Have We Reached the Bottom?

Have We Reached the Bottom?*

Continuation of the report on Mare Forum Amsterdam 2012 (Part Two)

World Oil Trade Outlook

The ever charming Roberto Giorgi, CEO of V. Ships chaired the pre-lunch session at Mare Forum Amsterdam 2012 on the outlook for the markets. Foteini Kanellopoulou, Senior Analyst with Clarksons commenced with an explanation of the current fundamentals of oil demand and supply growth. The presentation is on the Mare Forum website, and in typical Clarksons fashion tells the story without words. One statistic stood out on graph three; $1 trillion world GDP = 58m tonnes of crude oil trade.

Dry Bulk Outlook

Another Clarksons analyst, Burak Cetinok, presented the dry bulk outlook. His presentation is also on the Mare Forum website. The dry bulk story is well known and again the Clarksons technique of telling the tale through the graphs means you can understand the presentation without actually being there. The main takeaways are that Clarksons believe world seaborne trade will grow by a CAGR of 4.7% between 2012 and 2014. That demolition will be firm but the fleet will continue to grow in most sectors well into 2013. The Handysize sector is showing the fastest de-acceleration of growth, both in terms of the orderbook and ships to be delivered. Under current conditions the overall fleet growth in the dry bulk sector will equal the required demand deadweight sometime in the first half of 2014. When pressed further Mr Cetinok agreed that positive meaningful growth in the second half of 2014 is likely.

Container Outlook

After ending on a happy note the mood changed for bloodbath that is the container market. This was given by Dirk Visser, Senior Shipping Consultant with Dynamar, and Managing Editor of “DynaLiners”. Mr Visser started with the now familiar graph of container TEU steadily before pointing out the fantastic swings in company earnings experiences by the liner services. In 2010 he estimates the top 20 public liner companies made $142/TEU before crashing to a loss of -$83/TEU in 2011. Compare this to the economies of scale for the Maersk ULCS (200,000 dwt, 18300-TEU). These vessels have $150/TEU advantage over a 8500-TEU. The problem is the uneven distribution of ULCSs among the services. According to Dynamar, by 2016 there will be 274 ULCS, with 202 in the North Europe to Far East trades. These will be serving with 17 carriers operating in four main groups and completely fill this trade. This is too high a concentration to differentiate product, and rather than offering economies of scale will simply commoditise the trade. His suggestion is for the industry to consolidate and collaborate to squeeze costs, through reducing sales forces. Supply will need managing and carriers will have to agree to scrap the ships the ULCSs displace, rather than the traditional role of cascading displaced vessels into other routes. This is a radical solution.

Shipbuilding Outlook

Sjef van Dooremalen gave the outlook from the Dutch shipbuilders’ perspective. The view is to keep pushing forward in the specialist sector, to be the leaders in design and innovation, and to cooperate with like minded maritime clusters. This includes St. Petersburg, Singapore, Shanghai and Rio de Janeiro.

The Shipowners Outlook.

Michael Bodouroglou, the CEO of Paragon Shipping says what he sees. He sees shipping is bouncing along the bottom of the trough phase of the shipping cycle. Demand is waning, but owners can’t do anything about that, so let’s work on what owners can do, seems to be his philosophy. Supply is the main problem. The orderbook grew too quick, but is now reducing. Trade growth is positive, but over-powered by supply. Low freight rates are driving down asset values. In a sample of 31 US-listed companies he found the net debt to asset value cover is below 90% for all ships types. In most cases charter cover is below 40% for the fleet. As a result, most listed shipping companies have no equity left, not enough charter cover, in breach of bank covenants, and are concentrating on survival, not growth. From the shipowners point of view “cash is king”.


In the discussion that followed the other shipowners present for the most agreed with Mr Bodouroglou. The consensus was the wet and dry bulk markets are too transparent, and there it is difficult to make a high enough return. The key was specialisation and opaque market knowledge. Coco Vroon went one further, stating he thought the container liner market needed a big shake up. The current container business model did not, in his opinion, make any sense.

*Before going to Amsterdam I looked for a contemporary novel set in Amsterdam to read on the train (Eurostar and Thalys from London to Amsterdam). I came across” Rock Bottom” by Michael Schilling, which is a novel about the “Blood Orphans”, a fictitious American rock band. The action takes takes place over 24 hours in Amsterdam, including within the Krasnapolsky Hotel. A funny and clever book written through five different viewpoints.


About Craig Jallal
A shipping analyst whose feels the need to comment on the industry.

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