Dry-bulk haulers balk at prices
NEW YORK – Stamatis Molaris says he’d happily buy new dry-bulk ships since commodities companies are fighting to get their products on these fleets. Unfortunately, though, the prices of the ships themselves have also skyrocketed. «The hardest asset to buy right now is a bulk carrier,» said Molaris, the CEO of dry-bulk shipping company Quintana Maritime Ltd. «Dry-bulk rates are so strong right now that the prices for some (vessel) asset classes are double what they were a year ago.» Business is great for dry-bulk shippers right now, as the rates they can charge customers to haul commodities such as coal, iron ore, steel, cement or grain have never been higher. The same, however, is also true for new-ship prices. «Demand has been so high that prices for some dry-bulk ships have risen 50 percent in the past three to four months,» said analyst Omar Nokta of investment bank Dahlman Rose. Driving the need for these vessels is the hunger of fast-growing nations, such as China and India, for vast quantities of the raw materials they haul. Port congestion in Australia and Brazil has also played a role in keeping daily freight rates high, as it has taken ships out of circulation. All this has tightened the spot market, which brings together available ships and customers looking to haul bulk goods by sea, with daily rates fluctuating depending on supply and demand. In turn, the prices of new vessels at shipyards have jumped. «Dry-bulk rates have gone somewhat higher, but prices for vessels have gone much higher,» said Aristides Pittas, the CEO of Euroseas Ltd, whose fleet includes dry-bulk ships. The price tag of a Capesize ship, which with a carrying capacity of about 180,000 tons is by far the largest class of bulk carrier, recently reached a record-breaking $110 million. To some dry-bulk shipping companies, prices are just too high, especially if dry-bulk freight rates start to fall. Analysts, however, say that with the right strategy – in this case fixed, long-term charters – shippers can still get good returns on new vessels even at today’s high prices. «If your timing is right and you know your customers, then there are good returns to be made from dry-bulk ships,» said Dahlman Rose’s Nokta. High ship prices were clearly weighing on the minds of executives last week at a New York conference organized by investor relations firm Capital Link. Molaris and other shipping executives said they were not in the market for new dry-bulk carriers. Molaris stressed, however, that after Quintana ordered 17 ships last year – more than doubling its fleet – at a total cost of $735 million, «we can afford to sit on the sidelines and wait» for the prices of the vessels to come down again. Executives like Molaris say caution is advisable. If dry spot-market bulk freight rates slide, shippers could be stuck with overpriced vessels. Or far worse, stuck earning less than the payments owed to the bank for the ships. In the meantime, Excel Maritime and other carriers say that instead of looking to buy new ships, they are cruising the used market for older ones. «We will be looking for secondhand ships of about five to seven years old,» Excel CEO Christopher Georgakis said. Like Excel, DryShips Inc hopes to snap up used ships and is using the bullish spot market to offload its oldest vessels. «We’re selling older vessels for a high price that we wouldn’t be able to sell off in a down market,» said CEO George Economou. DryShips is not, however, interested in buying high-priced new ships, he added. Jefferies analyst Doug Mavrinac said buying a new dry-bulk carrier would be a risky proposition if a shipping company wanted to put it in the volatile spot market. «The sustainability of the spot market rates we’ve been seeing is probably not likely throughout the course of this year,» he said. But while ships are expensive right now, Mavrinac said, shipping companies «can still find the charter rates to get the returns» to finance ship purchases. Some shippers sign long-term charters with customers at a fixed daily rate that avoids spot market volatility and guarantees revenues. The downside is that they earn less than the market when rates rise, but the upside is that when rates fall, they are in good shape. Dahlman Rose’s Nokta said demand for dry-bulk carriers was so high that customers were willing to sign term charters to ensure supply. «It’s only when the market is this hot that you can see this much interest in time charters,» he said. Nokta estimates returns on long-term charters at 14 percent or 15 percent, even with high ship prices. «Customers are willing to sign a (multiyear) charter and guaranteed revenue is the easiest way to get bank financing,» Nokta said. «There is still money to be made here.»
