For Shippers, 2012 Is a Year of Crisis: Dry Bulk Operator
Lack of funding, oversupply and poor freight rates are going make 2012 a “crisis” year for the shipping industry, says Andrew Broomhead, CFO of Hong Kong's largest operator of dry-bulk vessels Pacific Basin.
“We've got yet again a lot of ships being delivered into the market. (But) funding is very, very dry, so for many companies it's going to be a very tough year. We are calling this a crisis for 2012,” Broomhead told CNBC on Friday.
“In dry bulk, we've got probably about 20 percent of the world's fleet, which is going to be delivered in the course of 2012. That’s going to represent a huge amount of supply increase,” he added.
The industry is facing overcapacity as a result of an excess of orders that took place following the “boom years” in 2006-2007, he said. With banks reluctant to provide financing, Broomhead says this is placing shipping firms in a difficult position.
This week, Indonesia’s largest oil and gas shipping group, Berlian Laju Tanker, defaulted on its $2 billion debt, while Reuters reported Thursday that Denmark’s bulk and tanker firm Torm has asked for an extension for the repayment of its $1.87 billion debt.
Broomhead adds that freight rates will also remain under pressure this year, as the market struggles to absorb a continued influx of new deliveries at a time of global economic uncertainty.
The Baltic Dry Index, a measure of costs to ship dry-bulk commodities, has already fallen over 55 percent this year.
While, Pacific Basin reported a 69 percent drop in 2011 annual profit to $32 million, Broomhead says the company is relatively well positioned compared to its peers, with over $600 million in cash reserves and an 11 percent gearing ratio.
“We've managed our exposure to ship ownership throughout the cycle reasonably well, we're sitting here with a large amount of cash on our balance sheet,” he said, adding that the company is looking to expand its fleet through purchases in the second hand market.
“We are patiently awaiting for opportunities for the right ships for the right price, we're price specific on the types of ships we want to acquire.”
This year, Pacific Basin plans to expand its presence in the U.S. and South Africa through opening two new offices in Durban and Connecticut — part of the company’s efforts to grow its presence in the Atlantic.
“Over the last 12-18 months, Atlantic rates have generally been premium to Pacific rates, which is a reflection of the fact that all the new builds are coming into the Pacific market, so strengthening our presence there makes a lot of sense,” he said.