Global Ports Forum

Survivor of Oil-Tanker Rout Sees Biggest Returns in Coal Carriers
By Isaac Arnsdorf
December 06, 2011 7:01 PM EST

Knightsbridge (VLCCF) Tankers Ltd., whose long-term charters mean it is still profitable during the worst shipping-rate slump in more than a decade, says the biggest returns in 2012 will come from hauling coal and iron ore.
The Hamilton, Bermuda-based company owns four tankers and its market value now exceeds that of Frontline Ltd., whose 43 ships make it the largest supertanker operator. Knightsbridge may sell two vessels when their contracts expire next year and buy panamaxes that carry so-called dry bulk commodities, Chief Executive Officer Ola Lorentzon said in an interview.
Panamaxes, the largest carriers able to navigate the Panama Canal, will earn $13,250 a day on average next year, according to the median of nine analyst estimates compiled by Bloomberg. That’s 19 percent more than the $11,136 anticipated by forward freight agreements, traded by brokers and used to bet on future transport costs, data from the Baltic Exchange in London show.
“This company chose to be more conservative,” said Jonathan Chappell, an analyst at Evercore Partners Inc. in New York who gives Knightsbridge shares an “overweight” rating. “With the uncertainty in the market right now, it’s probably something more people wish they had done.”
All six members of the Bloomberg Tanker Index (TANKER) from Frontline to General Maritime Corp. will lose money this year as fleet capacity exceeds the number of cargoes, analyst estimates compiled by Bloomberg show. While there is also a dry-bulk shipping glut, it is shrinking faster as demand accelerates. Rates for the biggest ore and coal carriers turned profitable in September, while those for supertankers fell in April below the $30,200 a day Frontline says it needs to break even.
Frontline Rallies
Frontline climbed 26 percent in Oslo trading yesterday after saying it planned to divide the company in order to withstand the collapse in tanker rates. Frontline 2012 will take control of the newest vessels, selling $250 million of shares, of which Frontline will take 10 percent. Hemen Holding Ltd., a company indirectly controlled by Chairman John Fredriksen, will underwrite the remainder. Hemen is giving guarantees of $505.5 million, valid until Dec. 31.
Knightsbridge made money every year since it was created in 1996 by favoring long-term charters over single-voyage accords. That meant it missed out on spot rates that rose as high as $229,484 in 2007 and avoided the $7,254 they sank to in September this year, according to data from London-based Clarkson Plc, the world’s biggest shipbroker.
Oil Cargoes
Demand for iron ore, coal and other dry-bulk cargoes will grow 8.1 percent next year as the fleet of carriers expands 12 percent, Morgan Stanley estimated in a Nov. 27 report. Oil shipments will advance 2.1 percent, compared with a 9.3 percent gain in the supply of supertankers, also known as very large crude carriers, or VLCCs, the bank said.
“We’re looking at dry-bulk acquisitions because they can give a decent contribution to our yield right away with less risk,” said Stockholm-based Lorentzon, a 62-year-old chemical engineer by training. “It will recover earlier than tankers because the demand side is growing better.”
Panamaxes cost about $30 million apiece and can secure charters at almost $14,000 a day, more than double the $5,700 needed to cover operating costs, Lorentzon said. The company already owns four ore-carrying capesizes.
Vessel Surplus
While rates for dry-bulk vessels are rebounding faster than for oil tankers, the industry still faces a glut for several years. The global fleet of panamax ships expanded 33 percent to 1,934 since the end of 2007, according to Redhill, England-based IHS Fairplay. Orders at ship yards are equal to 43 percent of the existing fleet, the data show. That compares with a 12 percent gain in VLCCs, with outstanding orders at 14 percent of the fleet, according to IHS Fairplay.
Spot rates for panamaxes fell 8.2 percent to $13,499 a day this year, according to the Baltic Exchange, which publishes freight costs along more than 50 maritime routes. Rates for VLCCs averaged $21,734 a day, heading for the lowest annual reading since 1999, Clarkson data show.
Economic growth in China, the world’s biggest consumer of iron ore and coal, will slow to 9 percent next year from 9.5 percent in 2011, the International Monetary Fund estimates. The nation’s imports of iron ore, a steelmaking raw material, fell to the lowest level since February in October as coal cargoes declined to a four-month low, customs data show.
Equity Returns
The Bloomberg Dry Bulk Shipping Pureplay Index plunged 41 percent this year, and 11 of its 14 companies will report lower earnings or losses in 2011, according to analyst estimates compiled by Bloomberg. The MSCI All-Country World Index of equities fell 8.3 percent and Treasuries returned 8.5 percent, a Bank of America Corp. index shows.
A 30-month charter for one of Knightsbridge’s tankers, the Camden, built in 1995, ends in August and a five-year lease on the 1996-built Hampstead expires in April, according to its third-quarter report. The company will “struggle” to find new contracts for them, Lorentzon said.
The Mayfair has a five-year charter ending in July 2015, while the Kensington trades in the spot, or single-voyage, market. Knightsbridge’s capesizes have charters ranging from 35 months to five years, with the first expiring in January 2013.
Knightsbridge’s tankers, named for London neighborhoods, are managed by Frontline and its capesizes by Golden Ocean Group Ltd. (GOGL), also located in Hamilton. Golden Ocean is the largest shareholder in Knightsbridge, with a 10 percent stake, according to data compiled by Bloomberg.
$61.9 Million
Knightsbridge will report earnings before interest, taxes, depreciation and amortization of $61.9 million for this year, compared with $63.4 million in 2010, according to the mean of five analyst estimates compiled by Bloomberg. The shares fell 30 percent this year in New York trading, giving the company a market value of $383.2 million. Investors got $2 a share of dividends this year, data compiled by Bloomberg showed.
Frontline, also based in Hamilton, will report a net loss of $228.3 million for this year, compared with 2010 net income of $161.4 million, the mean of 20 estimates showed. The company said Nov. 22 it would pay no third-quarter dividend and may run out of cash in 2012. The shares slumped 83 percent in Oslo this year, valuing Frontline at 1.99 billion kroner ($345 million). General Maritime, the New York-based operator of 29 tankers, filed for bankruptcy protection on Nov. 17.
VLCCs on average are making owners a return of less than 0.1 percent, according to data from Drewry Shipping Consultants Ltd., a London-based adviser to maritime companies. That compares with 9.6 percent for panamaxes, according to the data, which comprise asset prices and rates for five-year-old ships.
“What we’re seeking to do is keep a predictable and reasonable dividend for shareholders,” Lorentzon said. “Right now it’s a very nice way, because we can provide dividends to our shareholders, which a lot of companies can’t.”
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Asia Generic Drugs Boom Swells Cargo Sales
By Alex Webb
December 05, 2011 7:01 PM EST

When the patent on Pfizer Inc. (PFE)’s Lipitor expired last week, Ranbaxy Laboratories Ltd.’s generic version was the first to hit U.S. drugstores, some 7,000 miles away from the northern Indian factory where the production process started.
Providing transport for Asia’s burgeoning generic-drug industry is an investment priority for Deutsche Lufthansa AG and United Parcel Service Inc. (UPS) The pharmaceutical logistics segment will grow 12 percent this year to 47 billion euros ($63 billion) as more drugs are made in Asia and other developing markets, according to research firm Transport Intelligence Ltd.
“Just about every airline is looking at this space with interest right now,” Dan Gagnon, UPS’s European healthcare logistics director, said in an interview. “As more competition gets into this space, you need to come up with solutions that are more economical but provide the same level of service.”
UPS, which provides freight service for German drugmaker Merck KGaA, has invested in five new pharmaceuticals facilities in the past year and last week purchased drugs logistics company Pieffe Group in Italy. Lufthansa today will open a cold cargo facility in Frankfurt to add to a pharmaceutical hub in Hyderabad, India, which started operations in May.
Pharmaceutical logistics growth will average 7.6 percent in the coming years, reaching 63 billion euros by 2015, according to a report last week by Transport Intelligence analyst Cathy Roberson. Biotech and pharmaceutical products represent the highest value per airlifted pound for any cargo, she said.
Topping Electronics
The 12 percent growth predicted for pharmaceutical air freight over the next five years outstrips the 4 percent anticipated in electronics cargo, which has traditionally been the strongest sector for air freight demand, Roberson said.
“The growth will be driven by emerging markets,” in particular India, China and Brazil, Roberson said in the report. “Continued outsourcing to these locations, along with changes in government legislation, will drive increases in logistics spending.”
Lufthansa’s cargo unit is planning to dedicate six McDonnell Douglas MD-11s by 2015 to handle pharmaceuticals as the five Boeing Co. 777s the airline will start receiving at the end of 2013 free up capacity. “Far more” than 12 percent of Lufthansa’s annual growth in India is coming from drug transports, Karl Ulrich Garnadt, who heads the cargo unit, said.
Investing in India
UPS, aiming to exceed the market forecasts for pharmaceutical air cargo growth of up to 12 percent, and is currently tying up deals to improve its Asian facilities, Gagnon said. He expects an announcement in “about a month.”
“Infrastructure for us in India has been quite limited,” Gagnon said. “For our strategic initiatives, that is an area in which we will be investing.” UPS already has a cold cargo facility in Singapore.
India’s pharmaceutical exports are expected to grow 23 percent annually to 2015 as the quantity of generic drugs produced in the country increases, according to a joint study by the Organization of Pharmaceutical Producers of India and Deutsche Post AG released in September.
With more than 100 plants, India is home to more U.S. Food and Drug Administration-approved pharmaceutical manufacturing facilities than anywhere else outside the U.S. The FDA has had offices in New Delhi since 2008 and Mumbai since 2009 to enable better regulation of drugs produced in India.
Temperature Control
While not all drugs require a controlled temperature environment to maintain their efficacy, vaccines, some medical devices, diagnostic kits and so-called biological medicines — which are made from a living organism as opposed to chemical processes — often do.
Seventy percent of drugs expected to dominate the market over the next four years fall into this biological bracket, and will therefore require more stringent temperature control measures in their transport, said Savvas Neophytou, a London- based Panmure Gordon health care analyst.
CSafe LLC, based in Dayton, Ohio, leases its 200 temperature-controlled containers to UPS, Deutsche Post’s DHL unit and FedEx Corp. (FDX) The company plans to build another 100 containers in 2012, according to its president.
“Our product is really designed for that strict two to eight degrees centigrade,” Brian Kohr, CSafe’s chief, said in a telephone interview. “It could be going from a really hot ambient to a very cold ambient or vice versa and it has to maintain the temperature.”
‘Vast Untapped Market’
Also contributing to growth are drug companies’ efforts to consolidate their number of production sites, said Jack Scannell, a Sanford Bernstein analyst.
“The upshot of that is that you end up shipping as you have less local production,” Scannell, who is based in London, said by telephone. “There has been a long gradual process over the past ten years to try to rationalize pharmaceutical manufacturing.”
Health care companies’ predilection for carrying out many of their logistics needs in-house also presents a “vast untapped market” for external carriers, Transport Intelligence analyst Joel Ray said by telephone.
“For us the biggest opportunity and competition is in- sourced supply chains,” UPS’s Gagnon added. “Healthcare is behind when it comes to outsourcing, and if we break down the market, that’s where most of our opportunities come from.”
To contact the reporter on this story: Alex Webb in Frankfurt awebb25@bloomberg.net.
To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net.

S&P Places 15 Euro Nations on Warning for Credit Downgrade

Dec. 5 (Bloomberg) — Standard & Poor’s said Germany and France may be stripped of their AAA credit ratings as the debt crisis prompts 15 euro nations to be put on review for possible downgrade.

The euro area’s six AAA rated countries are among the nations to be placed on a negative outlook, and their credit ratings may be cut depending on the result of a summit of European Union leaders on Dec. 9, S&P said today in a statement. The euro reversed its gains and U.S. Treasuries rose earlier today after the Financial Times reported that the credit-ranking firm planned to reduce six AAA outlooks.

“Systemic stress in the eurozone has risen in recent weeks and reached such a level that a review of all eurozone sovereign ratings is warranted,” S&P said in a statement.

The downgrade warnings come as German Chancellor Angela Merkel and French President Nicolas Sarkozy push for a rewrite of the EU’s governing rules to tighten economic cooperation in a demonstration of unity on ending the debt crisis. With the fate of the currency shared by the 17 euro countries at risk, Merkel and Sarkozy presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels that aims to halt the crisis now in its third year.

“The S&P move is yet another signal that euro area countries must take decisive action to deal with the crisis or else the problems will spread from Greece and others with the most acute fiscal problems to the rest of the euro zone,” said Phillip Swagel, a professor of economics at the University of Maryland’s School of Public Policy who was an assistant Treasury secretary for economic policy in the George W. Bush administration. “It is time for Germany and France to act — either to save Greece and the others or to let them fail.”

Germany, Belgium

The firm said that ratings could be cut by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and by up to two notches for the other governments.

The other countries warned were Estonia, France, Ireland, Italy, Malta, Portugal, Slovakia, Slovenia and Spain, according to S&P. The company said it maintained the negative outlook for Cyprus, and Greece wasn’t put on “creditwatch.”

The euro pared gains against the dollar, trading at $1.3401 per euro at 5:01 p.m. in New York after rising as high as $1.3487.

In a joint statement, the governments of France and Germany said they “recognize” the move by S&P and “affirm their conviction that the common proposals made today will strengthen coordination of budget and economic policy, and promote stability, competitiveness and growth.”

S&P roiled global equity, bond, currency and commodity markets on Nov. 10, when it sent and then corrected an erroneous message to subscribers suggesting France’s rating had been downgraded.

Stability Facility

Downgrades of Germany and France would affect the rating of the European Financial Stability Facility, the bailout fund for struggling euro member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for indebted nations.

Yields on EFSF 3.375 percent bonds due in July 2021 2 basis points, snapping a five-day rally, to 3.6 percent, according to Bloomberg prices.

“Negative news is going to continue to spur rallies in the Treasury markets, at least until the ECB steps in to end this mess once and for all,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the announcement. “With the euro currency in a state of flux, the U.S. markets remain the only true safe haven.”

U.S. Downgrade

S&P downgraded the U.S.’s AAA credit rating by one level to AA+ for the first time Aug. 5, citing the nation’s political process and criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget deficits.

Investors nevertheless sought Treasuries after the S&P rating cut sparked financial market turmoil. Treasuries gained 6.4 percent last quarter, their best performance since the last three months of 2008, according to Bank of America Merrill Lynch index data.

The rating company’s decision on the U.S. was flawed by a $2 trillion error, according to the Treasury Department. S&P disputed the Treasury’s assertions and said using the department’s preferred spending measures in its analysis didn’t affect its credit grade.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill ending an impasse with lawmakers over raising the nation’s debt ceiling.

Federal Reserve Chairman Ben S. Bernanke said Treasury securities remain a core holding for investors. “The downgrade didn’t scare off any investors,” and the action, along with the prospect of other downgrades, hasn’t done “significant damage” to the economy, Bernanke said at a Nov. 10 at a town-hall-style event in El Paso, Texas.

German bunds are underperforming Treasuries for the first time since the European debt crisis began in 2009.

Best-Performing

Treasuries due in 10 years or more are 2011’s best- performing sovereign securities, returning 26 percent as of Nov. 30, according to Bloomberg/EFFAS indexes. German 30-year bunds yielded more than their U.S. peers last month for the first time since May 2009 as the government was only able to find buyers for 65 percent of a 6 billion euro ($8.1 billion) offering on Nov. 23, its worst auction in 16 years.

Credit-default swaps tied to France climbed 4 basis points on Dec. 2 to 196 basis points, while contracts insuring against a default on Germany’s debt were about unchanged 97 basis points, CMA data show. That compares with 51 basis points for credit swaps on the U.S. and 90 basis points for the U.K.

A basis point on a credit-swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Bond yields of countries stripped of their AAA ratings since 1998 have historically been little changed following the credit grade change, according to an Oct. 28 report from JPMorgan Chase & Co. analysts led by Terry Belton, global head of fixed-income and foreign-exchange research. The yield on 10- year Japanese government debt rose 10 basis points the week after it was cut to Aa1 by Moody’s in November 1998. The interest rate declined 3 basis points following the cut by S&P to AA+ in February 2001.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Indonesia Spending $200 Billion Boosts Krakatau: Freight
By Novrida Manurung, Femi Adi and Sunil Jagtiani
December 01, 2011 12:18 AM EST

The support cables snapped and the bridge buckled, hurling vehicles into muddy water and killing at least 19. Built to resemble San Francisco’s Golden Gate, the structure on Indonesia’s Borneo island was just 10 years old.
The Nov. 26 disaster was a reminder of how far Indonesia’s transport system lags behind its neighbors. President Susilo Bambang Yudhoyono plans to spend about $195 billion on such projects as overhauling ports, reconstructing roads and building bridges, part of a drive to overhaul a freight-transport network ranked among Asia’s worst.
The resulting construction may benefit businesses including PT Semen Gresik (SMGR), Indonesia’s largest cement maker, and PT Krakatau Steel (KRAS), its biggest steel producer. Shares in both will rise in the next 12 months, according to forecasts from Jakarta- based stockbroker PT Danareksa Sekuritas.
“Cement, steel, toll-road and construction companies should experience increased demand during the building phase,” said Kelly Chung, a Hong Kong-based fund manager at ING Investment Management, which oversees about $445 billion.
Indonesia’s 2011-2025 development plan seeks 4,012 trillion rupiah ($440 billion) of investment, with about 1,786 trillion rupiah assigned to items such as highways, harbors and power plants. To spend the cash effectively, the government must overcome corruption so severe that it’s rated the “most problematic factor” for doing business in the country, according to executives surveyed in the World Economic Forum’s Global Competiveness Report 2011-2012.
Enemy Number One
“The president had said the number one enemy is corruption,” Edy Putra Irawady, deputy minister for trade and industry at the Coordinating Ministry for Economic Affairs, said by telephone from Jakarta on Nov. 29. “The mechanism of bureaucracy should be transparent and accountable.”
Yudhoyono is seeking to improve Indonesia’s roads, bridges and ports to spur annual economic growth of as much as 9 percent, closing the gap to Chinese and Indian rates of expansion.
“It’s reasonable to expect substantial growth of infrastructure investments and a subsequent lowering of logistics costs,” said Henry Sandee, a senior trade specialist at the World Bank in Jakarta. “Otherwise, Indonesia may face difficulties even in sustaining economic growth beyond 6 percent per year. We aren’t only talking about international trade costs. Domestic shipping rates are also high.”
Private Investment
The push to improve transport links within the archipelago of more than 17,500 islands, as well as to pivotal overseas markets, depends on the private sector for more than half the total investment target. For ports, that signals reliance on companies such as Hutchison Port Holdings Ltd. and DP World Ltd. to deepen harbors, add cranes and train staff.
Shares in Semen Gresik, headquartered in Gresik, East Java, will climb about 8 percent to 10,300 rupiah over 12 months from current levels, while Cilegon, Indonesia-based Krakatau Steel will advance about 52 percent to 1,275 rupiah in the 2012 financial year, based on Danareksa Sekuritas target prices. Domestic spending stands to benefit both companies, it said.
For PT Maersk Indonesia, a unit of A.P. Moeller-Maersk A/S, owner of the world’s biggest container shipping line, choked roads and crowded ports fan delays and add to costs. Berths that are too shallow for the biggest vessels prevent direct links to markets such as Europe, forcing Indonesia to feed goods overseas through terminals in Singapore.
Ships carrying 3,500 standard 20-foot containers, or TEU, are currently the biggest that can berth in Indonesia at Tanjung Priok port in Jakarta, compared with up to 13,000 TEU for those sailing between China and Europe, said Jakob Friis Sorensen, president director of PT Maersk Indonesia in Jakarta.
‘Time is Money’
“Time is money in this business,” Sorensen said. “The model that Indonesia chose was to rely on Singapore instead of building enough of its own infrastructure. Otherwise, it could have had bigger vessels calling directly.”
Last week’s collapse of the 710-meter (2,330-feet) bridge spanning the Mahakam River in East Kalimantan province has underscored concerns about infrastructure. Yudhoyono ordered an investigation into the cause. Nineteen people are confirmed dead, the National Agency for Disaster Management said today.
“We must continue rescue efforts, search for survivors and prevent future collapse,” Yudhoyono said in Bogor, West Java, two days after the tragedy.
Behind Asia
Indonesia ranked 75th out of 155 economies in the World Bank’s Logistics Performance Index for 2010, the most recent, down from 43rd in 2007. The index measures the perceptions of international freight forwarders doing business with Indonesia.
The fourth-most populous country placed below Singapore, Japan, Taiwan, South Korea, China, Malaysia, Thailand, India and Vietnam. Better logistics performance is strongly linked to trade expansion and economic growth, according to the World Bank.
Indonesia has signed about $39 billion of accords with Japanese and Indian investors since December, for projects including ports, mass transit systems and power plants. The government aims to add 20,000 kilometers of roads and 15,000 megawatts of power capacity by 2014.
It also plans to spend 117 trillion rupiah on 92 port projects, including the redevelopment of the country’s 25 main ports, Deputy Transport Minister Bambang Susantono said by telephone from Jakarta this week.
The government’s goal is for gross domestic product in resource-rich Indonesia to swell to as much as $4.5 trillion in 2025, an annual expansion of 7 percent to 9 percent. That compares with average yearly growth of 5.2 percent in the decade through 2010. China expanded 10.3 percent last year while India grew 10.1 percent, according to the International Monetary Fund.
Infrastructure Needs
Investment in infrastructure, including ports, was about 3 percent of GDP in 2000, below the more than 8 percent in 1995- 1996, the World Bank said in the June edition of its Indonesia Economic Quarterly. The Asian crisis in the late 1990s contributed to the fall, the lender said. The ratio rose to 4 percent of GDP in 2008-2009, it said.
More spending relative to GDP can help Indonesia achieve expansion of as much as 8 percent by 2020, HSBC Holdings Plc said in a June note. Yudhoyono’s development plan also aims to reduce inflation to 3 percent by 2025 from 6.5 percent in 2011- 2014 as better transport links curb costs.
Dubai-based DP World owns 49 percent of PT Terminal Petikemas Surabaya in Surabaya, East Java, with the rest controlled by state-owned PT Pelabuhan Indonesia III. Hutchison Port Holdings, based in Hong Kong, helps operate the Jakarta International Container Terminal. It acquired the Koja Terminal in 2000.
‘Sticky Web’
Indonesia’s push to increase infrastructure investment faces obstacles. Aside from corruption, parliament has yet to mandate land sales to aid road and port development. Europe’s debt crisis is also casting a pall over the global economy.
Graft in complex infrastructure projects that need many local partners over multiple years is often a bigger obstacle to investment than in mining and oil contracts, said Allan Bell, a lawyer in Hong Kong who specializes in helping governments recover stolen assets and consults for the World Bank.
“The project cycle is huge,” Bell said. “With resources, once you get your license, you go in, have your drilling or mining operation up and, if your science was good, your resource can be extracted and within a few years you start to see a return. With infrastructure it could be 10 or 20 years. It’s just much more of a sticky, sticky web.”
PPP Initiative
The National Development Agency’s 2011 book of 79 identified public-private partnerships worth $53 billion shows only 13 are ready for offer, the World Bank said in an October report. “Few projects are in the advanced preparation stage,” the lender said.
Still, investment is climbing in absolute terms. Foreign direct investment jumped almost 173 percent to $13.3 billion in 2010 from a four-year low of $4.9 billion in the previous year, United Nations data show. Fiscal stability under Yudhoyono has put Indonesia on the verge of its first investment-grade credit rating since the 1990s.
The country attracted 181 trillion rupiah of total investment in the nine months through September, a 21 percent increase from a year earlier, government data shows.
This month, a national logistics blueprint to improve infrastructure to and from ports, reduce transport times and uncertainty, and cut costs will be submitted to the president, Irawady said. The goal is to cut logistics expenses to 11 percent to 12 percent of production costs by 2015, from about 14.8 percent currently, he said.
“If you increase capacity on infrastructure, there will be so much more you can do,” said Su Sian Lim, a strategist at Royal Bank of Scotland Group Plc in Singapore. “Indonesia’s true growth should probably be 7 percent to 8 percent.”
To contact the reporters on this story: Sunil Jagtiani in Singapore at sjagtiani@bloomberg.net; Novrida Manurung in Jakarta at nmanurung@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Transport M&A Set for Rebound on Trucking Valuations: Freight
November 01, 2011, 6:10 AM EDT

By Natalie Doss
Oct. 28 (Bloomberg) — Ground-transport companies are showing fresh interest in mergers amid the convergence of new U.S. regulations, tight credit and trucking stocks at some of the cheapest valuations since 2009.

At least $2.7 billion of truck, leasing, transport-services and rail purchases involving North American buyers or targets were announced in 2011 through yesterday, 32 percent more than in 2010, based on data compiled by Bloomberg. More deals are likely, said Jason Seidl, a Dahlman Rose & Co. analyst.

“Smart buyers come in when things are depressed,” Seidl said in an interview from New York. “People are focusing right now on making longer-term investments, and that’s why transports are coming up.”

Acquisitions would help truckers refresh fleets and add drivers amid an industry shortage. Celadon Group Inc. said Oct. 19 it would buy tractors and trailers from Frozen Food Express Industries Inc., a week after disclosing a 6.3 percent stake in USA Truck Inc. and proposing talks on an “association.”

The Bloomberg data cover pending and completed deals from $5 million to $1 billion, a transaction range typical for industries such as trucking, logistics and short-line railroads.

Brad Jacobs became chief executive officer of XPO Logistics Inc., an arranger of freight shipments, after his Jacobs Private Equity LLC invested as much as $135 million in the St. Joseph, Michigan-based company in September. Acquisitions are already on his mind.

“We’re talking to a wide range” of possible targets, Jacobs said in an interview. “Our sweet spot are companies with revenues between $30 million and $200 million.”

External Growth

Celadon is among a group of transport companies that Seidl identified in a note this month as having “external growth” strategies. His list includes trucker Knight Transportation Inc., logistics provider CH Robinson Worldwide Inc. and short- line railroads Genesee & Wyoming Inc. and RailAmerica Inc.

Each of the four latter companies has told analysts in calls since September about plans for future purchases or the integration of recent deals. Possible targets for acquisition include truckers Vitran Corp. and Saia Inc., Seidl said.

Saia Treasurer Renee McKenzie and Vitran Chief Financial Officer Fayaz Suleman didn’t respond to voice mails seeking comment. Both companies are less-than-truckload carriers, hauling goods from more than one customer in each trailer.

‘Ebbs and Flows’

Consolidation in that industry has been under way for at least two decades, marked by “ebbs and flows,” said Seidl, who has “buy” ratings on Saia and Vitran.

“We’re heading towards the top of the wave as opposed to the bottom,” he said.

Trucking valuations as measured by price-earnings ratios are improving as profits recover from the recession.

The P/E of the S&P Midcap Trucking Sub Industry Index of four carriers including J.B. Hunt Transport Services Inc. was 19.72 on Sept. 30, the lowest since 2009’s first quarter, according to data compiled by Bloomberg. The S&P Smallcap Trucking Sub Industry Index, which includes Knight, had a P/E ratio of 22.15, also the cheapest since that period.

Both indexes gained at least 24 percent through yesterday since U.S. stocks touched their 2011 lows on Oct. 3.

Among the companies out of favor with investors was USA Truck, which plunged 38 percent this year through Oct. 10, a day before Indianapolis-based Celadon reported its holding. Both are truckload carriers, which carry goods from only one customer in each trailer. Van Buren, Arkansas-based USA Truck turned down Celadon’s request for a meeting.

‘Moving Forward’

Celadon plans to “evaluate our options in terms of moving forward,” Chief Executive Officer Steve Russell said yesterday on a conference call.

Smaller truckers may find it easier to sell assets to raise cash than borrow for new trucks as bank standards tighten, Russell said in an interview. Monthly new business reported by the Equipment Leasing & Finance Association averaged $5.7 billion in 2011 through September, compared with $6.9 billion a month for all of 2007.

Celadon’s asset purchase from Frozen Food Express covers “substantially all” of the Dallas-based company’s dry-van fleet of about 435 trailers and “most” of 290 tractors previously targeted for disposal, Frozen Food Express said. Financial terms weren’t disclosed.

Driver Shortage

Drivers are a prize as well, as pending federal rules to limit work hours threaten to exacerbate the worst shortage since 2009, Seidl said. Already in place are rules helping companies assess job prospects’ record on the road, weeding out bad risks while also shrinking the pool of available drivers.

That shortfall “alone can be the tipping point to say, ‘We’re going to engage in this M&A activity,’” said Paul Bingham, economics practice leader at consultant Wilbur Smith Associates in Arlington, Virginia.

For smaller freight brokers, the struggle to find loans may make it more tempting to sell the company, said Jacobs, the CEO of XPO Logistics.

Only 25 of the more than 10,000 licensed truck brokers in the U.S. have annual revenue of more than $200 million, said Jacobs, the co-founder and former CEO of United Rentals Inc. That fragmentation helps “support the thesis that consolidation is in the future,” Jacobs said in an interview.

Caterpillar, Railroads

Caterpillar Inc. is considering selling its third-party logistics business, which has stirred “significant interest from around the world,” according to a statement this week from the world’s largest maker of construction and mining equipment. A decision is due by year’s end, the company said.

Size is a consideration for some of the companies staying on the sidelines.

North America’s largest railroads aren’t seeking mergers because of the regulatory challenges in an industry with only four major carriers in the U.S. and two in Canada after decades of tie-ups, Union Pacific Corp. CEO James Young said in an interview last month.

Truckload carriers also don’t reap the same benefits from consolidation, because carrying goods from one customer in each trailer means that mergers won’t cut equipment or staffing needs, according to David Ross, a Stifel Nicolaus & Co. analyst in Baltimore.

Consolidation among less-than-truckload operators also may not work as advertised. YRC Worldwide Inc. grew through acquisitions in the last decade and then faltered as freight shipping slumped in the recession. It trades at less than 10 cents a share after restructuring to avoid bankruptcy.

“Large truck mergers have not worked well historically,” Ross said in an interview.

‘Tuck-In Acquisitions’

Ross isn’t expecting a jump in trucking mergers. Rather, he said he sees the “potential for larger guys buying small carriers, tuck-in acquisitions” to obtain cheap assets, good drivers and new customers.

“There’s a great difference in terms of strategic reasons about why M&A occurs based on who’s doing the buying,” said Bingham, the consultant. “If I’m a financial investor that’s very different from if I’m an operator who’s in that space already.”

Outside investors may be avoiding the industry as companies work to stabilize profits after the recession, Bingham said. That may change in the future as truckers take advantage of tight capacity and rising demand for shipments, he said in a telephone interview.

“There’s potential for those firms to do better, which then would attract investors who are looking to capture some of that upside,” he said.

–With assistance from Thomas Black in Monterrey , Zachary R. Mider in New York and Shruti Singh in Chicago. Editors: Ed Dufner, James Langford

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

By JOYCE HOOI

(SINGAPORE) The final round went to the Japanese yesterday as International Container Terminal Services Inc (ICTSI) withdrew its bid for Portek International in the face of Mitsui & Co’s higher one.

‘We have conducted our offer in a manner that is fair and open to all shareholders. Whilst we continue to view Portek as an attractive business, we are unfortunately unable to proceed further in light of the current circumstances. We believe the early termination of our offer will provide shareholders with more clarity,’ said Enrique K Razon, Jr, chairman of ICTSI in a statement yesterday.

As part of the termination of the offer, the Filipino terminal operator will return the shares of Portek shareholders who had accepted its offer.

ICTSI will also sell the Portek shares that it bought on the open market to Mitsui in ‘due course’, it said. ICTSI currently holds about 16.93 per cent of Portek’s shares, which it had bought for average price of $1.19-$1.20 a share. Mitsui’s offer for Portek stands at $1.40 a share.

‘ICTSI will continue to look for attractive businesses elsewhere that provide similar growth and synergistic opportunities to the ICTSI Group for the long-term benefit of our shareholders’, Mr Razon said.

ICTSI’s withdrawal of its offer brings to an end the two-party courtship of Portek that started in June with ICTSI’s cash offer of $1.20 per share for Portek.

Following rumours of another interested party and silence on Portek’s part, Mitsui emerged as a second contender for the acquisition of Portek.

At $1.40 per share, Mitsui’s offer was 16.7 per cent higher than ICTSI’s and 50.5 per cent higher than Portek’s average closing price for the three months before Mitsui announced its offer.

Mitsui’s acquisition of Portek was almost a certainty when the offer was announced in mid-July. Several of Portek’s shareholders – including its chairman and founder Larry Lam – had given Mitsui an irrevocable undertaking to sell their shares to it at $1.40 per share. Collectively, the irrevocable undertakings had amounted to about 50.05 per cent of Portek’s shares, rendering the offer unconditional.

As of the end of last week, Mitsui held a 64.32 per cent share of Portek, from a combination of valid acceptances of its offer and its purchases on the open market. Portek’s counter closed unchanged at $1.40 yesterday.

Published June 24, 2011

Indian Ports’ Global will be established within a month

(NEW DELHI) India plans to set up a 25 billion-rupee (S$688 million) state- owned company to invest in overseas ports and terminals to help boost international trade, two people familiar with the matter said.

Indian Ports’ Global will be established within a month, using funds collected from federal government-run ports, said the people, who declined to be identified before an official announcement.

The new company will also sell bonds, they said, without specifying an amount.

The company, modelled on Singapore’s PSA International Pte and Dubai’s DP World Ltd, may help Indian shipping lines win a greater share of international trade by giving them easier access to overseas facilities, the people said.

State-controlled Shipping Corp of India, the nation’s biggest shipping line, also plans to buy as many as 110 vessels during this decade to benefit from rising global trade.

‘It will no doubt help India increase its influence,’ said Anand Sharma, director of Mumbai-based Mantrana Maritime Advisory Pvt, which provides consulting to shipping lines and port operators.

‘The world is moving toward cross-border acquisitions to ease logistics bottlenecks.’

The Ministry of Shipping’s New Delhi-based spokesman Manoj Gupta declined to comment.

India is also planning to form Maritime Finance Corp, which will sell 50 billion rupees of tax-free bonds in the year ending in March to help pay for projects in ports run by the federal government, the shipping ministry said in March.

About 90 per cent of India’s international trade by volume is carried through sea, according to the ministry.

Asia’s third-largest economy aims to more than double its merchandise exports in three years to March 2014 from US$246 billion last year, according to the Department of Commerce. — Bloomberg

(BEIJING) Mongolia sees the ports of North Korea as gateways through which it can ship its mineral resources, taking advantage of ‘very good relations’ between the two countries, Prime Minister Sukhbaatar Batbold said.

‘We could have further cooperation in the access to the sea and sea ports,’ he said in an interview on Friday. ‘We will keep the channel warm with North Korea.’

Landlocked Mongolia needs to secure access to the sea as it pursues mining projects, Mr Batbold said.

Aside from its main exports of coal and copper, the country also has oil, potash, iron ore and uranium resources, as well as rare earths used in electronics, wind turbines and smart bombs.

‘Basically, we are trying to engage North Korea, keep them engaged with other countries. We don’t want them to be isolated,’ Mr Batbold said at the end of his visit to China. ‘We would like peace, stability and security in our region.’

North Korea was put under tougher United Nations sanctions banning arms trade and restricting financial transactions following its second nuclear test in May 2009. — Bloomberg

CONAKRY | Thu Feb 10, 2011 5:10am
CONAKRY, Feb 10 (Reuters) – French group Bollore (BOLL.PA) is looking to invest $150 million in a dry port in Guinea to ease shipment of goods through the country, the billionaire head of the conglomerate said.

The west African nation, the world’s top exporter of aluminium ore bauxite, has just completed a transition to civilian rule that should restore foreign aid and investment after two turbulent years under military control. “We anticipate an investment programme of $150 million to develop a dry port 15 km from Conakry to facilitate transport towards neighbouring countries,” Vincent Bollore said on Guinea state television late on Wednesday.

The port in Conakry handles nearly all goods shipped into Guinea, and to some land-locked neighbours like Mali. A project to extend the port has been caught up in a row between GETMA, which was awarded the contract, and rival Maersk.

The Bollore group has worked in Africa for decades and is involved in the management of a number of ports long the west and central African coast.

(Reporting by Saliou Samb; writing by David Lewis; editing by David Hulmes)

TUESDAY, MARCH 22, 2011

Vietnam is pouring billions of dollars into building ports for the world’s largest container ships in a drive to draw export industries from China.

The investment may propel the port complex near Ho Chi Minh City into the ranks of the world’s top 15 ports within a decade, said Malcolm Gregory, chief commercial officer at the US$270 million Cai Mep International Terminal Co.

Companies from Nokia Oyj to Intel Corp. are shifting production to Vietnam, lured by cheaper labor compared with China and deeper ports for container vessels sailing directly to the US, Europe and Asia. The government aims to boost shipping volume more than 400 percent this decade in the quest for economic growth. Exports make up about 75 percent of Vietnam’s gross domestic product.

“Vietnam is so heavily dependent on external demand that getting the entire system to work, not just ports, but roads and railways too, and making customs work faster, is a big part of the story,” said Jonathan Pincus, the dean of the Harvard Kennedy School’s Fulbright Economics Teaching Program in Ho Chi Minh City.

Port manager Vietnam Container Shipping Joint-Stock Co. is among stocks worth buying, says Cha Kyung Jin, the Seoul-based head of investment at Golden Bridge Asset Management Co. He pointed to the untapped potential in a nation that last year exported less than half as much as Thailand, whose population is about a quarter smaller.

“We want to increase our investment in Vietnamese companies, including Vietnam Container Shipping,” he said. “Their port industry offers a lot of potential as their international trade is growing.”

Another shipping enterprise, General Forwarding & Agency Joint-Stock Co., is a “good buy” after sliding since 2009, said Ho Chi Minh City- based Nguyen Hoai Nam, an analyst at Kim Eng Vietnam Securities.

“You’ve got all these wonderful exports, but you can’t get them to the market,” said David Creighton, chief executive officer of Cordiant Capital Inc. in Montreal. It invested $27 million in the Cai Lan International Container Terminal, LLC in the northern province of Quang Ninh.

Devaluation buffer

“The new ports will allow much larger ships to get access and will earn fees in US dollars, meaning devaluations of the Vietnamese currency won’t hit their balance sheets,” he said.

The port-investment target is part of Prime Minister Nguyen Tan Dung’s plan to boost Vietnam’s economic growth. The premier is also striving to tame inflation, which climbed to a two-year high of 12.31 percent in February.

The State Bank of Vietnam raised borrowing costs for the third time in as many weeks on March 8, increasing its refinancing and discount rates to 12 percent each, matching the level of the repurchase rate. The monetary authority devalued the dong for the fourth time in 15 months on February 11 as it strives to narrow the nation’s trade deficit.

Officials have also clamped down on the use of gold and dollars as they seek to stabilize the currency and steady the economy. The central bank devalued the dong by about 7 percent last month, the most since at least 1993.

Cargo surge

Dung’s goal is to invest as much as VND440 trillion this decade to increase deep-water port capacity for larger vessels, including container ships and oil tankers. The volume of goods handled will expand to between 900 million and 1.1 billion tons by 2020 from 172.1 million in 2009 under the plan.

Vietnam has a coastline of about 3,400 kilometers, giving access to shipping routes to China and Japan, across the Pacific Ocean to the US and over the Indian Ocean toward Europe.

Cargo volumes at Vietnam’s ports surged more than four times from 1999 to 2009, while the number of calls by vessels increased about 215 percent, according to the Vietnam Seaports Association.

The complex close to Ho Chi Minh City ranked 29th among the top 100 container ports in 2009, behind such regional rivals as Singapore. The city-state took the top spot, according to London-based Cargo Systems, a unit of Informa Plc.

Dung’s strategy aims to reduce reliance on transiting goods through neighboring countries. Cai Mep International Terminal gives access to vessels with a draught of as much as 16 meters, the company said in a presentation dated February 2011.

“Many manufacturing bases are being moved to Vietnam,” said Jay Ryu, a Hong Kong-based analyst at Mirae Asset Securities Co. “With the yuan appreciating and costs, especially labor expenses, on the rise, it’s becoming less attractive to do business in China and many are moving out.”