Thai dry bulk owner Precious Shipping has revealed it has lost an arbitration over excessive fuel consumption regarding a series of ultramaxes it contracted Chinese yard Taizhou Sanfu Ship Engineering to build. Precious will now have to repay $32m it had taken in unsecured corporate loans from the yard. The owner has until October 4 next year to make the repayments plus the shipbuilder’s legal fees which could be as high as $750,000.
Precious had ordered 10 ultramaxes at Sanfu, of which it cancelled three.
Precious revealed the arbitration details while announcing its third quarter results with the Bangkok-listed company registering a $5.23m loss for the three-month period.
Precious’s third quarter report lashed out at peers for failing to scrap enough bulkers so far this year. Only 12.8m dwt of bulker tonnage has been scrapped in the first nine months of the year, Precious noted.
“Negative sentiment has started to dissipate from the market unfortunately, resulting in shipowners refusing to scrap their older ships. This has allowed an overall net fleet growth of 2.7% in the 9M of this year. If scrapping doesn’t accelerate, the BDI will continue to fluctuate sharply, solely dependent on what the demand side does. In other words, shipowners are not helping their cause by not scrapping ships, making the recovery in 2018 to 2020 slower, extremely volatile, and totally dependent on demand continuing to outperform,” Precious warned.
It’s disappointing not to know what the arbitration actually involved! Shipbuilding contracts will normally include fuel consumption guarantees, with liquidated damages for any excess consumption up to a certain point, beyond which the buyer would be entitled to cancel the contract. So what happened here??