It’s all in the timing!

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

As in many other walks of life, timing is everything in shipping. If you had a Capesize or Panamax bulk carrier to sell this time last year, you could virtually name your price. Ships still on the blocks were being bought at multiples and charter-related purchase options, which had originally looked optimistic, were so heavily in the money, it was almost unbelievable. Only this week, Italian tanker firm d’Amico International Shipping, announcing its result on the Milan bourse, acknowledged that no less than US$106m of this year’s profit was down to exercised purchase options, and the subsequent sale of four medium range products carriers. 
   

For those who deal in new or modern ships, all sectors of the business are highly capital-intensive, which is why the fact that banks are no longer lending any volume of conventional debt is a crisis that can only deepen. It is a nightmare for buyers and sellers – owners can’t get funded and shipyards can’t get paid. And, unless funds start to flow normally again very soon, financiers are warning of an imminent apocalypse.
   

Of course, the squeeze on lending affects all sectors of shipping which relies on stable banking relationships to oil most of the cogs of ocean trade. But spare a thought, in particular, for those involved in lng. Not only must they contend with the recent and dramatic falls in energy prices, and contracts involving the most expensive lng ships ever, they also face a continuing delay in the commissioning of a range of new lng projects.  And recent price trends are doing nothing to help that situation. 
   

In a recent market report, Clarkson examined the sector in some detail and, it says, for those with long memories, it is hard not to feel a sense of deja vu. In the early 1970s, the analysts report, world lng trade was just getting started. Shell’s Brunei project, one of the first major ones, came on stream on time, a shortage of gas in the US ... “the future of this exotic fuel seemed assured.”
   

Forecasts indicated that 80 lng carriers would be needed by 1980 and bold participants in shipping set up building the appropriate tonnage in advance. However, through no fault of their own, their timing proved to be wrong and, by the early 1980s, around half of the world’s lng fleet was laid up.
   

Move on 25 years or so, and history seems to be repeating itself. Clarkson points out that is was in 2003 that the then Federal Reserve Chairman Alan Greenspan told Congress that notable reductions in both liquefaction and transport of lng was generating a significant trade in lng. “And high gas prices projected in the American distant futures market have made us a potential very large importer,” he stated.
    

Such positive sentiment was not lost on shipping’s investment community and before long, a range of new contracts were signed. By 2007, the orderbook comprise 140 new ships resulting in the lng carrier fleet passing the 300 mark in January of this year, according to Clarkson statistics. However, rather like last time round, everything has slipped and there is little for the new ships to do. There are apparently four lng carriers laid up (three of them old) but more than 40 others are lying idle. However, as Clarkson points out, investors who entered the sector soon after Greenspan made his comments are relatively well-placed – their new ships typically cost around $150m compared with $240m today.
   

It is also important to note that today’s new projects haven’t gone away, they’re just delayed. According to Clarkson’s estimates, delayed projects due on stream this year and next will provide work for some 80 vessels. Once again, it’s all in the timing!