Global Ports Forum

Ship-Scrapping Prices Plunge in Buyer’s Market
By Bloomberg News
July 11, 2012 12:01 PM

Scrap prices for dry-bulk ships have plunged 13 percent in the past year as oversupply and unprofitable charter rates prompt owners to demolish vessels at a record pace.
Shipbreakers paid about $425 a ton for commodity carriers last month, compared with $490 a year earlier, based on Clarkson (CKN) Plc data. The tonnage sold in the first half rose 25 percent from a year earlier to 16.2 million tons, according to Clarkson, the world’s biggest shipbroker.
A 34 percent surge in fuel prices over the past two years has spurred scrapping as older vessels tend to consume more oil than newer ones. Prices have been further cut by the rupee’s plunge in the past year, the worst among Asian currencies. India vies with China as the world’s largest market for shipbreaking.
“Owners haven’t got any option other than to scrap,” said Darren Lepper, a sales and purchase specialist at the London- based shipbroker. “It can definitely be deemed as a buyer’s market.”
Panamax vessels, the largest to transit the Panama Canal, have led the jump in scrapping with 56 sold for demolition in the first half compared with 38 a year earlier, according to Clarkson. The tonnage sold has risen 33 percent to 3.37 million tons.
Older vessels “just cost too much” to operate, said Jayendu Krishna, a senior manager at Drewry Maritime Services in Singapore. “It’s better for the shipping company to scrap” as such ships are also unlikely to comply with current regulations for ballast water and carbon emissions.
Panamax Ships
The surge in scrapping hasn’t revived charter rates as 192 new Panamax ships were delivered in the first half, according to Clarkson. The total fleet stood at 2,163 at the start of July. Another 767 Panamax ships are also on order.
That glut has caused rates for Panamax, which hold between 60,000 tons to 80,000 tons of cargo, to fall 28 percent to $9,252 a day this year, according to the Baltic Exchange in London. Panamax ships need to return $12,900 daily to break even and cover operating and finance costs, excluding fuel, according to Pareto Securities AS, an Oslo investment bank.
Freight forward agreements show rates no higher than $9,150 a day by the end of the year, according to data from Clarkson Securities Ltd.
The slump in rates may cause scrapping for all types of dry-bulk ships to reach about 32 million tons this year, said Nicolas Duran, head of department for sales & purchase and shipbuilding at Fearnleys Asia (Singapore) Pte.
New Tonnage
“Even with that number, it will still be very difficult to absorb the new tonnage which is coming,” he said. In the first half, 16.2 million tons of dry-bulk ships were sold for demolition, according to Clarkson. The full-year tally in 2011 was 23 million tons.
Shipowners are adding to the scrapping surge by selling younger vessels. The average age of dry-bulk ships being scrapped has dropped to 28.8 years from around 31.4 years in 2011, according to Citigroup Inc. Tokyo-based Mitsui O.S.K. Lines Ltd. (9104) said last month that it plans to start scrapping ships that are 15 years old rather than 23 years old. It intends to sell as many as 10 capesizes for demolition by March-end.
The glut of ships being demolished means transaction prices for dry bulk and other general cargo ships are likely to fluctuate between $350 and $450 per ton for the foreseeable future, said Jamie Dalzell, a Shanghai-based trader at Global Marketing Systems Inc., the world’s largest cash buyer of ships.
“I would be very surprised to see the numbers go up to $500 and beyond any time soon,” he said. If an owner rejects current prices “there’s always another owner just around the corner willing to sell,” he said.
Steel, Aluminum
Cash buyers purchase ships from owners and then resell them to demolition yards. The yards break the ships up and then sell materials such as steel, aluminum and copper, which are then recycled and used in industries such as construction.
Lower prices for steel because of China’s slower growth are squeezing shipbreakers’ margins even as they buy vessels more cheaply. Prices for hot-rolled coil, a benchmark product, fell 0.2 percent to 4,136 yuan ($650) a metric ton in China last month, the lowest since July 22, 2010, according to researcher Beijing Antaike Information Development Co.
Indian shipbreakers are also contending with the rupee’s 20 percent drop against the dollar, which has made vessel purchases more expensive in their local currency. The rupee has been the worst performer among 11 major Asian currencies tracked by Bloomberg in the past year as the nation’s slowing economic growth deterred overseas investments.
‘No Profits’
“Even if the volumes are high, the profits are not there,” said Abhinav Kumar, director of Ace Exim Pte., a shipbreaker in Alang, India. Scrapping prices generally rise later in the year following the end of the monsoon season.
Steel demand in China also increases in the second half because of seasonal factors, which may also help revive ship- scrapping prices, said Jimmy Ji, a vice director, at Taizhou Weiye Scrapping & Rolling Co., which breaks up ships in Jiangsu province, China.
Still, given the slump in charter rates and the looming supply of new ships, owners will continue selling vessels for demolition at whatever price they can get, said Fearnleys’ Duran.
“With the huge orderbook and fleet growth, freight rates will stay low,” he said. “As long as they do that, people will continue scrapping.”
To contact Bloomberg News staff for this story: Alexandra Ho in Shanghai at aho113@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net
To contact the editor responsible for this story: Vipin V. Nair at vnair12@bloomberg.net

Container Ships Miss Boat as Maersk Pushes Punctuality

June 22 (Bloomberg) — Maersk Line, the world’s biggest container shipper, said last year that punctuality was poised to replace pricing as the industry’s key battleground. Less than 12 months on, delivery delays are worsening.

Only 63.7 percent of boxes were on time in the first 20 weeks, versus 65.9 percent a year earlier, according to INTTRA, a U.S. e-commerce platform which handles 525,000 shipments a week. That means 2012 may fall short of 2011’s 66.5 percent on- time delivery rate and the 68.8 percent level achieved in 2010.

Customers can cut their total shipping costs by as much as 70 percent through prompt deliveries, according to Denmark’s Maersk, which began guaranteed daily departures in October in a push to win market share. While rivals have sought to match the model by pooling ships on key Asia-Europe routes, the global decline in dependability suggests many carriers are putting their desire for a full load ahead of timeliness.

“Every time a carrier is late someone incurs an additional cost,” said Lars Jensen, chief executive officer of Copenhagen- based SeaIntel Maritime Analysis. “For Maersk, reliability is extremely important, as it’s their strategic target. Other lines are more interested in their bottom line.”

Storage Penalty

Late-arriving goods cost customers money in lost sales and output and could leave shop shelves empty, while early arrivals can result in higher storage costs and require a change in collection procedures and sometimes production plans.

The number of containers arriving one day late or more stood at 60.6 percent in the first 20 weeks, compared with 58.8 percent a year earlier, according to INTTRA, with 34.4 percent unloaded at least a day early, up from 33.4 percent.

“The impact can ripple through the entire supply chain,” said Ivan Latanision, INTTRA’s senior vice president for product management. “On-time is clearly preferable.”

More than 70 vessels operate the Daily Maersk route, which has a fixed transit time between Shanghai and Europe of 34 days.

The service, which stops off at three other Asian ports and calls at three in Europe, features cutoff times for delivery, before which goods are guaranteed to depart that day. That contrasts with the industry’s historical practice of overbooking to guarantee a full load, which often led some containers to be bounced to the next departure leaving as much as a week later.

Compensation

In the event of a delay to the Maersk service, clients are compensated with a payment of $100 per box for the first three days or $300 beyond that. Reliability has been above 97 percent since its introduction and has “changed the industry standard,” according to Maersk’s first-quarter report, published May 16.

Maersk’s share of the global container market stood at 16.2 as of June 14, up from 14.5 percent in March last year, when measured in terms of the capacity of vessels deployed, according to Paris-based shipping data provider Alphaliner.

The introduction of the Daily Maersk service, which counts Swedish clothing retailer Hennes & Mauritz AB among its clients, has been a factor in that improvement, the company reckons.

“Reliability is a competitive advantage for our customers as much as their brands or the quality of their products,” Rune Soerensen, Maersk’s head of customer needs, said in an e-mail. “Clients will be more attracted to carriers who can deliver it and reward them with market share and price premiums.”

Shares of parent A.P. Moeller-Maersk A/S have advanced 1.1 percent this year, valuing the Copenhagen-based company at 165 billion kroner ($28 billion).

Consolidation

A dozen other shipping lines have sought to counter the initiative by consolidating into three alliances which, together with the Maersk service, account for 85 percent of Asia-Europe box volumes, based on Citigroup Inc. figures.

Still, punctuality can differ wildly within that market, with INTTRA data showing that less than 40 percent of boxes sent from China to Britain arrived on time in the 20 weeks, compared with 80 percent on routes to the U.K. from Japan.

“Reliability is very important,” Hamburg-based Hapag- Lloyd AG, Europe’s fourth-largest container carrier and allied to five other operators including Neptune Orient Lines Ltd.’s APL Ltd., said in response to questions. “We’re monitoring it constantly. But shipping is also a business where unforeseeable things can happen, such as bad weather, and safety always comes first.”

Of the top 20 container shippers, SeaIntel’s Jensen reckons only two, Maersk and Hamburg Sued, have a markedly superior punctuality record, and that the other 18 still manage to attract their share of business.

Peter Sand, an analyst at Danish shipping association BIMCO, which accounts for 65 percent of global tonnage, said that’s because speed and reliability aren’t always at a premium.

“Some carriers make huge efforts to be punctual, others almost don’t care and would rather be late than leave half- full,” he said. “The same goes for clients. Those running a very tight program prefer high reliability, while others with less time-sensitive products may opt for the less-reliable carriers.”

To contact the reporters on this story: Niklas Magnusson in Hamburg at

nmagnusson1@bloomberg.net
To contact the editor responsible for this story: Chad Thomas at

cthomas16@bloomberg.net
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Maersk Line Posts $599 Million First Quarter Loss
Bruce Barnard, Special Correspondent | May 16, 2012 2:06PM GMT
The Journal of Commerce Online – News Story
Container Lines | Ports/Terminals | Container Shipping
Parent A.P. Moller-Maersk raises guidance for 2012
Maersk Line slumped to a $599 million operating loss in the first quarter from a $424 million profit a year earlier as collapsing freight rates on the key Asia-Europe route outweighed double-digit growth in container volume.
But Danish parent A.P. Moller-Maersk upgraded its 2012 forecast for the carrier to “negative up to neutral” from a loss guidance in February on the assumption rate hikes since March will continue through the year.
Revenue grew to $6.3 billion from $5.9 billion in the first quarter of 2011 and traffic jumped 18 percent to 4.4 million 20-foot equivalent units. The average freight rate slipped 9 percent to $2,646 per 40-foot container for a loss of $263 on each box transported against a $217 profit a year ago.
The world’s largest carrier lost $162 million before interest, tax, depreciation and amortization compared with a $779 million profit in the opening three months of 2011.
Maersk Line’s first quarter operating loss compares with a $602 million loss for the whole of 2011 and a record $2.6 billion profit in 2010.
Asia-Europe volumes grew 22 percent, driven by a 39 percent surge in backhaul volume, but freight rates on the route, which accounted for 37 percent of Maersk Line’s traffic, were down 21 percent.
Freight rates retreated 5 percent on the Pacific as traffic grew 21 percent and were 8 percent lower on a 23 percent increase in volume on Latin American trades.
Maersk said it maintained its market share in December through the first quarter of 2012.
The outlook for the rest of the year is very sensitive to changes in market balance, the Copenhagen-based carrier said. Global demand for seaborne containers is expected to increase by 4-6 percent in 2012, with lower increases on the Asia-Europe trade but higher growth on North-South routes.
APM Terminals, the group’s container handling unit, boosted profit to $235 million from $141 million, aided by a gain of $73 million from disposals. Revenue rose 1 percent to $1.2 billion from $1 billion and traffic was up 10 percent at 8.6 million TEUs despite declining volumes in Europe.
A.P. Moller-Maersk booked a $1.2 billion profit in the quarter, 1 percent higher than a year ago, despite a 1 percent decline in revenue to $14.3 billion. If divestment gains and one-off income from a tax dispute in Algeria are excluded, however, the group recorded a zero profit.
Contact Bruce Barnard at brucebarnard47@hotmail.com.
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Ship Owners Losing After $11.4 Billion Battle for Boxes

After a quarter in which companies selling space on container lines doubled rates, the amount the owners of the ships are being paid is the least in two years.
Operators, who charter vessels and then charge shippers per container, are demanding $1,379 for a 20-foot box on the China- to-Europe trade route, up 97 percent this year, according to Clarkson Plc (CKN), the largest shipbroker. A measure of how much they’re paying ship owners fell 4.2 percent since the start of January, data from the Hamburg Shipbrokers’ Association show.
The gap is growing because operators are leaving vessels idle or hiring fewer ships, driving down how much they pay owners, while restricting supply and boosting box rates. RS Platou Markets AS and Fearnley Fonds ASA, units of Norway’s biggest shipbrokers, recommend selling shares of Seaspan Corp. (SSW), a Hong Kong-based owner, and buying those of Orient Overseas (International) Ltd. (316), which manages vessels from the city.
“Whatever increase operators are getting is driving them to profitability,” said Rahul Kapoor, a Singapore-based analyst for Platou whose recommendations returned 17 percent in the past six months. “Owners are in no way benefiting and are unlikely to benefit.”
The operators had previously spent 14 months in a price war on the biggest trade routes, losing about $11.4 billion of revenue, according to SeaIntel Maritime Analysis, a research company in Copenhagen. Orient Overseas will report this year its first gain in annual profit since 2010, analyst estimates compiled by Bloomberg show.
U.S. West Coast
Box rates fell 50 percent last year from China to Europe, the second-biggest international route, reflecting a glut of ships rather than contracting demand. The capacity of the global fleet rose 77 percent to a record since the end of 2005, data from Redhill, England-based IHS Fairplay show. Trade gained 44 percent to an all-time high, London-based Clarkson estimates.
Operators’ earnings are also improving from China to the U.S. West Coast, the world’s biggest trade route, with a 40 percent gain to $1,992 since mid-December, Clarkson data show.
The amount of idled capacity will probably expand to the equivalent of 1.1 million boxes by the end of 2012 from 595,000 at the start of the year, according to Alphaliner, a Paris-based industry consultant. Operators won’t renew leases for some ships when they expire, said Fotis Giannakoulis, an analyst at Morgan Stanley in New York. The Hamburg association’s index, a gauge of costs across six types of container ship, fell to a 21-month low on Feb. 28.

Costa Concordia Black Box Features as Pre-Trial Begins

March 3 (Bloomberg) — An Italian judge will order the examination of the Costa Concordia’s black box today in the first pre-trial hearing into the cruise-ship wreck that killed at least 25 people.

Judge Valeria Montesarchio will ask court experts to use digital recordings to ascertain the “actual dynamic of the accident,” according to court documents. The hearing, which is not public, starts at 9:30 a.m. in the Tuscan city of Grosseto. Recordings of the black box won’t be played during the hearing, the Grosseto prefecture said on Feb. 24.

The Costa Concordia, owned by Miami-based Carnival Corp.’s Italian unit Costa Crociere SpA, hit rocks near the island of Giglio hours after leaving a port close to Rome with 4,200 passengers and crew on Jan. 13. At least 25 people died in the evacuation and seven are still missing. The company came under criticism again last week when a ship of the same fleet suffered an onboard fire and was towed for 200 miles (320 kilometers) to the Seychelles.

The Grosseto court will hold the hearing at a local theater to accommodate as many as possible of the 4,200 passengers and crew. It is open to the Costa Crociere officials under investigation, including Captain Francesco Schettino, the affected parties, their attorneys and consultants. Prosecutors requested that the hearing include the black-box recordings in the trial.

Captain Arrested

Schettino, under house arrest since Jan. 17 for allegedly causing the accident and abandoning ship, probably won’t attend, his lawyer Bruno Leporatti has said. Costa Crociere’s executive vice chairman and its head of marine operations are also being investigated, said a court official who declined to be named.

Schettino sailed too close to Giglio without authorization and didn’t follow emergency procedures, Costa Crociere, based in Genoa, said on Jan. 15. The captain said he made an emergency maneuver after hitting rocks to prevent the ship from heading out to sea and sinking, according to a court document dated Jan. 17. The black box hasn’t been damaged, Costa Crociere Chief Executive Officer Pier Luigi Foschi has said.

Leporatti has said the captain didn’t abandon the ship and wrote in a Jan. 16 statement that his actions saved many lives.

After Italian prosecutors widened their probe to include seven employees of the vessel operator, the company said on Feb. 22 it is “absolutely certain” that its staff acted correctly.

On March 1, Italy banned cruise ships from sailing within 2 miles of coastlines in “environmentally sensitive” areas.

To contact the reporters on this story: Marco Bertacche in Milan at mbertacche@bloomberg.net . Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

Billionaire Fredriksen Sees Golar LNG Rates Surging

By Isaac Arnsdorf – Feb 21, 2012 8:35 PM GMT+0800

Rates for tankers hauling liquefied natural gas are rising for a third year as expanding Japanese demand for the fuel attracts cargoes from the Atlantic, extending voyages at a time of shipping capacity shortages.

Rising requirements from Japan mean Golar LNG Ltd. (GOL), which operates nine LNG tankers and is controlled by shipping billionaire John Fredriksen, will report a fourfold gain in 2012 net income, according to the mean of 11 analyst estimates in a Bloomberg survey. Golar is reactivating four-decade-old mothballed ships after rates doubled in 2011 and are forecast by analysts to advance another 58 percent in 2012.

Enlarge image
Billionaire Fredriksen Sees Golar LNG Rates Surging

Kimimasa Mayama/Bloomberg News

A liquefied-natural-gas (LNG) tanker, leaves a berth in Yokohama City, Japan. Shipments to Japan are swelling to a record after March’s earthquake and tsunami shuttered about 90 percent of the nation’s nuclear power.

A liquefied-natural-gas (LNG) tanker, leaves a berth in Yokohama City, Japan. Shipments to Japan are swelling to a record after March’s earthquake and tsunami shuttered about 90 percent of the nation’s nuclear power. Photographer: Kimimasa Mayama/Bloomberg News

Traders redirected 13 ships to Asia from Europe or the U.S. in the past month, data compiled by Bloomberg show. LNG from Nigeria, the largest exporter in the Atlantic, sold for 93 percent more in Japan than in the U.K. in January, up from 40 percent 11 months ago, according to New York-based Poten & Partners.

“This bottleneck cannot be corrected overnight,” said Fotis Giannakoulis, a New York-based analyst at Morgan Stanley. “It will take years, and it is an opportunity for a lot of LNG shipowners to generate premium returns.”

Shipments to Japan, the biggest LNG buyer, are swelling to a record after March’s earthquake and tsunami shuttered about 90 percent of the nation’s nuclear power. Gaps between LNG prices around the world will last five more years because production is growing fastest in the Atlantic while demand is being led by Asia, Morgan Stanley estimates.

$147,000 a Day

LNG tanker rates rose to $97,630 a day last year from $43,663 in 2010, according to Fearnley LNG, a unit of Norway’s second-largest shipbroker. Daily rents will average $147,000 in 2012, the median of six analyst estimates compiled by Bloomberg shows. Costs surged as shipowners failed to keep pace with an expansion in the supply of LNG, liquefied by cooling natural gas to about minus 160 degrees Celsius (minus 256 degrees Fahrenheit).

Fredriksen, Golar’s 67-year-old chairman, is betting the rally won’t end any time soon. The company is spending $400 million on two new LNG carriers and may double the order because global price gaps and trade growth make the ships a good investment, according to a Feb. 14 statement.

Demand for LNG vessels will rise 12 percent this year, RS Platou Markets AS, an Oslo-based investment bank, estimates. Two new tankers will join the fleet of 374 ships, an expansion of less than 1 percent, according to London-based Clarkson Plc (CKN), the world’s largest shipbroker. The carriers need equipment to hold about 155,000 cubic meters (5.5 million cubic feet) of liquid that expands to 95 million cubic meters in gas form, equal to about 25 percent of peak daily winter demand in the U.K., Europe’s biggest gas market.

Record Japan Cargo

Shipments to Japan will expand 3.9 percent to a record 79 million metric tons this year, estimates Arctic Securities ASA, an Oslo-based investment bank. January imports rose 28 percent from a year earlier to a record 8.15 million tons, according to the Ministry of Finance.

The flow of extra cargoes to Asia is worsening the shortage of shipping capacity because the journey to Japan from Nigeria is about 8,700 miles longer than the voyage to the U.K. European LNG demand will decline this year and next as the region contends with a mounting debt crisis, according to Barclays Capital. Imports will also contract in North America because of increased gas supply from deposits trapped in shale rocks, the bank’s analysts wrote in a report Jan. 23.

Oil Rout

Fredriksen’s other shipping investments, spanning oil tankers, dry-bulk carriers and container ships, are suffering from industry-wide gluts. Frontline Ltd., the billionaire’s tanker company, split in December to withstand the worst rout in rates since 1999.

The same slump is hurting other owners. General Maritime Corp., the second-largest U.S. oil-tanker owner, filed for bankruptcy in November. Bigger competitor Overseas Shipholding Group Inc. (OSG) suspended its dividend Feb. 9.

Golden Ocean Group Ltd., Fredriksen’s dry-bulk commodity- shipping company, fell 25 percent in the past year in Oslo trading. The Baltic Dry Index, a measure of the cost of hauling coal and iron ore, plunged 45 percent in that span, according to the London-based Baltic Exchange, which publishes freight rates along more than 50 maritime routes.

Gains in LNG tanker rates may slow next year as fleet growth accelerates. Shipyards will deliver 22 new vessels in 2013, equating to a 5.9 percent increase, according to Clarkson. There are 57 new carriers on order, figures compiled by Redhill, England-based IHS Fairplay show.

Nuclear Capacity

Japan’s economy contracted an annualized 2.3 percent in the fourth quarter, the Cabinet Office said Feb. 13. The country is still contending with last year’s disaster, which led to the meltdown of the Fukushima Dai-Ichi nuclear plant. Japan had 6.4 percent of its nuclear capacity operating as of Jan. 27, according to industry data compiled by Bloomberg.

Economic growth in South Korea, Asia’s second-biggest LNG buyer, will slow to 3.3 percent this year from 3.6 percent in 2011, according to the median of eight economist forecasts compiled by Bloomberg. China, the third-largest importer in the region, will expand at an 8.5 percent rate, the slowest in more than a decade, the median of 21 estimates shows.

Asia, accounting for about 60 percent of global LNG demand, will raise imports by 10.2 million tons this year as shipments to Europe and the U.S. fall 4.4 million tons, Barclays estimates. Supply in the Atlantic will increase 7.3 million tons, compared with 3.6 million tons in the Pacific and a 2.2 million-ton decline in the Middle East.

Stena Orders

Stena Bulk AB, a Swedish owner of 80 ships, may double its fleet of LNG vessels because of the booming Asian trade. There’s about an 80 percent change Stena will order at least four new vessels next month, adding to its current three, Chief Executive Officer Ulf Ryder said yesterday in an interview in Gothenburg.

Nigerian LNG cost $17.12 per million British thermal units in Japan and $8.87 in the U.K. last month, compared with $14.38 and $10.27 in March, according to Poten, an industry consultant. After taking transport and re-gasification costs into account, profit from selling the gas to Japan was $13.64 on Jan. 31 against $7.17 to the U.K. That compares with respective levels of $11.96 and $8.93 in March.

Asian LNG buyers are also seeking supplies from outside the region because Indonesian exports are declining as domestic demand strengthens. Shipments may drop to about 300 cargoes of LNG this year from 362 last year and 427 in 2010, Gde Pradnyana, a spokesman for the nation’s oil and gas regulator BPMigas, said in December.

Profit Jumps

Demand for LNG carriers will be “strong” for “years to come” as new production projects are completed and demand from Japan and China strengthens, Golar said in a statement today. Fourth-quarter net income surged to $17.2 million from $4.71 million a year earlier and 2011 profit was $46.7 million.

Golar’s net income will jump to $194.2 million this year, analyst estimates compiled by Bloomberg show. The shares, up 1.9 percent in 2012, will rise to 289.11 kroner ($50.72) in the next 12 months, the average of 10 estimates shows, implying a 7.5 percent climb. The stock almost tripled in 2011, and only two of the 16 analysts whose recommendations on Golar are tracked by Bloomberg advise selling.

“Going forward, we expect the arbitrage to be the norm, rather than something that is strange,” said Per Christian Fett, an LNG broker at Astrup Fearnley in Oslo. “Even if we had more ships, the arbitrage would still be there. There are not enough volumes to close it.”

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

Oil Tankers Seen Falling 42% as Japan Weakens Most Since Tsunami
By Rob Sheridan
February 27, 2012 7:01 PM EST

The largest drop in Japanese oil consumption since last year’s earthquake and tsunami may cause tanker rates to plunge 42 percent next quarter, threatening the biggest rally in shares of shipping companies since 2005.
Demand in Japan, the second-largest destination for supertankers after China, will drop 19 percent in the second quarter from now, according to the International Energy Agency in Paris. Daily rates for the 1,000-foot-long ships will average $17,000, compared with $29,280 now, the median of nine analyst estimates compiled by Bloomberg show. Investors may profit by buying forward freight agreements, traded by brokers and used to bet on shipping costs, which anticipate $10,883.
The six-member Bloomberg Tanker Index (TANKER), including Frontline (FRO) Ltd., rallied 11 percent this year on prospects for daily crude demand to surpass 90 million barrels for the first time ever. That’s masking the slump in Japanese consumption and the weakest annual gain in Chinese oil buying since at least 2006. Shipowners are relying on both nations to help curb a capacity glut as the fleet expands to a three-decade high.
“Owners need all the help they can get,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, whose recommendations on the shares of shipping companies returned 36 in percent in the past year. “Such a big decline in Japanese consumption is really negative because it is still such an essential source of demand.”
Largest Shipbroker
Frontline (FRO), based in Hamilton, Bermuda, reported a fourth- quarter net loss of $343.7 million on Feb. 17 after reorganizing to withstand the worst rout in rates in 12 years. The most modern vessels and outstanding orders at shipyards were sold to a new entity called Frontline 2012 after the company said in November it risked running out of cash.
Just one of 27 analysts covering Frontline recommends buying the shares after they jumped 22 percent this year in Oslo trading. The stock will decline 34 percent to 20.53 kroner ($3.66) in the next 12 months, according to the average of 19 analyst estimates compiled by Bloomberg.
Rates for very large crude carriers, or VLCCs, fell 7 percent this year. They averaged $22,137 in 2011, the lowest level since 1999, according to data from London-based Clarkson Plc, the world’s largest shipbroker. A decline to $18,000 may make tanker rates unprofitable once more after this quarter’s gains. Frontline, until last month the biggest operator of the vessels, says it needs $23,900 to break even.
Crude rose 10 percent to $108.68 a barrel in New York this year amid mounting concern that international sanctions on Iran over its nuclear program will disrupt oil supply from the Middle East. Fewer cargoes from the world’s biggest producing region would further weaken demand for tankers.
Cash Reserves
While the projected second-quarter average would still be unprofitable for many owners, it’s better than several months last year. Rates were below that level from July to October, Clarkson data show. A measure of the combined losses of the members of the Bloomberg Tanker Index will narrow by 50 percent this year, according to analyst estimates compiled by Bloomberg.
China is taking steps to accelerate growth. The People’s Bank of China said Feb. 18 lenders would need to set aside less cash for reserves, the second such easing in three months. Exports and imports fell for the first time in two years in January and new lending was the lowest for that month in five years, government data show.
Latin America
The IEA doesn’t expect Japanese oil demand to return to the depths seen after last year’s natural disaster, when consumption plunged 19 percent to 3.92 million barrels a day in the second quarter. This year’s projection is for a 19 percent decline to 4.15 million barrels.
Japan’s economy will expand 2.1 percent in the three months ending in June, compared with a 1.5 percent contraction a year earlier, the median of 18 economist estimates shows. The temblor and tsunami shut about 90 percent of Japanese nuclear capacity, leaving it more dependent on fossil fuels.
Global oil demand will rise 0.9 percent this year as gains in parts of Asia, Africa, Latin America and the Middle East exceed declines in North America and Europe, the IEA estimates. Seaborne trade in oil will swell 3.1 percent, Clarkson projects. That’s still less than the 6.5 percent expansion it anticipates for the VLCC fleet.
The shipping industry has been contending with a capacity glut since 2009 as the biggest global economic contraction since World War II coincided with the start of the largest shipbuilding program in about four decades. Owners ordered more vessels in 2007 and 2008 when daily rates rose as high as $229,484, and those carriers are still leaving yards across Asia now.
Container Line
Outstanding orders for VLCCs equate to 12 percent of current capacity, with 21 new vessels being built, according to figures from Redhill, England-based IHS Fairplay Ltd. Each ship can haul about 2 million barrels of oil, more than France consumes in a day. The VLCC fleet already expanded 15 percent since the middle of 2008 to its biggest since 1982, with a combined carrying potential of 1.4 billion barrels of crude, or more than two months of U.S. demand, the data show.
There are similar gluts across the industry. The Baltic Dry Index, a measure of costs to haul coal and iron ore, fell 58 percent this year, according to the Baltic Exchange in London. A.P. Moeller-Maersk A/S (MAERSK), owner of the largest container line, said Feb. 17 it was cutting capacity from Asia to Europe, the second-biggest international trade route, after rates tumbled. About 90 percent of world trade goes by sea, the Round Table of International Shipping Associations estimates.
Energy Consumer
While the second quarter tends to be the weakest as refineries carry out maintenance, the projected drop this year would be the biggest since 2006, excluding the slump in Japanese oil demand caused by the earthquake and tsunami in March. Growth in the nation’s economy will slow for at least three consecutive quarters from June, the median of as many as 18 economist estimates compiled by Bloomberg showed.
Compounding that will be weaker gains in China’s net crude purchases, with state-owned China National Petroleum Corp. (CNPZ) anticipating a climb of 5.9 percent. China’s economy, the world’s biggest energy user, should grow 8.2 percent this year, the slowest pace since 1999, the International Monetary Fund forecast in January. Chinese refineries may be using 77 percent of capacity by May, 7 percentage points less than now, according to Oilchem.net, a Shandong, China-based researcher.
About 15 percent of laden VLCCs are bound for China at any one time, with about another 9 percent going to Japan, ship- tracking data compiled by Bloomberg show. The Asian countries’ distance from producing regions in the Middle East and West Africa ties tankers up for longer relative to European destinations, increasing income for owners and reducing the number of available vessels.
Annual Loss
Teekay Corp. (TNK), located in Vancouver and up 6.7 percent in New York trading this year, and Hamilton, Bermuda-based Nordic American Tankers Ltd. (NAT), ahead 23 percent, have the biggest weightings in the Bloomberg Tanker Index. Neither company operates VLCCs. Each will report a third consecutive annual loss for this year, analyst estimates compiled by Bloomberg show.
“A big drop in demand from Japan and China would be a significant negative for oil shipping,” said Marius Magelie, an analyst at ABG Sundal Collier in Oslo. “The market is already very, very challenging, because there are just too many vessels.”
To contact the reporter on this story: Rob Sheridan in London at rsheridan6@bloomberg.net.
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net.

Pirates Double Gulf of Guinea Attacks, Lured by Tanker Cargoes

March 8 (Bloomberg) — Pirate attacks in the Gulf of Guinea doubled last month as more tankers were hijacked so their stolen oil-product cargoes could be sold on shore, said risk-analysis firm AKE Group Ltd. and a lawyer who acts in piracy cases.

Eight vessels were attacked in February, raising the total to 12 for this year’s first two months, Rory Lamrock, an analyst at AKE, said from London. Pirate activity in the region jumped 42 percent last year as 64 ships were attacked, he said. The gulf, off Africa’s western coast, is bordered by countries including Nigeria, Benin and Cameroon.

“Attacks are rising in frequency, happening further out from shore, and are mostly financially and criminally motivated,” Lamrock said by phone today.

Pirates seize tankers for about two weeks and leave them stationary off the coast, transferring the cargoes to a Nigerian tanker by night, Stephen Askins, a partner at law firm Ince & Co. in London, said this week at a conference in the city. The stolen oil products are sold in Nigeria or the city of Cotonou in Benin, he said.

“They’ve worked out a much better way to get money out of everybody, which is to steal cargo,” Askins said of pirates operating in the gulf. They are “way, way ahead of the Somali pirates,” he said at the conference.

Ransom Drop

Askins has acted in piracy cases since 2005 and once dropped off a multimillion-dollar ransom payment in London’s Finsbury Park to secure the release of a hijacked vessel. He has direct knowledge of piracy operations after working with the Nigerian government’s economic-crimes unit to track down a stolen oil cargo, finding the local tanker used to carry it, and confronting the vessel’s owner.

Pirates in the gulf have no connection to terrorist gangs that operated around Nigeria’s Bonny River, said Askins, a former Royal Marine. The gulf is a destination for tankers because Nigeria is the biggest African oil producer.

Charterers of ships should share higher costs to protect against pirates off the West African coast, said Dimitris Tsahalis, chartering manager at Athens-based Thenamaris Ships Management Inc., Greece’s fifth-largest shipping company.

“Some owners are not addressing what is happening, as they’re not fully aware of the situation,” Tsahalis said by phone from Athens today. “We want to cover ourselves from any consequences arising from vessels calling at Nigeria, as our vessels are under greater risk than before.”

He also said charter contracts for tankers heading to West Africa should include a version of piracy clauses published in 2009 by the Baltic and International Maritime Council. The council, representing 65 percent of global shipowners, aimed to spell out where responsibility lay in paying for higher costs linked to navigating areas frequented by Somali pirates.

There are about 3,500 Somali pirates attacking vessels off Africa’s eastern coast in the Gulf of Aden and Indian Ocean, the United Nations said Feb. 16. Somali pirate attacks rose to a record 237 in 2011 and ransoms worth $160 million were paid to release 31 hijacked vessels, according to a One Earth Future Foundation report released last month.

To contact the reporters on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net Rob Sheridan in London at rsheridan6@bloomberg.net .

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

Iran Sanctions Tighten as OSG to Frontline Halt Crude Cargo
By Isaac Arnsdorf
February 16, 2012 0:07 AM ES

(Updates oil price in 14th paragraph.)
Feb. 13 (Bloomberg) — Sanctions on Iran are tightening after Overseas Shipholding Group Inc., Frontline Ltd. and owners controlling more than 100 supertankers said they would stop loading cargoes from the Organization of Petroleum Exporting Countries’ second-largest producer.
OSG, based in New York, said Feb. 10 that the pool of 45 supertankers from seven owners in which its carriers trade will no longer go to Iran. Four OSG-owned ships, managed by Tankers International LLC, called at the country’s biggest crude-export terminal in the past year, ship-tracking data compiled by Bloomberg show. Nova Tankers A/S and Frontline, with a combined 93 vessels, said Feb. 9 and 11 they wouldn’t ship Iranian crude.
Previous efforts to curb Iran’s oil income and stop it from developing nuclear weapons failed because the structure of the shipping industry means vessels are often managed by companies outside the U.S. or European Union. An EU embargo on Iranian oil agreed to Jan. 23 extended the ban to ship insurance. With about 95 percent of the tanker fleet insured under rules governed by European law, there are fewer vessels able to load in Iran.
“It’s the insurance that’s completed the ban on trading with Iran,” said Per Mansson, a shipbroker for 31 years and managing director of Norocean Stockholm AB, which handles tanker charters. “Last summer, many countries started to be a little bit tougher, but the insurance is the real trigger.”
Kharg Island
OSG’s Overseas Rosalyn, which can carry about 2 million barrels, arrived at Kharg Island on Jan. 27 and departed the next day, tracking data compiled by Bloomberg show. It left about 16 feet deeper in the water, an indication it loaded cargo. The vessel is managed by Tankers International, which has its head office in Cyprus. OSG complies with all U.S. and European laws and its headquarters in New York doesn’t manage charters, OSG Chief Executive Officer Morten Arntzen said in an e-mail Jan. 30.
Tankers International told owners the pool’s vessels will no longer sail to Iran after changes to EU regulations, Arntzen said in a Feb. 10 e-mail. Insurers are no longer able to cover vessels trading in the Persian Gulf nation, he wrote.
Ship owners sometimes group their vessels to coordinate charters and improve earnings. The Tankers International pool operates 45 very large crude carriers, or VLCCs, from OSG and six other companies, including Antwerp-based Euronav NV and St. Helier, Channel Islands-based DHT Holdings Inc.
Nova Tankers
“All the owners in the pool have stated that they will not trade Iran because of the consequences,” DHT CEO Svein Moxnes Harfjeld said by phone Feb. 10. “DHT is complying with all relevant regulations and sanctions, and following recent developments our vessels have been instructed not to trade Iran.”
Frontline companies including Hamilton, Bermuda-based Frontline Ltd. and Frontline 2012 won’t ship Iranian crude, Jens Martin Jensen, chief executive officer of Frontline Management AS, said by e-mail and phone on Feb. 11 and 12. Frontline operates 43 VLCCs, according to its website.
Nova Tankers, the Copenhagen-based operator of a pool of ships including vessels owned by Mitsui O.S.K. Lines Ltd., won’t load Iranian crude because of European sanctions, Managing Director Morten Pilnov said by phone from Singapore on Feb. 9. The pool will have about 50 vessels by the end of this year, according to data on its website.
Nippon Yusen K.K., the second-largest owner of VLCCs, won’t carry Iranian oil if it means ships aren’t insured, Yuji Isoda, an investor relations manager for the Tokyo-based company, said Feb. 9. The company doesn’t yet know how its insurers will handle the EU sanctions, he said by phone.
Tighter Restrictions
U.S. and EU leaders are trying to tighten restrictions on business with Iran, which produced 3.55 million barrels of crude a day in January, 11 percent of OPEC’s total, according to data compiled by Bloomberg. Oil sales earned Iran $73 billion in 2010, accounting for about 50 percent of government revenue and 80 percent of exports, the U.S. Energy Department estimates.
The United Nations has imposed four sets of sanctions on Iran, and the International Atomic Energy Agency said in November the country had studied making an atomic bomb. The government in Tehran says its nuclear program is for civilian purposes and that documents held by the IAEA purporting to show designs and tests of weapon components are fakes.
Iran has threatened to block shipments through the Strait of Hormuz in the Persian Gulf, through which about 20 percent of the world’s globally traded oil passes. Crude futures in New York advanced 32 percent to $100.19 a barrel since Oct. 4.
Senate Bill
More trade with Iran may be blocked if a bill approved Feb. 2 by the U.S. Senate Banking Committee becomes law, making U.S. companies responsible for the actions of their foreign units when dealing with Iran. A spokesman for committee chairman Tim Johnson, a South Dakota Democrat, declined to comment.
While the Japanese government said last month it would curb imports from Iran, India’s Foreign Secretary Ranjan Mathai said Jan. 17 his country wouldn’t. China, the Persian Gulf country’s largest customer, needs the oil for development, Vice Foreign Minister Zhai Jun told reporters Jan. 11.
Founded in 1948, OSG has 111 vessels and 3,500 employees, according to its website. Its biggest shareholders include the family of board members Oudi and Ariel Recanati, who control about 10 percent, data compiled by Bloomberg show. Oudi Recanati is an Israeli citizen and Ariel Recanati is a U.S. citizen, according to a Sept. 6 filing with the Securities and Exchange Commission. Charles A. Fribourg sits on the board of OSG and Continental Grain Co., the data show.
Marshall Islands
Shares of OSG, which has 14 supertankers, fell 71 percent in the past year as a glut of vessels drove down transport rates. The company will report a loss of $178.6 million for this year, down from $204.4 million for 2011, according to the median of five analyst estimates compiled by Bloomberg.
Three other OSG vessels from the Tankers International pool called at Kharg Island in the past year, data compiled by Bloomberg show. They fly the Marshall Islands flag, which means they are registered there for regulatory purposes, according to data on the website of International Registries Inc. Almost 9 percent of the tanker fleet is flagged in the Marshall Islands, behind Panama and Liberia, according to data compiled by London- based Clarkson Plc, the world’s biggest shipbroker.
“Ship owners and brokers are now seeing a tightening of sanctions,” said Bob Knight, managing director of tankers at Clarkson in London. “This is a sign that sanctions are starting to bite.”
–With assistance from Michelle Wiese Bockmann and Rob Sheridan in London. Editors: Dan Weeks, Sharon Lindores.
To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

China Trade Spurs $115 Billion Australia Building Boom
By David Fickling
January 12, 2012 1:43 AM EST

Australia is set for an A$112 billion ($115 billion) infrastructure boom as the nation adds ports and railways to feed China and India’s appetite for coal and iron ore.
The largest exporter of the key steelmaking materials will build enough railroads to stretch from Washington D.C. to Los Angeles over the next decade, as well as a new port on the Great Barrier Reef coast that will dwarf the world’s biggest bulk harbor. The projects will near-double global coal trade and add 57 percent to the market for seaborne iron ore.
“There is so much opportunity here,” said Philippe Bouquet, Australia construction head at French builder Bouygues SA. “People in Paris are very impressed. They say: ‘23 million people? How can they do so much?’”
Leighton Holdings Ltd. (LEI), Australia’s biggest builder, Bechtel Group Inc. and trainmaker General Electric Co. are among companies winning deals as Australia adds transport links to support A$232 billion of mineral and energy projects. The demand, coupled with economic slowdowns in the U.S. and Europe, has helped make Australia the developed world’s fastest-growing construction market.
“This isn’t a short-term phenomenon,” said Hamish Tyrwhitt, chief executive officer of Sydney-based Leighton. “This is about the urbanization of India and China and the economic prosperity of the region.”
Leighton jumped 3.2 percent in Sydney trading, the biggest gain in a week, to close at A$20.49. The benchmark S&P/ASX 200 index fell 0.2 percent. Engineering company Macmahon Holdings Ltd. (MAH) climbed 4.2 percent and builder Lend Lease Group rose 1.6 percent.
Ports, Rail
Australian plans include building port terminals with capacity of almost 1.5 billion metric tons a year by 2022, and laying as much as 3,700 kilometers of rail track, according to data compiled by Bloomberg.
One of the main sites is Abbot Point, a small coal port sandwiched between a salt marsh and the lagoon of the Great Barrier Reef. Queensland’s state government wants to boost capacity 26-fold from 15 million metric ton to 385 million tons under a construction plan due to begin in 2014. That would surpass by almost 40 percent the 2011 volumes at China’s Qinhuangdao port, the world’s biggest dry-bulk harbor.
BHP, Rio Tinto
In the Pilbara iron ore-producing region on Australia’s northwest coast, BHP Billiton Ltd. (BHP) and Rio Tinto Group are leading plans to raise ore exports by 538 million tons over the next five years. That will more than double output from an area that already accounts for about 40 percent of the iron ore shipped by sea each year.
Port Hedland, the Pilbara’s biggest harbor, plans to add 390 million tons of annual capacity by 2016 to support the expansion push. It exported 199 million metric tons of cargo in year ended June.
GE (GE), which supplies 70 percent of the locomotives for mines in the Pilbara and Queensland’s Bowen Basin coal district, plans to double its total business in Australia by 2014, spokeswoman Joanne Woo said by e-mail.
Bouygues (EN), Europe’s second-largest listed builder, aims to win two to three new construction deals in Australia each year, Bouquet said. The company has only done three projects in the country since 1995, he said.
Overseas Builders
Bechtel is building a US$2.5 billion expanded coal port for BHP on the Barrier Reef coast and extending four BHP mines in the Bowen Basin. In Western Australia, Irving, Texas-based Fluor (FLR) is leading the US$3.9 billion expansion of BHP’s iron ore terminal at Port Hedland.
“These companies have certainly got expertise that would put them above what would otherwise be available here,” said Phillip Greenham, a construction lawyer at Minter Ellison in Melbourne.
Still, overseas companies can meet difficulties establishing reliable workforces and setting up supply chains, which may cause them to focus on partnerships with local contractors, according to Steve Gatt, KPMG’s Sydney-based lead construction partner.
“There’s not a large number of companies that know the geography, the markets and the customers and have a demonstrated ability to build these things,” said Mike Carter, the head of coal-train operator QR National Ltd. (QRN)’s network division.
The railroad last month completed an A$1.1 billion link to Abbot Point. It expects to spend A$1.6 billion on its network this year.
Construction Spending
Australia, with a population 40 percent smaller than California’s, spent $176.5 billion on construction in the 12 months to September 2011. Spending has surged 50 percent since June 2006, giving it the fastest-growing building market of any advanced economy.
New construction spending in the U.S. totaled $724.8 billion in the 11 months ended November, the lowest level since the 1990s and down 34 percent from its peak in 2006. An index tracking construction in the European Union was 21 percent lower in October than in December 2006.
The Australian boom is showing up in customs data. The value of large metal sections, used in construction, imported in the 12 months ended November was almost twice the amount for the whole of the 1990s, government data shows.
Rolling-stock imports were a third above the 1990s total. Imports of prefabricated buildings — mainly used for accommodation at remote building and mining projects — almost matched the 1990s total in September alone.
“You are seeing exponential growth,” said Jay Leary, a construction partner with Freehills lawyers in Brisbane. “The projects that are committed and planned for the next few years are game-changing.”
To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net