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Greece, The Baltic Dry, And... Oh My
Just when it seemed that nothing could possibly surprise about adverse Greek bank exposure, as these are beyond insolvent already relying on the ECB for day to day operations as is, here comes one more development, this time courtesy of the one index that has been in literal freefall in the past two months, and recently hit a 20+ year low - the Baltic Dry.
OpenEurope explains:
Another Exposure Which Could Sink Greek banks
An interesting but niche issue has come to our attention recently in relation to the on-going troubles in Greece. The 'Baltic Dry Index' (a measure of global shipping demand/prices) has fallen for a month straight to record lows. When this index falls it suggests that there is trouble in the shipping industry, raising questions over the stability of shipping firms. As it turns out many of these firms have secured their financing from Greek and other European banks – meaning if they start defaulting on their loans these banks could take losses. This raise further questions over the bank recapitalisation plans and whether such contingencies have been thought of in the second Greek bailout (which sets aside €20bn for Greek banks).
As a recent NYT article noted:
“Basil Karatzas, the chief executive of Karatzas Marine Advisors, a ship brokerage and finance advisory firm in Manhattan, estimated that European banks hold about $500 billion in shipping loans on their books and face nearly $100 billion in losses to restructure them.”
Furthermore, not only does global demand seem to be faltering (although the index may not be the best judge of this), there is also a massive over supply of ships – due to orders put in during the boom period in 2008 which are only just being completed now (the equivalent of 22.7% of the cargo shipping fleet is due be produced this year alone). This suggest a combination of supply and demand issues which means this could become a lasting problem and will not just be tackled with a boost in growth in Asia.
Data on exposure to shipping loans is scarce, but in 2010 Greek banks had a portfolio of $16bn just on Greek owned shipping. Other European banks had about a $50bn exposure. Of this the 4 largest UK banks had $16bn and 10 German banks had $18bn.
The volatility of the index should be kept in mind but it’s an interesting fresh angle on the problems in Europe. If things keep going badly in the shipping sector, which it seems almost certain they will, some banks could face an increase in the level of non-performing loans on their books. Given that capital buffers already seem to be spread pretty thin this could cause problems. Of course this could take time to have an impact, if it does at all, but worth keeping an eye on.
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Dry Baltic ? I can piss to make him less dry. Or we can ask bulls for some urine . Or tears ...
Tyler, any chance of a breakdown of the types of ships getting parked?
pretty much it's ships that carry things
But I think the point is "what kind of things?". For instance, the ships carrying "dry-bulk", which are tracked by this index and carry things like grain and coal, have seen rates go down, and the oversupply and overbuilding of ships started years ago and are now coming online en masse. Other sectors, such as those carrying LNG started their ramp up in building later. LNG, VLCC, dry-bulk, are all pretty different animals. Take LNG for instance, NG1 in the US is trading at $2.470 MmBtu, cool it put it on an LNG tanker (the ones with the big round containers built into them), ship it to Japan as LNG @ $14.81 MmBtu. That market really only started to heat up recently and a lot of the LNG ships being built in China are not online yet. Although I can't find it, I could've sworn that yesterday I read an article that stated the Greek exposure was related to a lot of ships being built in China, and less exposure to ships currently in service.
I'm obviously oversimplyfying the issue but saying that the shipping industry is weak because of the Baltic Dry Index is like saying you shouldn't invest in any mortgage bonds because the US mortgage market is in turmoil. What ever happened to buying when there is proverbial blood in the streets?
like the typonymic, *dry* is ore, coal, grain, raw primary materials & commodities.
*wet* is crude oil & gas and derivative liquified or pressurised gas products.
http://en.wikipedia.org/wiki/Bulk_cargo#Dry_bulk_cargo_.28.22dry.22_trad...
It is only small ships. The Baltic Dry literally has nothing to do with any type of indicator of global health. I am part of the design firm expanding the panama canal and the ships are enormous that are being built to pass through this larger canal. Hence, smaller ships will be extinct.
Cant they push the BDI up with a bit of Shipping Quantitative Easing?
.
.
.
Oh wait, there's already too much liquidity(ships) . I wonder how Bernanke would handle this conundrum. Let him write a book about the possible solution.
That'd be easy. Print money, load money into shipping containers, put them on course for a foreign shore.
Some day the world will discover the answer to every problem for a Keynesians is to print money, look important, and collect a big paycheck every week from government and or the Federal Reserve.
Nice work if you can get it.
Don't forget about lots of colorful rhetoric to the extent of "state spending good, private spending bad, mmkay?"
LOL, the ultimate Keynesian option
though it does not work this way, the shipping insurance fee is too high, money and PMs use airplanes and helicopters
and, as you know, valuables on boats make boating accidents
and it would tank Ben Bernanke's Helicopter Dry Index
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Talk about a negative feedback loop.
The hits just keep on coming.
ECB to accept shipping loans as collateral come 29th?
Clusterfuckistan.
Soon to be Baltic Avenue...
Do not pass go
Do not collect $200...
"The Baltic Dry
He don't lie"
Anon poet
Bullish!
Over-competition for shipping means lower rates, and the savings are passed on to you!
THE CONSUMER CANNOT BE STOPPED!
Is there anything the banks don't have exposure to? At least something not resembling a shitpile.
In today's world, how can that be Gene?
2 things touch every aspect of "Endeavour" in todays world.
Oil and Debt. Yep, no getting away from them banks and they themselves are stuck in the debt-trap, only on the credit side. :-)
Shipping, now there is a word everyone should pay attention to. Even Amazon "Ships" your 'goods". Ever wonder why?
And why is everything a form of Trans-Port? ;-)
ori
50th-anniversary-remembering-4th-february
To be fair, I dont think amazon ships much on container ships, let alone dry bulk carriers. Im guessing mostly air freight with some ground. However, I get your point about cheap oil.
To be accurate, millions if not billions of dollars worth of products sold through Amazon are shipped TO America on container ships. A majority of the items sold on Amazon, not inclusive of books, are MADE IN (fill in the blank with any country but USA). Buy a knife? Made in China. Buy some clothing articles? Made in China or Taiwan. You could conduct a logistical analysis and find that a majority of goods that pass from manufacturer through Amazon to the consumer spent some time in transit on a container ship. IN BULK. Do you honestly think knives, for example, are shipped one at a time? Even folks who sell through Amazon, and not Amazon directly, buy from large wholesale companies who ship tons of goods via these container ships. When a vast majority of the consumer goods sold in America are made in China, Singapore, or Taiwan, you can bet your last silver round they were shipped via container. EDIT: Even items "made in the USA" most likely contain cheap raw materials, like steel, shipped to the US from China or elsewhere, so even MADE IN THE USA means "Assembled in the USA with foreign raw materials".
exactly
Ah yes, very true. But Amazon does not do that shipping, as ORI was talking about
Bernanke doesn't want you to know there's a such thing as an asset without a counterparty.
You know what? He himself actually believes that. He has to, otherwise he arrives at the Oedipal conclusion. His life's lie.
I believe that Bernanke is a troubled man. Look at his face when he talks .. he feels VERY uncomfortable. He looks sick all the time. Maybe his doubts and fears are conscious or unconscious (there is no way to tell), but he is very afraid and IMHO, he knows he is a fraud and that we the people know it. But, he can't do different because he is a Rothschild. He's a guy I detest and feel sorry for at the same time (but I would swallow that last part if molecular vaporisation was an option).
Acurate assesment. except to add;
He might look and feel better if he didnt live a secret life of high price hookers and blow...
He should have a little chat with Gideon Gono, as a sort of support group thing, Keynesian Bankers Anonymous.
Yes, I see this too. I do not wish this on anyone but, I will not be surprised by news of his suicide.
well, from time to time some have some exposure to me!
oh, I did not read your second phrase... :-(
Just another example of horrible allocation of capital that will then never be marked to market and will clog up the system for years. What new.
I'm beginning to think the banking sector is as inept at its two main tenets of efficient capital allocation and risk management as congress is at running the country according to the US Constitution and the rule of law.
You'd think they're like two peas from the same....oh wait...nevermind.
Rock the boat, dont rock the boat Tyler, rock the boat, don't tip the boat over....
speaking of rocks......the zimbabwe currency is rock solid..it has pictures of rocks on them to prove it...
thank you bill joe for your insight...
The baltic dry is how most stock markets would look if we didnt have these criminals and traitors to the people of the world called central bankers inflating the currency to bail out their cronies
Very true Zola. We are going to see a huge demand bust, giant sucking sound at the retail level sometime really soon.
I wonder how they've left such an un-corruptible index alive.
ori
I wonder how they've left such an un-corruptible index alive.
What if it had been corrupted since 2009 but we thought it was legitimate? and now it's returning to its true value when they can no more pump fiat itno the system..?
+1 If it wasn't for their criminal intereference, the worst would have been behind us already and we could be recovering instead they drag it out as long as possible with the worst still in front of us.
If the Baltic Dry is down, then economy is weak. Jobs data via NFP has been masked by revisions.
http://displacedema.blogspot.com/2012/02/nfp-jobs-gained-over-12-months-lost-in.html
If baltic dry is down that means world "trade", i.e., American consumers buying goods from mercantilist "trading partners" is down. This doesn't mean the recent American job increases are bogus. Americans that finally land that better job might decide to do something else with their money.
Didn't general maritime or something default?
A large UK bank (majority state owned) was rumoured to have tried to offload its Greek shipping loans last year. When the bids came in at sub €0.30 (they were expecting/hoping for €0.80) the auction was dropped due to senior management saying they'd all be fired if they booked losses that big.
Piraeus Bank have traditionally been the go-to guys for shipping finance in Greece (there logo, aptly, is a trireme) and large stakeholders have always been shipping magnates. So don't expect that bank to call in loans on it's biggest customers, who are also its owners... nice, eh..
So now we wait for when the ships hits the fan...
Saga continues as even the mighty chinese shipbuilding industry is down 70%. Watch the countires that depend on this industry for dis- continued gdp growth.
China- NKorea-Japan-Phillipines-Singapore-Malaysia-Brazil and even Germany-- America really never was up to speed as to build something that would carry products for trade- OH NO- our yards are to busy building new generation warships like the Littoral Combat Ship.
Sir we are listing at 30 degrees what should we do? Stay at the helm seaman while I go find my life vest and private skiff.
Well, the amusing bit here is that Keynes believed the production glut of the Great Depression in fact was caused by lack of purchasing power, not malinvestment!
So in other words, the way to "solve" excess capacity is for the Western World to print even FASTER, make state handouts higher, and buy even MORE useless crap they don't need!
And all of this will happen without causing inflation! It's magical fairytales in the world of the Marxist labor-unit calculation guy!
Careful Captain, lots of tripping hazards near the lifeboats...
DryShips Inc, a Greek shipping company, priced $500 million of notes due in 2016 to finance Ocean Rig’s drillships program and for general corporate purposes. The bonds priced at par with a coupon of 9.5%.
[from the PDF in OP piece]
02 February 2012 [ZH hates cut/paste formatted tables ~ upshot: BDI has dropped by approx 50% in last year]
http://www.dryships.com/pages/report.asp
Nov 2011
Analysts are expecting earnings to arrive at 15 cents per share – down 60% from DryShips’ profit of 38 cents per share in the same quarter last year.
Historically, the company is on shaky fundamental footing when it comes to quarterly reports. During the prior four periods, DryShips has only bested Wall Street‘s consensus estimate once, resulting in an average downside surprise of 11.3%.
http://www.forbes.com/sites/josephhargett/2011/11/07/dryships-inc-earnin...
Some general links about partners:
Data on upcoming drill ships:
http://rigzone.com/data/results.asp?Rig_Type_ID=3
Oean Rig Once over (promo porn)
www.ocean-rig.com/ShowFile.ashx?FileInstanceId=5f9e5d6c-3425-4626-97a2-4...
Sept 2011 Share agreement DryShips Inc + Ocean Rigs
We, DryShips Inc., are sending you this information statement because we are completing our partial spin-off of Ocean Rig UDW Inc., a majority-owned subsidiary of ours which we refer to as Ocean Rig UDW. We are completing this spin-off by distributing in the form of a dividend of 2,967,359 common shares, par value $0.01, of Ocean Rig UDW, to which we refer as the Ocean Rig UDW Shares, for each share of our common stock. As of the date of this information statement, we have a total of 408,394,836 issued and outstanding common shares. We expect to distribute a total of 2,967,359 Ocean Rig UDW Shares to our shareholders in this manner, which represents approximately 3 % of our interest in Ocean Rig UDW, and which, immediately following the distribution, will represent ownership of approximately 2.2% of Ocean Rig UDW.
irwebpage.com/dryships/files/information_statement.pdf
Yaaar, Pirates of the seas: note, no fact checking to see if this is the same Ocean Rig Ltd at all.
Upstream has reported that Petrobras is using the drillship under a 20-month charter at a dayrate of up to $632,000. The total contract value for Ocean Rig, including mobilization, is USD 353 million. The ship is a Saipem 10000 design launched from Samsung Heavy Industries shipyard on July 28th of this year. It is classed by the American Bureau of Shipping and registered in the Marshall Islands.
http://gcaptain.com/petrobras-drillship-attacked/?32088
That's a small slice of the pie; upshot is, looks like people are betting on oil as a partner to get out of jail free? Disclosure: not an expert, 15 mins free trawl, no inference / proper linking. Oh, and yes: company name to focus on was chosen for Snark Value [tm].
Oh the Baltic Dry Index, it only matters to people when its going up that means growth. When it crashes, it's just a flawed metric, plus theres soooo many new ships.
get your shovel, get your boots cuz it be a rainin' it
is it not possible that freight uses other means of transportation, like jet planes and teleportation devices? just sayin....
It's not even possible anyone is so stupid that they would believe that.
Miracle breakthrough in technology; last year, we could teleport a single photon. This year, we can teleport 250,000 tons of dry bulk goods in one go. Since we are moving things point-to-point, the mass of the object is irrelevant; we just need 10 Kw of heat to power the teleportation device. Fortunately, we have Leonardo Corp's E-CAT fusion device to power it, so we just need 5 grams of nickel every 6 months to transport everything, everywhere.
perhaps the "Iranian Subs" could sink a few to improve the BDI metrics
I think what you meant to say was, "perhaps the "Iranian" Subs could sink a few to improve the BDI metrics."
It's all about where you put the air quotes.
Batlic Dry Index tracks only ships that carry bulk cargo, such as iron ore, coal, grain...etc.
Container ships are not in this index.
If there is an oversupply of ships online, the BDI number will drop. Fewer ships and the number goes up.
A better indicator might be to compare historical tonage numbers of dry cargo leaving and arriving at busy ports.
Knock yourself out:
http://www.portarrivals.com/list.asp?sec=Region
if only they could remove ships from the labor force to make the BDI look better.
They could pass new carbon-emission regulations requiring any ship over 5 years old must be decomissioned. The cabon cost of manufacturing ships is irrelevant to this equation.
This is two years old, but it fits the bill somewhat
http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-gho...
Just stop counting them and pretend they don't exist. It helps bring down the unemployment rate.
$/MT
http://www.balticexchange.com/default.asp?action=article&ID=7322
"there is also a massive over supply of ships – due to orders put in during the boom period in 2008 which are only just being completed now (the equivalent of 22.7% of the cargo shipping fleet is due be produced this year alone)"
But what percentage of the existing fleet was coming onstream in 2008, around the time the BDI troughed last?
I think we need to know that to gauge the relative significance of this supply factor, but haven't seen the data quoted anywhere :s
The Baltic Dry Index might be indicating that a contraction is occurring, either due to lowered forward looking expectations, or due to current real weakness.
http://www.zerohedge.com/news/observations-engineer
A few years ago, there were articles about idle railroad cars and ships that made the news. It might be interesting to know what the current situation is with idled railroad cars and ships, due to the recent news about the Baltic Dry Index.
Can anybody research this, and compare idled ships and cars then and now? There might be an interesting trend there.
I made the below comments two years ago. One of the articles said that the container ships sitting idle may increase from 12 to 25 percent. That 2 year period is now passed. Can anybody get the current figures to see if there has been a percentage increase?
http://www.thestreet.com/story/10515764/idaho-us-rails-clogged-with-cars...
http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-gho...
12 percent of the worlds container ships are sitting idle where normally they would be in use, and there are projections that 25 percent of the container ships may be sitting idle in two years.