Pacific Carriers Ltd., a Singapore- based shipowner controlled by Malaysian billionaire Robert Kuok, said bankruptcies in the shipping industry will increase amid the steepest slump in prices in more than 30 years. "There is going to be a lot more blood out there,'' Keith Denholm, commercial director at closely held Pacific Carriers told a conference in Singapore today. We're at the tip of the iceberg. I can't see many operators surviving beyond July.'' Rates for carrying iron ore and other bulk-cargos have tumbled as steelmakers curb production and because traders worldwide are struggling to secure credit amid tighter lending by banks. The Baltic Dry Index, a measure of bulk-shipping rates, has plunged 93 percent from a record high in May.
Capesize charter rates have dropped to $3,000 a day for sailings between Australia and China, compared with a peak of $300,000 a day, according to Denholm.
Slowing demand and a drop in ship prices have resulted in many companies laying-up vessels. At least 20 percent of the capesize fleet now sits empty, Kjetil Sjuve, a director at shipbroker Lorentzen & Stemoco AS in Oslo said on Nov. 7.
With a slowdown in global economic growth and industrial production, bulk demand is also likely to slow,'' Andrew Lee and Cecilia Chan, analysts at Nomura International (HK) Ltd., wrote in a Nov. 13 report. This, coupled with a relatively large order book, is likely to result in oversupply.''
Lower Prices
Assets prices have also collapsed, with a handymax ship selling for $17 million now compared with $50 million three months earlier, Denholm said.
Since the start of November, there have been only 10 reported sales in the dry bulk market, compared with an average of 36 transactions a month since 2000, Jonathan Chappell, an analyst at J.P. Morgan Securities Inc., wrote in a Nov. 20 report.
If the recent sales prices are indicative of the fair market value of dry bulk carriers, it would suggest that dry bulk carriers have lost more than one-half of their value since reaching a peak'' during the first half of this year, Chappell wrote.
A loan for a single vessel transaction commonly include a covenant, called the Security Maintenance Clause, that sets a minimum ratio between the fair market value of an asset to the nominal loan amount to which it is secured, according to Chappell.
The drop in assets values means companies will face problems with loans and many operators will, not if, default,'' Denholm said.
New Ships
About 30 percent of new ships being built are likely to be cancelled, with the biggest cuts coming from larger vessels such as the supermaxes and capesizes, Denholm said. The massive cancellations'' will likely occur in 2010 and 2011, he added.
Worldwide, there are 2,949 bulk ships on order, about half the size of the existing fleet, according to data compiled by Bloomberg.
Bulk carriers may post losses in 2010 when their long-term contracts expire, the Nomura analysts wrote, adding that the down cycle could continue into 2011.''
Malaysian Bulk Carriers Bhd., a venture between Pacific Carriers, Malaysian Sugar Manufacturing Co. Global Maritime Ventures Sdn., has said earnings for the fourth quarter will not be good.''
Pacific Carriers, which started in 1973, owns and controls 95 vessels, according to its Web site.
Capesize charter rates have dropped to $3,000 a day for sailings between Australia and China, compared with a peak of $300,000 a day, according to Denholm.
Slowing demand and a drop in ship prices have resulted in many companies laying-up vessels. At least 20 percent of the capesize fleet now sits empty, Kjetil Sjuve, a director at shipbroker Lorentzen & Stemoco AS in Oslo said on Nov. 7.
With a slowdown in global economic growth and industrial production, bulk demand is also likely to slow,'' Andrew Lee and Cecilia Chan, analysts at Nomura International (HK) Ltd., wrote in a Nov. 13 report. This, coupled with a relatively large order book, is likely to result in oversupply.''
Lower Prices
Assets prices have also collapsed, with a handymax ship selling for $17 million now compared with $50 million three months earlier, Denholm said.
Since the start of November, there have been only 10 reported sales in the dry bulk market, compared with an average of 36 transactions a month since 2000, Jonathan Chappell, an analyst at J.P. Morgan Securities Inc., wrote in a Nov. 20 report.
If the recent sales prices are indicative of the fair market value of dry bulk carriers, it would suggest that dry bulk carriers have lost more than one-half of their value since reaching a peak'' during the first half of this year, Chappell wrote.
A loan for a single vessel transaction commonly include a covenant, called the Security Maintenance Clause, that sets a minimum ratio between the fair market value of an asset to the nominal loan amount to which it is secured, according to Chappell.
The drop in assets values means companies will face problems with loans and many operators will, not if, default,'' Denholm said.
New Ships
About 30 percent of new ships being built are likely to be cancelled, with the biggest cuts coming from larger vessels such as the supermaxes and capesizes, Denholm said. The massive cancellations'' will likely occur in 2010 and 2011, he added.
Worldwide, there are 2,949 bulk ships on order, about half the size of the existing fleet, according to data compiled by Bloomberg.
Bulk carriers may post losses in 2010 when their long-term contracts expire, the Nomura analysts wrote, adding that the down cycle could continue into 2011.''
Malaysian Bulk Carriers Bhd., a venture between Pacific Carriers, Malaysian Sugar Manufacturing Co. Global Maritime Ventures Sdn., has said earnings for the fourth quarter will not be good.''
Pacific Carriers, which started in 1973, owns and controls 95 vessels, according to its Web site.
