make coke, a key ingredient in steelmaking.

“This news really took us by surprise. We are looking at a couple of alternative plans,” said a steel mill purchasing manager, based in the northern province of Liaoning.

These included buying anthracite from Shanxi province or buying more coke from local providers, but both were more costly, said the manager, whose firm uses about 10,000 tonnes of North Korean anthracite each month.

Business with North Korea had become increasingly difficult under years of sanctions and the once-bustling trade handling coal from the north had shrunk to just a few private merchants.

Still few mills or traders anticipated the complete suspension of imports, which came a week after Pyongyang tested an intermediate-range ballistic missile, its first direct challenge to the international community since U.S. President Donald Trump took office on Jan. 20.

China bought 22.48 million tonnes of anthracite from North Korea in 2016, 85 percent of its total imports.

PRICES RALLY
Steel mills often blend anthracite with coking coal to make coke, a fuel used in blast furnaces, rather than using only more expensive coking coal.

China’s most-active futures contract for rebar, a steel product used in construction, rose 2.6 percent by 0640 GMT on Monday, while coke and coking coal added 2.6 percent and 2.4 percent respectively.

Shares in Chinese anthracite producer Yangquan Coal Industry rose 2.8 percent.

“Rebar jumped on anticipation that the ban on North Korean anthracite could lead to higher costs for steel mills that will struggle to find cheaper alternatives in the domestic market,” said Zhang Min, a coal analyst based in Zibo, Shandong with Sublime Information Group.

A coke producer said he expected the ban to lead to a rebound in coke prices, which had fallen since late December due to good supply and reduced demand for the Lunar New Year.

“I am not planning to take any new orders from new clients right now, because we believe coke powder prices will rebound sharply this week on the news,” said the manager of a domestic coke plant, based in Shandong province.

Some mills could seek other imports, but producers such as Australia, Russia and Vietnam didn’t produce enough to pick up the slack and shipping it would cost significantly more than from North Korea, traders said.

Reuters (Reporting by Josephine Mason and Meng Meng; Editing by Richard Pullin)

China’s suspension of seaborne coking coal imports from North Korea would be positive for the dry bulk shipping market as more coking coal would have to be sourced from further afield.

On 18 February, China’s Ministry of Commerce announced that the country will suspend North Korean coal imports through year-end, to penalise Pyongyang for the latter’s 12 February missile test.

Speaking to Fairplay, Jeffrey Landsberg, president of dry bulk consultancy Commodore Research, noted that China imported approximately 23 million tonnes of coking coal from North Korea in 2016. This amount would work out to roughly 766 shipments on Handysize bulk carriers.

Landsberg said: “The ban on coking coal imports from North Korea is positive for the dry bulk shipping market. Commodore now expects China to import more coking coal from several countries, including Australia, Russia and Canada.

Coking coal, along with iron ore, are the key ingredients of the production of crude steel.

Besides seaborne imports, China also imports coking coal from Mongolia via rail and truck across the Gobi Desert.

Coking coal is North Korea’s single biggest export item and source of income, while China is the isolated nation’s largest ally.

While the official announcement stated that China wanted to comply with the UN Security Council’s latest resolution to penalise Pyongyang for its missile test, observers believe that the East Asian power is also retaliating against North Korea for reportedly ordering the assassination of Kim Jong-nam.

Kim Jong-nam, the estranged older half-brother of North Korean leader Kim Jong-un, died after being reportedly accosted and sprayed or injected with a toxic chemical by two women in Kuala Lumpur International Airport on 13 February.

The older Kim had close ties to China and was reportedly under Beijing’s protection.

It has now been over 27 months since the sudden collapse of Denmark’s OW Bunker. For maritime lawyers in the United States, particularly in New York, it has been ‘the gift that keeps on giving’ – and the end is not yet in sight. When OW Bunker failed, it had yet to reimburse millions of dollars to physical bunker suppliers who had provided fuel to shipowners and operators on OW’s behalf. In the hundreds of US legal cases that followed, physical suppliers sought liens against vessel interests, as did OW entities and lender ING – the lead agent for a USD700 million revolver that had an assignment for OW’s receivables.

While district court judges across the country have overwhelmingly sided with OW and ING on the question of who has the right to the lien, a ruling was recently made in favour of a physical bunker supplier in a Florida district court. According to Seward & Kissel partner Bruce Paulsen, who represents ING, “The law is pretty clear, we think, which is why we’ve had so many decisions that have gone contrary to the one outlier decision in Florida. A number of judges have expressed sympathy for the physical suppliers’ situation, but that doesn’t change the statute, which makes clear that for the supplier to have a lien, it has to supply the necessaries on the order of the owner or the person authorised by the owner. The physical suppliers didn’t have relationships with the owners or charterers in these cases. They had relationships with OW. That’s the way they did business,” Paulsen told Fairplay. “If they thought – and I know some of them did – that they could always rely on a lien, well, I am not sure they looked hard at the statute or the case law. The Florida decision flies in the face of the statute and the case law on the lien question, and the judge also ignored the OW bankruptcies,” maintained Paulsen. “The fact is that ‘the music stopped’ and the money didn’t flow through the chain of contracts to the physical supplier as it would have had there been no bankruptcy. This is what happens when companies go insolvent. When the physical suppliers’ contract counterparties [the OW entities] went bankrupt, they went looking for someone else to sue [the vessel interests].”
Ultimately, the Florida decision in favour of the physical supplier is not pivotal to the shipping industry. The central question of whether physical bunker suppliers can have a lien against vessel interests will not be decided at the district court level, but rather, at the appellate court level. Already, there are nine OW-related district court rulings that have been appealed to the appellate court level in four circuits: six cases in the 2nd Circuit, and one each in the 5th, 9th, and 11th Circuits (at press time, ING had yet to decide whether it would appeal the Florida ruling). A ruling on the 5th Circuit case – Valero v M/V Almi Sun – is expected shortly.

“As for the timing of these cases, we’re certainly at the end of the beginning,” said Paulsen. “What was really time-consuming was when many, many of these cases were in discovery and we had depositions and document productions ongoing for months and months. Then there were trials and summary judgement motions, some of which are still pending, and now we’re moving into the appellate phase, and the appellate courts move at different speeds, so we’ve still got a ways to go.”

“I’d say we’re in the middle – about the fourth or fifth inning,” said Holland & Knight’s US maritime practice leader Jim Hohenstein, when asked to judge how far along the overall OW legal process had progressed. “The legal standards are yet to be determined and the appellate courts are really going to set the law,” said Blank Rome partner John Kimball, adding that the decision “will probably remain at that level, but you never know”.
If appeals panels in different circuits reach opposing conclusions, it would set the stage for a possible showdown before the US Supreme Court, assuming the high court opts to take the case. “It’s too early to tell if that’s going to happen,” said Paulsen. According to Hohenstein, “It may well end up in front of the US Supreme Court.”

A definitive decision on whether or not a physical bunker supplier can obtain a lien against a vessel interest will have major implications for shipping. “It is a big issue, because there’s a lot of money at stake and a lot of people are affected by it on a daily basis, as fuel suppliers provide the fuel and there are questions about who’s going to pay that bill,” said Kimball. “What this [the OW case] has exposed is the risk between the physical supplier of bunkers and its counterparty, which is typically not the vessel owner,” said Hohenstein. “Everything runs on credit, so it could well be that credit arrangements would tighten considerably, and it wouldn’t surprise me if that hadn’t happened already.”

In addition to the OW Bunker saga, another major case that has generated significant work for New York maritime attorneys is the collapse of South Korea’s Hanjin Shipping. “That has had broad impacts because of how precipitous it was,” said Hohenstein. “There were a myriad of different interests affected, including terminals that we represented, as well as companies that had boxes on the ships, or who had ships chartered to Hanjin, or where Hanjin had slot charters with other carriers.”

Although legal action from Hanjin’s insolvency is not expected to last nearly as long as fallout from OW Bunker’s demise, there will be lasting after-effects. According to Holland & Knight partner Chris Nolan, “Because people thought Hanjin was too big to fail and it did fail, charterers and shipowning interests and everyone in the logistics chain is looking at other carriers and asking themselves, ‘What if this happens again? How can we be ready to move in a fashion that will not be as haphazard?’ They’re being much more proactive when thinking about contractual counterparties.” Beyond work related to Hanjin and OW Bunker, prospects for billable hours in New York are less positive. Although there has been an increase in risk-advisory services following the election of Donald Trump, several of the attorneys speaking to Fairplay acknowledged that the current level of legal activity – excluding OW cases – is relatively modest, if not subdued. In general, legal work surges when markets are booming and when they are crashing, and pulls back when they are neither, as is currently the case.

“As far as maritime litigation in New York, if you took the OW cases away, things would seem quieter than they have been in the past,” said Paulsen. “In my space [securities litigation], share prices have been so low for so long that we’re not seeing a lot of activity with securities cases involving public shipping companies. I haven’t seen a lot of maritime arbitration over the last couple of years either. I think things will have to recover a bit more in the industry before we start seeing more activity. At this point, people are just taking their USD8,500/day, hoping to cover expenses and hoping for better times.”

According to Brad Berman, Americas head of shipping at Norton Rose Fulbright, “I think some of the firms, and I don’t count us as one of them, have been suffering because they over-hired. We haven’t. We’ve been able to be lean and mean when there hasn’t been as much work. “If you’re a shipowner and money is tight, one of the things you cut expenses on is your lawyer,” Berman said in an interview with Fairplay. “If you only have enough money to pay operating expenses and you don’t have any debt service and no capital expenditures and your bank is on top of you because your loan-to-value [ratio] is off, you’re not going to go after a USD100,000 claim to prove you’re right and spend USD50,000 in court, you’ll just try to settle for USD40,000.”

“For smaller claims work, there’s going to be a problem and I think some of the smaller, more boutiquish, old-line firms are really going to start to feel the squeeze,” said Brian Devine, Americas head of transport at Norton Rose Fulbright.

Kimball agreed that the current state of shipping markets is less conducive to a high volume of legal work. “When people are getting out of contracts, we are busy, and when people are getting into contracts, we are also busy,” said Kimball, adding, “There are just not as many cases. There haven’t been significant casualties – which is good for the shipping industry – and the P&I clubs have the lowest claim level they have had in as long as anyone can remember.” Kimball also noted that one of the strengths of New York’s maritime law community is ship finance, “but that is slower because the capital markets have pulled back and there is definitely not the same level of investment we saw before”.

“Our practice is broad enough that we have been busy, just in a different way,” affirmed Kimball, who believes that “all the New York firms are still doing okay. It’s not the boom years, but it’s pretty steady. And we do have a very positive outlook. I think we have probably seen the bottom for the shipping industry and we’re looking at some good years ahead”.

With contraction in vessel supply and healthy demand growth, the dry bulk shipping market is expected to recover from 2017 onwards, according to the latest edition of the Dry Bulk Forecaster, published by global shipping consultancy Drewry.

An impressive outlook for dry bulk demand coupled with a small orderbook of newbuilds as a percentage of the total fleet capacity will ensure a sustained recovery in the dry bulk market. Earnings in the dry bulk market are expected to improve from 2017 with a narrowing supply-demand gap. Demand is projected to grow at a healthy pace of 3% while supply is expected to grow by about 1% from 2017, making the dry bulk segment an interesting market to invest in.

The growth in demand originates from a rise in iron ore and thermal coal trade. Coal demand is expected to rise mainly from developing Asian countries including Vietnam, South Korea, Taiwan and China. The rise in Chinese domestic steel consumption will provide employment to VLOCs and Capesize vessels carrying iron ore in the market. On the other hand, Vale’s new project S11D has become the most cost effective iron ore mining project and will increase iron ore supply from Brazil increasing total tonne miles; this will help demand for bigger vessels in the long term.

The supply side is projected to grow by just 1% from 2017 because of high scrapping and a thin orderbook. The environmental regulations on Ballast Water Treatment System (BWTS) will become effective in September 2017 and IMO’s regulation on use of low sulphur fuel oil in 2020 which will result in high scrapping of old tonnages. Shipowners will prefer to scrap their old tonnage, with low earnings potential, than incur additional cost on scrubber and Ballast Water Treatment Systems. On the other hand, a contracting orderbook and low future new orderings due to limited financing availability are keeping a check on future deliveries. At this point in time, the orderbook as a percentage of the total fleet, which is a strong indicator of future deliveries currently stands at a decade low.

“The outlook for the dry bulk shipping market continues to be positive as the supply and demand gap continues to narrow. Charter rates are expected to improve for most of the dry bulk segments in 2017 with the steepest recovery expected in Capesize segment. Average charter rates are expected to rise from $8,000 per day in 2016 to $12,800 per day level in 2017 and will further improve from 2018,” commented Rahul Sharan, Drewry’s lead analyst for dry bulk shipping.

Clarksons expects dry bulk trade to increase by 3.8% year on year in 2017, building on the sector recovery from late last year amid an unexpected rise in Chinese demand for coal and iron ore. However, the trade growth projection was tempered by expectations for fleet growth of about 2.7% to 3.8% this year, which signals that scrapping will have to kick in to aid the recovery.

A relative recovery is expected in the dry bulk market, said Clarksons dry cargo analyst John d’Ancona while addressing the Mare forum in Singapore on Wednesday, but he cautioned that “this is still a difficult market. The forward freight curve has started to gain confidence but it is still very cautious. This gives us a message that the dry bulk market is still going to struggle for a while.”

Despite the caution, he noted that quite a few positive factors had emerged in the market in 2017. He highlighted the improved sentiment as reflected in the macro economy, in terms of freight rates and in the supply-demand balance in general, which is coming back in line. Another factor was the improvement in commodity prices and higher bunker prices, which are likely to keep freight supported as well. Mr d’Ancona said that demand worldwide was improving, which would focus on big infrastructure, boosting minor bulk demand.

Iron ore expansions from Brazil and Australia, and the rocketing coal trade in Southeast Asia, made dry bulk trade a safe bet, he said, adding that people tended to look to China and India for coal trades, but he believed the requirement for coal comes from many other countries in Southeast Asia, such as the Philippines, Malaysia and Vietnam.

On a less optimistic note, one of the major concerns remains the fleet growth in the first half of 2017. Mr d’Ancona said: “This is not just normal slippage into the beginning part of the year, but ships that were completed a year or two ago but were never delivered [as they were deferred].”

He said that scrapping seemed to have reduced from January last year, but added: “Interestingly, more vessels were sent for recycling in January 2017 as compared to the rate of scrapping in the second half of last year.”

A more immediate worry was the growing number of open shipments that have just completed their voyages in the fourth quarter. Also, there was a possibility for coal trade to wane on the back of the slowdown in Chinese enquiries as domestic production increased, he said.

TSAKOS Group is partnering Swiss Capital Alternative Investments in readying a large investment in the dry bulk carrier market as a number of funds appear to have concluded the time for buying bulkers has finally arrived. The Greek owner may put in as much as 20% of the equity of up to $500m that is being earmarked for spending in the sector.

Swiss Capital has been ready to launch its Floating Steel Fund, as the fund is called, since at least 2015 if not further back. It is unclear whether Tsakos has been in the frame since the beginning. At that time, Swiss Capital said that it was mindful of the attractions of “real asset strategies” in periods of potential inflation.

The fund aimed to acquire “a blend of quality secondhand dry bulk carriers at the bottom of the current shipping cycle”. It reckoned it could operate and trade the vessels for a yield of 6%-8%, and targeted disposing of the ships at a future point in the cycle for “substantial capital appreciation”.

Lloyd’s List has been told that the project is essentially unchanged despite a recent acquisition of Swiss Capital Alternative Investment by StepStone, a New York-based markets firm with about $28bn of assets under management.

The focus will be squarely on modern panamax, kamsarmax, post-panamax and capesize bulk carriers built in South Korea or Japan. The sponsors aim to open the fund to outside investors but keep debt to a minimum; they are targeting being in business by the second quarter of this year.

Even without any leverage, at present market prices the fund could conceivably buy up to about 20 capes if it spends up to its envisaged investment capacity. The fund managers have set a maturity period of between six and eight years to cash in on the investment. “They seem to have taken on board the reality that it may take a while for the market and values to recover instead of expecting to make a killing overnight, which you sometimes see with private equity,” said an independent industry source familiar with the project. “The concern among owners will be that with fund money coming into the industry again it will push up prices. But there are not many modern secondhand ships to be had, so you also hope that does not push people towards shipyards.”

The Swiss Capital deal, however, appears specifically targeted at secondhand tonnage. In addition, the involvement of Nikolas Tsakos, the current chairman of Intertanko, may also reassure on that score.
Although the Greek group has built more than 100 new ships in its 45-year history, they have mostly been for long-term charter. In the last three years Mr Tsakos has, in his Intertanko role, been outspoken against the damage that speculative newbuildings can do to the market. He is seen as likely to sing from the same song sheet for the dry sector. As well as the large publicly-listed tanker fleet under Tsakos Energy Navigation, the Tsakos Group privately owns and operates a mixed fleet of vessels including containerships and bulkers.

Bulker prices have already risen from the lows of last year — substantially so in the case of panamaxes — and with predictions of firming values ahead, it would be no surprise if some trigger fingers are getting itchy. Besides the Floating Steel Fund, Lloyd’s List has been made aware of another possible fund of a magnitude of $400m to $500m said to be in the pipeline, though details are scant. Another unidentified group is said to be at work on an initial public offering to buy dry bulk assets.

According to Anthony Argyropoulos, managing director of Seaborne Capital Advisors, which provides a range of services to shipping companies related to public and private financing, a dry bulk initial public offering is currently “closer to the realms of possibility than it was and it would be even closer if the market does rebound more in 2017. In my personal view, right now it will still be very challenging,” he said. “To say you can do a deal right now and hope it will price well is a bit premature, I think.”

Investors last October were offered the chance to climb on board the Saverys family-backed blank cheque company Hunter Maritime Acquisition, which duly raised $150m. Although open in scope, Hunter made clear that the dry bulk sector was seen as “a favourable area” for its attention. Brokers have recently reported that it has already agreed the acquisition of four newcastlemax-size bulkers from Chinese sellers, though this remains unconfirmed.

Martek Marine has launched what it claims is the “world’s first affordable” telemedicine service, a move it claims could lead to annual industry-wide savings of up to $168m.

The ‘iVital’ service works by providing crew members with access to medical monitoring equipment on board and 24/7 access to a team of healthcare professionals onshore.

Should a seafarer fall ill, or suffer an injury, other crew members use a dedicated tablet computer to immediately contact a doctor with an in-depth knowledge of delivering treatment at sea.

The doctor is then able to assess the stricken sailor through a video call service while calling on other crew to assist in measuring the patient’s vital signs through the provided equipment.

A decision can then be taken as to whether the ship needs to divert and/or requires a helicopter evacuation, or whether the patient is well enough for the vessel to continue on its voyage receive treatment at the next port of call.

“While telemedicine itself has been available for vessels for some time, it has always been prohibitively expensive and this is something we’ve worked really hard to rectify,” Paul Luen, ceo, Martek Marine, said.

“iVital packs all the punch of the higher priced options, just with a focus on the real necessities to ensure ship owners get all the crucial functionality of telemedicine at a fraction of its previous cost. The Maritime Labour Convention states that all ships carrying over 100 crew members and passengers for voyages of three days or more, must have a medical doctor on-board. However, the average merchant vessel is staffed only by a crew of between 20-25 people.”

According to a 2013 study by the International Maritime Health Association, every year one in five seagoing ships is forced to divert due to a medical emergency, with an average cost of around $180,000 per diversion.

Further research has shown almost a quarter of these diversions could have been avoided if the ship operator had a suitable telehealth system in place, meaning the industry could stand to make savings of up to $168m.

Around 1.5m seafarers are operating around 55,000 merchant vessels across the globe. Of these seafarers, around 7% each year will be evacuated from the vessel on which they are working due to ill health.

The annual cost to the industry of diversions and helicopter evacuations is estimated to be $760m, almost a quarter of which prove to be unnecessary.