This page has been archived and commenting is disabled.
Shipping News
A friend calls from Athens this morning moaning
and groaning about the sorry state of the shipping industry. I ask,
“What’s new that makes you so grumpy?” He points me to this story concerning the bankruptcy of a Korean shipping company called Korean Lines (“KL”) .
and groaning about the sorry state of the shipping industry. I ask,
“What’s new that makes you so grumpy?” He points me to this story concerning the bankruptcy of a Korean shipping company called Korean Lines (“KL”) .
My friend made the following points on this development:
-KL owns about 30 ships and manages another 120.
As a result of the chapter filing almost all of these ships are coming
back onto the spot market. The KL financial status was known by many
insiders (bankers/brokers/shippers). This was a contributing factor in
the big run off of the Baltic Dry index recently.
-Spot shipping rates have nowhere to go but down as a result.
-The Chinese
ship construction schedule will bring many new ships into service this
year. This will depress rates further. Cargo ship asset values are
falling.
-Some banks will take big losses. Other shipping companies like KL are now on the edge.
-The dry bulk cargo industry has crossed (once again) from boom to bust.
This is just one man’s opinion. He happens to own a dozen vessels.
»
- advertisements -
ship breaking
http://www.youtube.com/watch?v=plSyUm1KvjQ
one of burtynsky's wonderful photographs
http://www.edwardburtynsky.com/WORKS/Ships/Shipbreaking/SHB_11_00.html
see more
http://www.edwardburtynsky.com
If the USA and EU zone have to up grade the grid to allow for wind and solar energy , wont this create a demand for high grade copper? Also if there is increasing demand for Gold and Silver by consumers ,will not this push the large banks and hedge funds into 'the next best thing' copper?
Third world leaders can escape with their gold when the revolutions force them to bail. Dry ship is the new luggage
Should bring some great opportunities in the space. Overlevered companies largely in spot market will struggle. Conservative companies with long term contracts will benefit and will likely be able to acquire more vessels at very low valuations.
Fortunes will be made and lost in the next few years
Supply driven drop in shipping rates is positive for their customers. Increased profits from those who are buying here and selling there (or vice versa). Lower trade frictions.
Re CU; yes the current price is amazing considering that there is no growth and the Chinese are sitting on a massive stockpile (several articles on mineweb have pointed this out).
"He like boiled spuds, a ham knuckle."
The Shipping News, (or what I remember of it.) Great book, good article Bruce.
the movie
http://www.imdb.com/title/tt0120824/
ps: LNG shipping rocks
Convert the ships to condos and sell the paper to FNM. Was that so hard?
Thanks Bruce,+1
Thanks for the article. I have been trying to decide what to do with a small amount of DRYS and NAT. At least NAT pays dividends. The articles I have read blame the slide in part on the flooding in Australia. Doesnt look like this sector is going to turn around anytime real soon.
"At least NAT pays dividends"
According to Yahoo they pay $2.40 Div (9.80% yield) and their EPS is $0.17. Wonder how long that can last?
I've been wondering if the drop has been supply or demand related . Given that large cargo ships take years to build , logically supply would only start to influence price when those ships come off the yards and into service , or if there was a sudden influx of ships into the spot market , as will be the case when KL's assets are liquidated .
I think it is a bit of both. I remember back in 2007, ship owners were taking crude oil tankers (remember, oil was north of $100 at the time) in order to refit as bulk carriers, because the demand was that strong, plus new ships coming all the time. We've had more users shifting to longer term contracts, which meant the immediate demand as shown by BDI was less (i.e. at the margin it's a buyer's market), plus now the effect of the floods in Australia.
However, it's my opinion that the global economy is actually slowing (principally due to the slowing of new credit in China, the West is probably flat when you use real inflation data) and I think the genius central planners are terrified. Case in point, WTF is up with copper? The way this behaves is nothing to do with end user demand IMHO, but is part of the central planners' desperate attempt to sell the growth story. We are running record deficits, but our economies are so woefully structured, there is no stimulus, it just keeos the masses in sweat pants, fried chicken and cable tv.
Good points , and had actually forgotten about the impact of the floods in Australia . I think at the heart of the matter here is that many indexes just aren't that reliable as measures of true supply/demand patterns anymore . Whether it's the DJIA , the S&P , the BDI or any of those for commodities . That's what loose monetary policies ( equities and food commodities ) and manipulation ( Crude , silver , and equities ) will do . As for copper , well , one trader holds over 80% of it on the LME . In that type of environment how can there be any type of normailty ?
"I've been wondering if the drop has been supply or demand related"
is it even possible to determine real economic factors anymore?
we have been living in an era of fiat currency since at least 1971 when Nixon closed the gold window - hard-core fiat games have spread worldwide in the last 2 decades
how can you have an honest economy that is based on dis-honest money and a dis-honest monetary system?
and how can anyone make intelligent economic decisions in this environment?
have we overbuilt shipping capacity? has demand for shipping declined?
the only way to answer these questions is to let a free market economy founded on honest money decide
Couldn't agree more . Economic fundamentals are pretty meaningless when you have forces tampering with the dynamics of organic supply/demand . As a trader I've given up on fundamental analysis for the moment . What's the point of it in a climate like this ?
Good news for those guys who want to build floating cities.
+1 For interesting news which I haven't seen elsewhere. Thanks, Bruce.
Plus, even the contracts at higher rates will be side-stepped to take advantage of the lower spot rates. Plenty of pain for everyone.
I've seen a lot of discussion regarding the use of the BDI as a economic measurement. It does seem to lag quite a bit.
Now with the over abundance of ships I think this will make it even more difficult to apply BDI data for quite awhile.
Bruce, the BDI can be a little misleading as regards trends in the last year or so. One must check BCI, BPI and BSHI to get a better understanding of shipping. Trends are towards smaller ships (hence demise of this Korean company). That said the charts for BCI, BPI, BSHI are all sloping downwards in January as well.
The BDI is more about raw materials. IMO it is a more leading indicator because it is all more about raw materials than finished goods. The Harpex which is about container rates is just beginning to go down again. It only recovered one third of it's all time high. None of the shipping indexes would support government claims of economic recovery. Also these indexes are priced in dollars. Given the drubbing the dollar has taken recently the fall is probably worse than it looks.