NET DRY BULK PRICING GOES NEGATIVE

By Walter Kurtz, Sober Look

Some dry-bulk ship operators now work just to cover fuel and keep their ships operational.

Bloomberg: D/S Norden A/S Europe’s biggest publicly trading commodity shipping company, hired a Supramax vessel at no cost other than fuel charges, its first such transaction in a quarter century.

But now the situation is so bad that a shipping firm is actually paying its client to keep the ship going.

Source: kapitall.com

Bloomberg: Glencore chartered the vessel, operated by Global MaritimeInvestments Ltd., a Cyprus-based company with offices in London,at minus $2,000 a day for the first 60 days of the charter,Steve Rodley, GMI’s U.K. managing director, said by phone today.The shipment is Australian grains to Europe and it will put theship in a better position for its next cargo, he said.

“Our other option was to stay in the Pacific and earn poorrevenues or ballast to the Atlantic and pay the fuelourselves,” Rodley said. Ballasting refers to sailing without acargo.

The overcapacity in the shipping business is out of control. If fuel prices increase further, we should see consolidation and defaults in that sector.

Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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Comments

  1. “The overcapacity in the shipping business is out of control. If fuel prices increase further, we should see consolidation and defaults in that sector.”

    This expected, since September:

    http://www.bloomberg.com/news/2011-09-04/zero-freight-rates-fueling-cma-cgm-default-risk-to-90-corporate-finance.html

    “Bonds and derivatives tied to CMA CGM SA, the third-largest container line, are signaling that the company has a nine in 10 chance of defaulting as the slowing
    global recovery pushes freight rates to about zero.
    Penalized by the U.S. last month for breaching trade sanctions with Iran, Cuba and Sudan, CMA CGM has seen the price of its $475 million of 8.5 percent notes due 2017 plunge to 48.25 cents on the dollar since they were sold April 14,
    Bloomberg Bond Trader prices show. Credit-default swap prices signal a 90 percent probability of the Marseille-based company being unable to meet its obligations within five years.”

    Therefore the question is not if. Consolidation, defaults and restructuring are going to happen no matter what.

    The big beneficiary of CMA CGM demise will be Moeller-Maersk A/S, the number one leader who has a much solid financial position.

    End of the day it is the same theme again: Survival of the fittest.

    Best,

    Martin

  2. Good analysis, wrong target. CMA CGM will not go bankrupt, at least not before major uncompetitive Asian liners go belly up. And there are quite a few…

  3. Just note that yesterday, about 10 stocks of maritime shipping companies had a +10% to the upside in the last hour of trading. Guess that when permabears are calling for the shipping market to be the next Greece, smart money is buying…
    Always respect price-action.