Falling tanker ship values adding pressure to ship owners

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

14 Nov 2011

Despite the respite of tanker freight levels during the past week, things haven’t just turned beautiful for tanker owners, especially those with a high leverage. According to London-based shipbrokers Gibson, the pain and the doldrums are here to stay for a while.

“Tankers took the hit a little later than the dry cargo market following the crash in the autumn of 2008 and were subsequently cushioned by the temporary floating storage requirement, which provided considerable support particularly through the winter/spring 2009/10. As the crisis unfolded, other participants including banks and shipyards were prepared to play their part as owners searched to mitigate their exposure to the crisis. Those owners lucky enough to have little or no debt were able to draw upon cash reserves built up during the high markets prior to the 2008 crash” said Gibson.
The company’s report went on to ask the question of are the banks losing patience with ship owners? According to Gibson, “virtually every day we see the trade press report financial results which indicate that the situation is worsening. It is not fresh news that the world economic growth is much slower than first anticipated, but the shipping markets are amongst the first in the firing line for the hit. As the crisis deepens for tankers, we are seeing even the best run ‘blue chip’ companies being forced to sell assets at considerably less than book value. Is it any wonder that the banks and other financial institutions are extremely nervous with asset values falling almost daily? The banks themselves have come under closer scrutiny, with top shipping banks downgraded by credit rating agencies such as Moody’s. To put it mildly, the rapid depreciation of asset values must be giving the banks a massive headache. Some of the banks are actively seeking to offload their shipping portfolios at the same time as owners are trying to refinance debt or raise capital. Others have already fallen foul of the banks and are trying to protect themselves from creditors and possibly liquidation, which could result in more fire sales. Last month a bank forced the sale of a 12 year old Suezmax for a reported $24.5M, a tanker which had been purchased by a German KG for $86M just four years ago. This is just a typical example of many recently enforced sales” said Gibson.
It went to mention that ship owners don’t have many options. It stated the example of Saga Tankers which decided to “throw in the towel” completely and leave the market, by selling all four of its VLCCs. “Some other major players have decided to offload ‘surplus’ tonnage in order to raise cash to keep things ticking over. Owners will need the support of the banks more than ever during this prolonged crisis. The continual sale of assets at considerably below book value will only undermine the investment owners have made in recent years. However, as long as the current crisis goes on, we will continue see more arrests, enforced sales and even greater downwards pressure on asset prices” concluded Gibson.
Meanwhile, in the past week, VLCC rates picked up. According to the latest weekly report from Paris-based shipbroker Barry Rogliano Salles (BRS), “once again, records will show an extremely busy activity for VLCC tonnage for November with more than 130 fixtures concluded. However, when looking at today’s rates, owners are obviously still far from a recovery. One must take into account the sudden and violent increase in bunker costs which are today fetching $700/Mt… Therefore, if and where Worldscale rates have improved, daily returns (still based on a hypothetical speed of 14 knots) have not moved in the same proportions… Voyages from the Middle East Gulf to the East ended the week at about WS55 which equates to hardly $5,000 per day, far from luxurious! For once, it has also been a busy week for voyages to the West and rates have now settled at WS40 for USG discharge but, despite this increase, daily returns are still very far from positive figures. In the western hemisphere, tonnage is becoming more scarce and, if rates keep improving in the East, there should be fewer ballasters which could influence rates. However, for the moment rates remain stable in the mid WS50s from West Africa, either to the USG or to the East” said BRS.
Furthermore, on the Suezmax market, it said that “by looking at rates achieved these last few days on Suezmax tankers, one would imagine that the market was rather quiet. The west African market was actually quite active but tonnage availability has again been sufficient to contain any rate increases. With the strong increase in bunker prices, daily returns are obviously impacted, and at WS77.5 for a voyage to USAC, daily returns are in fact only around $10,000. The feeling for the forecast is that the market will not move much from the present levels. By comparison, the Med and Black Sea markets have been quieter. In between lower demand, fewer delays through the Turkish straits, and a large number of available ships, rates (as anticipated) slipped to WS80 ex Black Sea. Taking into account the impact of bunker costs, daily returns are badly affected at about $6,500/day” concluded BRS.
Nikos Roussanoglou, Hellenic Shipping News Worldwide