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Daily Briefing October 2 2017

Lack of support from domestic owners overshadows Korean builders' prospects


Lack of support from domestic owners overshadows Korean builders' prospects


SOUTH Korean yards vying for today's scarce newbuilding orders with the Chinese and Japanese competitors face one serious shortcoming often overlooked in the good days: the lack of support from a strong domestic shipowner community.

If not for a series of 20,000 teu class ultra large containerships newbuilding orders from Cosco Shipping two years ago, Chinese yards would have found it difficult to strike the recent deal with CMA CGM, Cosco Shipping's Ocean alliance partner, for building nine 22,000 teu vessels.

The actual constructing experience has at least paved the way for China State Shipbuilding Corp to finally win the orders away from Hyundai Heavy Industries. 

Of course, the Koreans have soon evened up the odds. Right after the Chinese-French agreement was signed, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries announced their contracts with Mediterranean Shipping Co for 11 ships of the same size.

However, the price - approximately $164m apiece, or even less if the owner opts for a cheaper plan for propulsion systems - is close to what CMA CGM has agreed to pay the Chinese yards.

It shows the effort that the Korean builders, who normally charge a 10%-15% premium over Chinese rivals, have made in order to win the foreign orders.
By comparison, HHI seems to have secured a better price in its very large ore carrier deal with compatriot owner Polaris Shipping, backed by Vale's long-term contracts of affreightment.

The 10 newbuildings, worth roughly $80m each, enjoy a reasonable margin compared to prices offered by some Chinese yards, which are said to be below $74m.

This perhaps comes with little surprise, given the fact that Polaris and HHI share the same group of main creditors, such as Korea Development Bank and Hana Bank, which allow the yard to still earn a decent margin even in a buyer's market.

Dealings with foreign owners, however, are much more straightforward: pricing generally matters the most in a clean sale. Unfortunately, it was very much the second scenario that Korean builders have to face.

There is a stark orderbook gap between the Korean builders and Korean owners, according to Clarksons: $54.7bn versus $4.1bn, as of end-August. It is $58.4bn vs $19.6bn in China, and $30.8bn vs $25.4bn in Japan.

For now, the Koreans are still building more oil tankers, super-sized boxships, gas carriers and floating units compared with Asian competitors, in particular for European owners.

But these western clients will become pickier and demand better pricing and financing terms, if the Chinese yards -  backed by compatriot orders and state money -  catch up in building those high-end vessels. The CMA CMG deal is a good example.

The weakness appears to have been detected. The government in Seoul has established entities and funds to support vessel ordering from domestic owners, while local think tanks have even urged policymakers to help Korean shipping companies consolidate.

While that is not to say that domestic owners will always bring easier and more profitable orders for yards, the rationale is that reducing the reliance on foreign buyers can diversify risks and increase bargaining power.

That said, Cosco Shipping ordered 17 20,000 teu ships at Chinese yards, and one can hardly expect Hyundai Merchant Marine to book the same amount.
The Korean builders need to work harder to ride out the competition in the long run. The good news is that they are cutting costs and the government is said to be planning to push for a further consolidation in the country's shipbuilding industry.

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Top stories:

Grimaldi unveils newbuilding programme

ITALY's Grimaldi Group has unveiled a $2bn newbuilding and upgrade programme that will include ro-ro ships of revolutionary design that will produce zero emissions in port.

The fifth-generation vessels will also have double the capacity of Grimaldi's Euro-class ships and be fitted with the world's largest battery packs as the group aims for some of the cleanest ships on the high seas.

The huge investment was unveiled by managing director Emanuele Grimaldi during the EuroMed convention in Sardinia.

Six of the hybrid vessels will be ordered initially, with options for another four.
Grimaldi has a track record of pioneering ship designs, with subsidiary Atlantic Container Line operating the world's largest container/ro-ro ships that have been delivered over the past couple of years.

Contracts for the new ships are due to be signed next month. Grimaldi also plans to lengthen other ships in its fleet.

The ro-ro specialist, with both car carriers and ferries in its fleet, is in a strong financial position, Mr Grimaldi revealed, with consolidated profit reaching 10% of turnover.

The new vessels will be the largest of their kind but, unlike ACL's ships, will be for the shortsea truck-and-trailer trade and will not carry containers in stacks.
Initially 15 yards tendered for the project but this has been now whittled down to four. The orders will be confirmed next month, with deliveries beginning in 2020.

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Restis is about to launch a new tanker spree

The Greece-based Restis shipping family is poised to reinvest in tankers with negotiations taking place with shipbuilders on more than one class of tanker. 
Lloyd's List has confirmed that the Greek owner has already inked a letter of intent for up to four new MR2s with Hyundai Mipo Dockyard.

A senior source close to the company said that the Greek owner was also looking to build further suezmaxes and a number of aframaxes and has been speaking to the same yard about the larger vessels, although the Victor Restis-led group is also in talks with Chinese builders.

The owner relinquished its presence in the aframax segment last year when partner AET bought out its 50% stake in the six-year-old joint venture Paramount Tankers, which operated a fleet of six aframaxes.

At the same time, insiders say that the group has been carefully monitoring the dry bulk market and has started talks with a "highly reputable" Chinese builder for a series of kamsarmax bulkers.

At present the group owns a fleet of 23 bulkers and has an ownership participation in Swiss Marine that controls around 200 vessels.

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Shipping companies are still not ready for privacy regulations

FRESH from facing up to the challenges of new regulations on ballast water, low-sulphur fuel and the verification of gross mass of containers, the shipping industry faces yet another regulatory hurdle, one that few will have ever heard of, but one for which they have a little over six months in which to prepare.

While the European Union's General Data Protection Regulation has been in the pipeline since 2016 and will come into force on May 25, 2018, many shipping companies have yet to begin implementing recommended practices to prepare for it, delegates at the ShipIT conference in Athens were told.

But with fines for breaches running at ?20m ($23.6m) or 4% of global turnover, shipping companies that hold any data on European citizens would be wise to take it seriously, according to Costamare IT manager Themistoklis Sardis.

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Germany's bulker owners - going but not quite gone

WITH compatriot banks exiting the shipping sector one by one, how are Germany's dry bulk owners and operators surviving? 

Not many have found the answer.

Of the world's 50 largest bulker owners, only two are German and in the country's maritime capital Hamburg, only a handful of solid players remain in the dry bulk sector.

What's left are private, family-run units that have little or no debt and a positive cash flow. Take Oldendorff, for example. The company, run by Henning, is Europe's largest dry bulk owner and operator with a fleet of 600 ships, of which 135 are owned.

With bank financing drying up for years, family businesses are nowadays relying on other forms of funding and revenue sources. Besides family and friends, they are turning to private equity from the US, for example.

They are pragmatic, looking to the Greeks for a business model, which includes not overstretching equity, keeping the operation quiet and in-house, and having an acute sense of when is the right time to buy or sell. They have yet to tap into the public share markets like their Greek peers, though.

Another example would be the Oetker family. While August Oetker has sold his Hamburg SÅd business to Maersk, his sons Alexander and Konstantin are building up his dry bulk company. The brothers are the third generation of Oetkers involved in shipping.

AO Shipping now has seven bulkers ranging from ultramax to panamax. The company's new ultramax Florentine Oetker, which sailed in May from the Imabari shipyard in Japan, is the first vessel to carry the family name since the 1950s.

At Reederei Nord and Oldendorff Overseas Investments, the new generation of owners, Christian and Nikolaus, have a different approach to their parents, in that they are not after being the biggest owners or hold truly sentimental attachments to the vessels.

The twins both live most of the time in Berlin, with one more involved in real estate and the other involved in internet start-ups. While they both have a vital role in the board, they leave the handling of the daily affairs to an experienced team in Amsterdam, Limassol and Hamburg.

The new ways of survival have come against the background of a struggling dry bulk shipping market, which is still struggling to get back on track after the worst year in modern history in 2016, when vessels were earning much less than their operating costs. Of the owners bleeding too much cash, some companies managed to secure bank repayment deferrals, others sold assets or were taken over.

Sentiment is becoming more upbeat for now, at least for those who survived the downturn, with capesize vessels earning about $20,000 per day. For better-run owners, that is at least a profit of $5,000 per vessel per day if financing is included when calculating operating costs.

Despite the optimism, the trend of decreasing bank financing is not to be reversed. German banks have been slowly withdrawing from shipping and will continue to force mergers or sales upon weak borrowers, an executive told Lloyd's List.

Commerzbank, for example, has said that shipping is four times riskier than real estate. It dumped ?900m ($1bn) of shipping loans in the first half of the year. That sum pretty much covers its dry bulk exposure. HSH Norbank could be wound up, DVB could be sold, and NordLB is shedding its shipping book.
Alternative financing on the home turf is lacking. Germany's KG model, which provides tax breaks for investors, has pretty much collapsed. Blamed by many for vessel oversupply, as KG ship orders were based on speculation rather than genuine market need, it is not expected to be revived for shipping assets anytime soon, said a second executive.

Full story



Elevated US LPG exports support VLGC rates

SPOT rates for very large gas carriers are being supported by steady volumes out of the Middle East, as well as a second consecutive week of US Gulf exports, which have resumed following the hurricanes that hit the area from the end of August. Texas terminals are recovering from storm water damage and delayed tonnage is being cleared out.


Cargoes continue to be lured to East Asia from the US Gulf despite shipping rates proving resilient and the closed arbitrage between prices at Mont Belvieu in Texas and East Asia, as traders anticipate that Asian heating demand in the fourth quarter will make shipments profitable.

Full market report


In brief

Mitsui is about to set up a standalone shipbuilding entity

JAPAN's Mitsui Engineering & Shipbuilding will open a new standalone shipbuilding unit, to be called Mitsui Shipbuilding, in April 2018. The announcement comes after MES, which was established in 1917 and is one of the oldest shipbuilders in Japan, laid out plans back in May to divide its business into three entities focusing on three different business areas, namely shipbuilding, machine and system and engineering. All three will be controlled by a to-be-set-up holding company, Mitsui E&S Holdings.

Full story

Norway has stumped up $17m to build an autonomous electric boxship

An enterprise established by the Norwegian Ministry of Petroleum and Energy, Enova, has disbursed a NKr133.6m ($16.8m) grant to Yara International to finance the development of an autonomous, fully-electric small containership. 

The vessel, named Yara Birkeland, has 105 teu capacity and is estimated to be able to replace 40,000 diesel truck trips covering an annual distance of 1m km.
Additionally, the move will lead to significantly lower energy consumption as well as a reduction of about 750 tonnes of carbon dioxide per year.

Full story

MPC Containerships has added three more vessels to its fleet

Oslo-listed MPC Container Ships has purchased three more vessels, a move that is in line with the company's ambitious plan to increase its fleet size to as many as 50 vessels within a year. The company has invested a total of $21.6m on the purchases, which includes working capital requirements and drydock reserves. With the addition of the trio, MPC's fleet will stand at 23 vessels.

Full story

Senators push for permanent Puerto Rico Jones Act exemption

TWO US Republican senators, John McCain and Mike Lee, have introduced a bill proposing to permanently exempt Puerto Rico from the Merchant Marine Act of 1920, more commonly known as the Jones Act. They aim to speed up recovery efforts in light of the devastation wrought by Hurricane Maria, and to facilitate long-term economic development.

The proposed bill comes after the US Department of Homeland Security waived the coastal shipping regulation on September 27 for a period of 10 days covering all products shipped to Puerto Rico.

Full story

Höegh LNG raises $100m in preferred units

HOEGH LNG Partners swiftly raised $100m in preferred units late last week. The US-listed owner of floating storage and regasification units will repay $34.4m of existing debt and use the remaining funds for acquisitions and general purposes. The units will pay an annualised preferred dividend of 8.75%. The preferred units are perpetual in nature, although the partnership has the option to redeem them after five years.

Full story

APMT Gothenburg to hire temporary workers during peak periods

APM Terminals Gothenburg has decided to engage temporary workers to manage staffing requirements during peak operational periods at the key port in Sweden. Gothenburg will no longer participate in a staffing arrangement known as the Blixtsystem in Sweden whereby extra workers were shared with three other port facilities at Gothenburg, namely Logent Ports & Terminals and Gothenburg Ro-Ro Terminal. Over 300 personnel are currently employed on a temporary, hourly basis under that arrangement.

Full story






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