The dry bulk session at yesterday’s Maritime CEO Forum took charterers to task for seeking ever-cheaper rates and thus endangering the safety of the global bulker fleet.
The stellar line up of panellists – comprising James Marshall, ceo of Berge Bulk, Pankaj Khanna, ceo of Pioneer Marine, Khalid Hashim, managing director of Precious Shipping and Michael Nagler, head of chartering at Noble Group – were moderated by Tim Huxley, the ceo of Wah Kwong Maritime Transport Holdings.
Panellists agreed that counterparty risk was the biggest issue in day-to-day business with Nagler telling the audience at Singapore’s Fullerton Hotel: “Our word is our bond has completely slipped – it is like no one cares.”
Hashim agreed, saying: “Every single so called blue chip charterer is renegotiating contracts.”
Hashim urged charterers to pay more or risk dire consequences.
“If you are going to pay $800 and expect [a capesize] to operate perfectly you are either smoking something not allowed or are living in a fool’s paradise,” Hashim said to much mirth among the audience.
The dire rates could hit charterers’ supply chains, Khanna noted. “Standards of maintenance are going down,” he said, which will see more ships failing to reach their destinations on time.
“Increasingly people are saying 2016 is just about survival,” Huxley said in his opening remarks, noting how the orderbook for this year – were it to actually deliver – sees a new ultramax deliver every 14 hours this year and a capesize roll out of yards every 36 hours in 2016.
Marshall noted how scrapping volumes were up, and the price of scrap was rising. He said he thought there should be more ships laid up by now. “We need more bad news to get more lay ups,” he mused. The fact that resale values are much lower than newbuild prices – and are likely to remain that way – should put a cap on any new orders, Marshall reckoned.
Contrasting today’s poor markets to the awful times of the mid-1980s, Hashim said today’s low interest rate environment was prolonging the pain.
“Interest rates during the mid-1980s were 20-25%, today they are maximum 4%, this is what has allowed a lot of rubbish to keep floating,” said the veteran bulker owner.
“I don’t mind the market being $1,000 for the next year because it will wipe tonnage out,” stated Berge Bulk’s Marshall. “My umbrage,” he stressed, “is with charterers who pay 2 cents less for lower quality tonnage.”
Dry bulk formed one of four sessions at yesterday’s Maritime CEO Forum at the Fullerton Hotel. Reports from the other three sessions will be carried throughout the week.
Maritime CEO Forum is sponsored by Anglo-Eastern Univan Group, Dualog, DVB Bank, FCM Marine & Energy, Navigate Response, RightShip, Rustibus, Transas, Unimarine Lubricants, Veritas Petroleum Services, V.Ships and Wartsila.
I’m sorry, but in whose interest are the charterers operating? The ship owners? I think not. To blame the charterers for seeking lower cost charters is absurd. If the owners and operators cannot control supply, those with demand will receive better prices. And if the cheaper vessel will serve adequately, why would the charterer care to pay the extra cost of engaging a newer, perhaps nicer and more efficient vessel? From the demand site, such an expectation is absurd.
Khalid’s point was not that the market should not be efficient. No one will blame a charterer for negotiating the lowest possible rate. His point was that charter parties are not worth the paper that they are written on, that the “our word our bond” motto has gone out of the window. Charterers are breaking their contractual obligations and are walking away from their commitments. And that is a serious problem.
No charterer has ever turned around to an owner and spontaneously offered to share some of the market upside when markets are strong. But they do expect the owners to share in the downside risk when markets are bad…
I have to agree with Ed Evans’ comment. We all know there is a chronic oversupply of dry bulk ships but it is the job of the charterer’s people to get the best deal for the charterer and that means taking full advantage of the current weak market. Doing otherwise would be working directly against the interests of their own shareholders (not to mention their own bonuses!) and would quite probably be grounds for dismissal for any manager doing so. The current market is oversupplied and it will correct itself when either the number of ships drops to a level commensurate with demand or demand rises to meet the number of ships or (more probably) a mixture of both. Owners, financiers and shipyards will necessarily be the driving forces behind that eventual rebalancing but a historical view with 20/20 hindsight says they will each take their own narrow view of things which will look clever to them at the time but ultimately lead to a slower and more painful market correction than should probably be necessary. Maybe I’m being a touch cynical there… but not excessively I suspect…
Pull the plug on building new tonnage, now. That is the biggest long term solution. Second, scrap the crap out there. Nobody wants it, except low ball charterers and low ball owners. (Thus you both get what you both paid for and you both deserve the consequences). Third, wrap your head around the reality that the shipping industry in all trades revolves around the world’s economy. As long as people everywhere are nervous of the ever changing whims of our political leadership (across the globe) and are simultaneously subjected to the occasional dire consequences of global terrorism, few citizens anywhere have the optimistic faith and hope of a positive future. Many (most) are out of work, barely getting by. With that they don’t buy goods, which causes decreased trade between nations. Want to see better cargo volumes and revenues? Get behind the effort to minimize global terror, provide your citizens with “hope” of a stabilized and safe society, cultivate investment and entrepreneurship and thus, increase work for those seeking employment. Many busy hands increase spending, which demands more goods. It’s pretty simple. The citizens of the USA are actually contemplating voting for a renown, self described socialist. This will surely kill any ideas of positive economic growth in our country. Perhaps Europeans are more accepting of the political and economic status of pseudo socialism. But Americans won’t. Industry leaders best pray that freedom and liberty win the day in our upcoming election. Otherwise, ANY form of economic recovery…if it ever happens….will be many more years away. And shipowners will NOT be realizing any positive gains anytime soon.