«Orderbook Havoc in a marginal Market.Scrap or Trade? »
With particular success, the Conference of the Institute of Chartered Shipbrokers Greek Branch took place on Wednesday, 1st of June 2011, with the theme “Orderbook havoc in a marginal market. Scrap or trade?’’, which took place at the Yacht Club Greece. Many well-established shipping professionals attended the conference, covering all sides of the industry.
The speakers of the conference were Mr. Nicolas A. Tsavliris Chairman of the Tsavliris Salvage Group and of the ICS Greek Branch; Mr. Michael Bodouroglou, Chairman and CEO at Paragon Shipping Inc.; Mr. Philip Bush, Manager at Global Marketing Systems Inc.; Mr. George Xyradakis, Managing Director of XRTC Ltd; Mr. Georgi Slavov, Head of Dry Freight & Basic Recourses Research, ICAP Shipping Ltd. Mr. Simon Ward, Divisional Director at HSBC Shipping Services Ltd. Each one of the speakers provided his insight and views on the topic and on what are the presumptions for the future condition in the shipping market.
Mrs. Natalia Margioli Komninou, Managing Director of the ICS Greek Branch and HMC, opened the conference and stated that “the current conditions in the shipping market have been influenced by the previous peak in the shipping and by the recent events that took place in Japan, Libya and the Middle East. The current orderbook and the low freight rates, emerge new dilemma among the shipping circles: Continue trading, laying up or scrapping?”
A welcome to the audience was made by Mr. George Gratsos, President of the Hellenic Chamber of Shipping, who congratulated the ICS Greek Branch for its successful contribution of high standard education to the Greek shipping community.
With reference to the traditional Greek shipowners and their trend to keep their fleet by the end of its working life, Mr. Nicolas Tsavliris mentioned the “From Shipyards to scrapyards” story.
Mr. Tsavliris, stated that, despite the decision of a shipping company to scrap, trade or lay up, the market cannot restore its balance, as the overall supply of the existing tonnage exceeds the total tonne /mile demand.
According to his point of view, a more intensive rate of scrapping in combination with restraint in ordering new ships, could lead to a fleet shrinkage and therefore, better market conditions.
Finally, Mr. Tsavliris concluded that “the right timing to adopt this policy is now, while demolition prices are still high.”
Mr. Slavov, referring to the market conditions, remarked that tonnage supply growth remains well above the growth of seaborne trade. He estimated that the balance will not be restored until late 2012 and early 2013.
As a result, the above mentioned estimation keeps the fleet utilization depressed, namely, below 90 per cent. This situation implies that rates will remain at very low levels.
Mr. Slavov concluded that the biggest danger at this time is the spare yard capacity which will be available after 2012… This capacity can be filled at a relatively short notice and therefore potentially create the next investment bubble.
Mr. Philip Bush started his presentation by mentioning that at the end of the life of a vessel, it has to be recycled. There is no second option. Referring to the five major recycling markets, India, China, Bangladesh, Pakistan and Turkey, will be required to recycle such redundant vessels. The recycling of vessels in these countries is efficient as they reuse the maximum amounts of the material. Concerning the enery efficiency of the rerolling of the ships’ plates, he viewed that there is a significant advantage to the production of rebars.
Mr. Bush advised that standards in the yards have been partially improved, but he believes that more advances are needed to be made. Also, he did not omit to mention the need to enforce the universal adoption of the Hong Kong Convention, while he stated that Basel Convention should be abolished.
In conclusion, the director of GMS estimated that the industry is obliged to grow over the forthcoming years.
Mr. Michael Bodouroglou, recognized that in a bad market, shipowners have to consider the operational options- lay up or trade- as well as the investment options- scrap or buy.
After analyzing the pros and cons of each option, he pointed out that the main objective of each shipping company is to be liquid and solvent, by addressing the shipping cyclicality and retaining the corporate ability to make decisions. From the owner’s perspective, Mr. Bodouroglou was of the view that one size of vessel does not fit all.
In conclusion, he remarked that shipping companies should retain the freedom of choice, in order to prevent others to take decisions for them.
Mr. Simon Ward considered the theme "Scrap or Trade" from a shipbroker's perspective. He examined why owners sell for scrap, the prospects for demolition in the different sectors and the dilemma owners face when keeping or selling.
Looking at the different sectors, he suggested that older bulk carriers, particularly the smaller sizes had prolonged their lifespan in the boom years, a combination of good maintenance and writing off debt. This made owners reluctant to sell their cash cows, which meant less scrapping.
Therefore it was a combination of over ordering and over age ships that was causing over supply. For tankers he commented that most of the elder ships had been scrapped due to single hull phase put, and as conditions of tankers were much better in recent years due to commercial and regulatory requirements, any scrapping that happens will be caused by market conditions. For containers, he pointed out that line demand and economies of scale would dictate which vessels would become obsolete and therefore candidates for scrap.
He concluded by commenting that if owners are considering selling their older tonnage they should not rule out scrapping as prices are good and counterparty risk is better than many assume. He also pointed out these conditions do not last forever as markets can change quickly and without mercy.
In his presentation Mr. Xiradakis depicted the decreasing age profile of the world fleet in all major shipping sectors and highlighted the why modern tonnage trend has been favorite from all relevant players of the maritime industry i.e. Shipowners, Charterers, Managers, Financiers, Investors, etc.
Then he drew his considerations about the minor and major bulk trades which show an upward trend in their demand, but the tonnage supply in the dry bulk sector seems problematic for the current year and the next. For the tanker sector he pointed out that it is not as problematic as dry bulk but demand drivers do not seem to be there for him in the near future.
Finally he emphasized on the need to start scrapping heavily, calling the old vessels as “toxic acids”.
The conclusions drawn from the presentations and from the discussion that followed were that the market conditions still need time to set a balance between the supply of tonnage and the seaborne trade demand. However, the diverse opinions expressed showed that what is right for one company is not for the others, while decisions should be taken on time.
The Conference of the ICS Greek Branch was sponsored by:
AB Maritime S.A., Capital Shipmanagement Corp., European Navigation Inc., Dimitrios K Fotinakis Ltd., Gac Shipping S.A., Horizon Tankers Limited S.A., International Registries Inc., Marine Plus S.A, Minerva Marine S.A., Springfield Shipping. S.A, Target Marine S.A., Tsavliris Salvage Group, Ursachart S.A.