Global Ports Forum

Published November 21, 2011

Rough waters ahead for shipping industry
Banks’ selective lending policy adds to shipping firms’ woes caused by low freight rates

By LYNN KAN

(SINGAPORE) The shipping sector is set for further bankruptcies and restructuring exercises as it battles challenging operational conditions. Industry watchers predict tougher times ahead with the ongoing shipping downturn – thanks to depressed freight rates – claiming its latest and most high-profile victim last week.

New York-listed General Maritime, the United States’ second-largest owner of tankers, sought Chapter 11 bankruptcy protection on Nov 17 after securing a rescue package from key creditors to allow its operations to continue.

First Securities ASA analyst Erik Folkeson said: ‘If the market stays at this level for a long time, many companies will go the same way. They will have a need to deleverage and increase their liquidity. We will see a lot of restructuring.’

Karnan Thirupathy, partner at legal firm Kennedys, agreed. ‘With charter rates falling, we’re probably going to see more owners getting into financial difficulties. In a falling market, owners will find it increasingly difficult to charter their vessels at sustainable rates.’

Freight rates for oil tankers are now at challenging 14-year lows. Single-voyage rates for very large crude carriers averaged US$7,627 a day this year, compared with US$32,006 in 2010. Other segments of the shipping market show a similar drop-off in rates. Spot rates for capesize bulk carriers were as high as US$230,000 at their peaks in June 2008 but have since fallen to US$30,000 in October this year.

As for General Maritime, or Genmar as it is known, it reached agreements with its key lenders, Nordea Bank and Oaktree Capital Management. Oaktree will inject US$175 million of fresh funds and convert US$200 million of secured debt committed in April to equity. A group of lenders led by Nordea also agreed to extend up to US$100 million of debtor-in-possession financing to Genmar, which racked up US$1.4 billion in debt.

All of Genmar’s units, except those in Portugal, Russia, Singapore and certain inactive ones, have also started Chapter 11 cases.

Said Genmar’s CFO Jeffrey Pribor: ‘Our operations are strong, but continued macroeconomic weakness and reduced tanker rates have diminished our cash flow and our ability to comply with certain covenants.’

The downturn also claimed one of Korea’s largest bulk ship operator, Korea Line Corp, earlier in the year. And Danish tanker operator Torm is now negotiating to reschedule its US$1.84 billion debt and planning to raise US$300 million in a rights issue.

The situation of beleaguered shipping companies is not altogether unexpected. Due mainly to an oversupply of ships, as companies put in a flurry of orders during a seven-year shipping boom that ended in late 2008, vessel values and freight rates have since nosedived. Earnings have similarly been dented, which has affected ship owners’ abilities to shoulder their financial obligations.

In Singapore, mortgage enforcements resulting in ship arrests have been on the rise – hinting that ship owners are finding it difficult to pay their banks.

From January to August, the Sheriff’s Office arrested 64 ships, up from 49 last year. Some law firms estimated that about 50 to 60 per cent of these are enforcements by banks.

Explained Alastair MacCauley, partner at law firm Mayer Brown JSM: ‘The current situation is that owners have ships whose values have diminished substantially, and they are required to provide additional security or partially pre-pay their existing loans. And charter rates are depressed, often to a level which barely meets operating expenses with little left over for debt service obligations.’

Adding to these companies’ financial woes are banks growing far more selective in their lending to the shipping sector. ‘For the banks that are still lending, the level of financing, pricing and security will reflect an inevitably conservative attitude to shipping risk at the present time,’ Mr MacCauley added.

But not all shipping firms are indiscriminately affected. Mr Thirupathy said: ‘Owners that have entered into long-term charters with the more reliable charterers, including the large trading houses and the trading arms of the large banks, are likely to be less vulnerable.’

Also, those operating LNG tankers may be spared, as demand – particularly from Japan after the Fukushima earthquake – has soared.

LNG tanker spot rates are now at US$110,000 a day compared to north of US$38,500 a year ago, estimates Jayendu Krishna, senior manager of Drewry Maritime Asia (Singapore).

Singapore’s own Neptune Orient Line experienced wider-than-expected losses during the peak period in Q3, along with other listed container lines.

Said DBS Vickers analyst Suvro Sarkar: ‘We remain pessimistic on the container liners’ outlook in the near term. Unless we see a coordinated effort by the liners to lay up capacity to the tune of at least 5-6 per cent of fleet or clear signs of inventory restocking activities in the US, we are unlikely to call for a bottom.’

Still, to some funds and private equity firms, distressed companies and pummelled vessel prices pose a good investment opportunity. In August, a consortium consisting of First Reserve Corp, WL Ross & Co and sovereign wealth fund China Investment Corp pumped in US$1 billion of equity to acquire 30 tankers.

However, not all investment ventures within shipping may be worthwhile.

Mr Thirupathy cautioned investors to consider the risks of vessel underemployment, low charter rates and unreliable charter parties as operators are at the moment chopping voyages.

Obama Highlights Maritime Security as China and Philippines Spar

Nov. 18 (Bloomberg) — President Barack Obama said the East Asia Summit he is attending in Indonesia is the “premier” arena to discuss concerns over maritime security, a topic China has resisted addressing at international forums.

The gathering “can be the premier area for us to be able to work together on a wide range of issues: maritime security or nonproliferation,” Obama said at the beginning of a meeting with Indian Prime Minister Manmohan Singh in Bali.

His comments come as the Philippines pushes for resolving territorial disputes in the South China Sea when Southeast Asian leaders meet later with Chinese Premier Wen Jiabao, who has sought to keep the issue off the agenda. The Philippines has called on the 10-member Association of Southeast Asian Nations to facilitate talks with China over disputed areas of the sea that contain oil and gas resources.

“This is not an issue that can be isolated between China and the Philippines,” Ricky Carandang, a spokesman for President Benigno Aquino, told reporters yesterday. “This is an issue that involves many countries in the region, and the more we’re able to discuss this in an atmosphere of candor brings us closer to ultimately finding some kind of solution.”

Asean leaders are also meeting today with Obama, whose administration has pledged to bolster the naval defenses of the Philippines, a treaty ally. Obama arrived yesterday from Australia, where he signed an agreement to deploy U.S. Marines in a move aimed to blunt China’s rising influence in the region.

Obama told reporters today in Bali that he and Aquino had discussed maritime security issues in a meeting.

Territorial Claims

American military and diplomatic backing has emboldened the Philippines to press its territorial claims against China, Asia’s biggest economy and military spender. The U.S. aims to balance China in the region to ensure “there isn’t kind of a big thumb on the scale,” Secretary of State Hillary Clinton said in Manila two days ago.

The U.S. presence “bolsters our ability to assert our sovereignty over certain areas,” Carandang said.

Asean is not an appropriate forum to discuss the South China Sea dispute, Chinese Foreign Ministry spokesman Liu Weimin said yesterday in Beijing. China prefers one-on-one talks to resolve such disputes, he said.

An agreement on boundaries would determine access to oil reserves in the South China Sea that may total as much as 213 billion barrels, according to Chinese studies cited in 2008 by the U.S. Energy Information Agency. The Philippines and Vietnam, which have awarded exploration contracts to Exxon Mobil Corp., Talisman Energy Inc. and Forum Energy Plc, reject China’s map of the sea as a basis for joint development.

China Claims

The Philippines proposed in May setting boundaries according to the United Nations Law of the Sea, a move that would cost China rights to a swath of waters now included in its nine-dash map that extends hundreds of miles. The nine-dash line is “the core of the problem,” Philippines Foreign Minister Albert Del Rosario said Nov. 15.

China has used patrol boats to disrupt survey activities in disputed waters, chasing away a ship working for U.K.-based Forum Energy Plc off the Philippines in March and cutting cables of a ship doing work for Vietnam in May. Asean and China agreed in July on non-binding guidelines for operating in the seas designed as the first step toward a binding code of conduct.

The South China Sea contains two sets of contested island groups, the Spratlys and Paracels. China fully controls the Paracels after ousting fellow claimant Vietnam from the 30 islets and reefs in a 1974 battle that killed 71 soldiers.

The Philippines, Vietnam, China, Malaysia and Taiwan have troops further to the south on the Spratlys. Brunei, another Asean member, also has a claim on the islands.

U.S.-India Bonds

In his meeting with Singh, Obama said the U.S. and India, the world’s two largest democracies, will continue to “strengthen bonds” on commercial, strategic and security issues. Singh thanked Obama for his interest in India’s economic and social “transformation,” and said there are “no irritants whatsoever” their two countries.

India is considering opening its $396 billion retail market to foreign companies including Wal-Mart Stores Inc. Wal-Mart, Carrefour SA, which operate wholesale stores in the country, and Tesco Plc are among companies vying for a share of a market that Business Monitor International estimates will double to $785 billion by 2015. Obama visited India last year.

To contact the reporters on this story: Daniel Ten Kate in Bali at dtenkate@bloomberg.net Julianna Goldman in Bali at jgoldman6@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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General Maritime Files Bankruptcy With $1.4 Billion in Debt

Nov. 17 (Bloomberg) — General Maritime Corp., a transporter of crude oil via ocean tankers, filed for bankruptcy court protection from creditors amid low freight rates and a surplus of ships.
The New York-based company listed assets of $1.71 billion and debt of $1.41 billion in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan. General Maritime, which operates in the Caribbean, South and Central America, the U.S., Western Africa and the North Sea, has a fleet of 31 double-hull tankers, according to its website.
“Operations are to continue without interruption” after General Maritime reached agreements with key lenders, the company said in a statement after the bankruptcy filing. “General Maritime expects to substantially reduce its funded indebtedness and enhance its liquidity profile.”
Oaktree Capital Management LP will provide a $175 million equity investment and a group led by Nordea Bank Finland Plc will provide as much as $100 million in financing to help the company through reorganization, General Maritime said.
General Maritime joins other troubled shipping companies in bankruptcy, including Korea Line Corp., Korea’s second-largest operator of dry-bulk ships which sought U.S. bankruptcy protection in February. Time-chartered operators Britannia Bulk Plc, Armada (Singapore) Pte Ltd. and Transfield ER Cape have also filed for bankruptcy.
Balance Sheets
General Maritime has been restructuring its balance sheets since at least March, when it took out a $200 million loan from Oaktree Capital Management to refinance its 2005 debt and amend its 2010 debt, according to the company’s most recent annual report, filed in March.
Chief Executive Officer John Tavlarios said in July that the company had made transactions to increase its liquidity, as it announced a loss of $36.8 million for the quarter ended June 30, more than double the $14 million lost in the same period a year earlier.
Among the largest unsecured creditors listed in court papers were Bank of New York Mellon Corp., trustee for holders of $300 million in 12 percent callable bonds due in 2017.
Stock Fell
In August, the company led declines in oil-tanker stocks as analysts predicted a return to recession in the U.S. would delay any rebound in charter rates for tankers until after 2013. On Aug. 22, the company said it had received a delisting notice as its share price failed to meet the New York Stock Exchange’s minimum requirements.
The shares closed yesterday at 16 cents.
Moody’s Investors Service cut its credit grade on the company’s debt to Caa3 in September, citing the increasing likelihood of a restructuring because of “weak sector fundamentals.” The company’s “overreliance” on its cash balance, which was almost $59 million as of June 30, may cause it to fall out of compliance with a minimum liquidity covenant, Moody’s analysts said in the Sept. 1 note.
The company is likely to “have a difficult time achieving positive operating cash flow, which could threaten its ability to make cash interest payments,” the Moody’s analysts wrote. Weak freight rates will also pressure the market value of tanker vessels, cutting another source of liquidity, they wrote.
The company’s bonds steepened their decline in October after the company announced it had agreed to amend its $500 million revolving loan, its $372 million term loan, and its $200 million loan with affiliates of Oaktree. The changes waived General Maritime’s need to maintain a minimum cash balance.
The case is In re General Maritime Corp., 11-15285, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net ; Tiffany Kary in New York at tkary@bloomberg.net

Shipping News
Published November 17, 2011

New VLCCs seen running at a loss for 24 months
Oversupply of ships, prolonged slump in freight rates to blame, says bank

(LONDON) Very large crude carriers (VLCCs) that start trading this year and next will run at a loss for at least 24 months, as supply of new ships outpaces demand and prolongs a slump in freight rates, Arctic Securities ASA said.

Choppy waters: Twenty-five per cent of all tanker contracts are likely to be cancelled, up from 20 per cent forecast previously, with scrapping of older ships also increasing over the next two years
Asset values will also decline further, even as the fleet grows at a slower- than-expected pace, the Oslo-based investment bank wrote in a note on Tuesday.

About 50 new VLCCs started trading this year, increasing the fleet by 10 per cent, Arctic wrote. New tankers on order at shipyards comprise about 19 per cent of the existing vessel capacity, according to the bank’s estimates.

‘We strongly advise against ordering new crude tankers over the next three years as ordering should grind to a halt in order to balance the market,’ Erik Nikolai Stavseth, an analyst at Arctic, wrote in the report. ‘If one was interested in buying a crude tanker, it could likely be done at a favourable level in the second hand market.’

Twenty-five per cent of all tanker contracts are likely to be cancelled, up from 20 per cent forecast previously, with scrapping of older ships also increasing over the next two years, according to Arctic.

Tankers scrapped will advance to 16 million dwt in 2012, from 9.8 million dwt in 2011, Arctic wrote. Scrapping reached 19.7 million dwt in 2010, the highest since at least 2006.

The crude tanker fleet will grow 6.3 per cent in 2011 and 3.3 per cent in 2012, lower than a prior forecast for next year of 4.1 per cent growth, according to the report. Arctic estimated that fleet use would be at 81 per cent in 2012, level with this year, increasing to 83 per cent in 2013 and 85 per cent in 2014.

‘The oversupply of vessels is ‘killing’ the chances for a significant rate recovery in 2012,’ Mr Stavseth wrote in the report, adding that Arctic sees a ‘slight uptick’ in 2013 on current assumptions.

Demand for crude shipped by sea will reach 41.3 million barrels a day in 2012, from 40.5 million barrels in 2011, according to Arctic, which estimated 2013 seaborne crude trade at 42.7 million barrels a day, and a daily 43.9 million barrels by 2014.

Seaborne imports to the US, the largest destination by country, will fall to 7.3 million barrels a day in 2015 from 8.3 million in 2010, according to the report. Each one million barrel a day decline in total imports from the Middle East Gulf to the US equates to 35 to 40 VLCC cargoes, Arctic calculated. Closings of refineries on the East Coast will contribute to the decline, according to the report.

Imports by China, the second-largest destination for seaborne crude after the US, will gain 10 per cent this year, Arctic wrote. They will rise to 5.6 million barrels a day in 2012 and reach 7.5 million barrels in 2015, according to Arctic. — Bloomberg

Published August 25, 2011

(HONG KONG) China Cosco Holdings, the country’s top shipping company, yesterday sought to reassure investors that negotiations with shipowners over unpaid bills would be resolved and its business remained strong.

Cosco’s decision to halt payments to several shipowners in the last few weeks to force better terms threatens to taint its reputation within the international shipping community. At least one of the company’s ships it leases has been seized and further seizures have been threatened because of the debts.

China’s unprecedented demand for iron ore, coal and other commodities was the main driver behind a freight market boom in 2008, boosting the global influence of Cosco, China Shipping Development and other Chinese maritime companies.

Many of the shipping contracts currently being renegotiated were struck during the 2008 boom when the industry’s largest capesize vessels were being rented by Cosco and others for more than US$100,000 a day.

The dry bulk market has since plummeted due to the economic downturn and an oversupply of vessels, leaving Cosco paying 2008 prices for ships that now rent for US$18,000 a day.

‘I think (Cosco’s action) hurts the Chinese shipping companies in terms of chartering in vessels in the future,’ said Janet Lewis, analyst at Macquarie Securities. ‘I hope this isn’t representative of how China plans to throw its weight around in the future.’

The world’s largest dry bulk firm is in talks with shipping companies to prolong payments and reduce costs on chartered vessels following a sharp downturn in the freight market, said two Cosco officials.

‘These are commercial disputes and we are dealing with them,’ a Cosco official, who asked not to be identified, told Reuters. ‘Our cash flow condition is good and our business development is normal.’

Greek shipowner and DryShips founder, George Economou, has threatened to seize ships operated by Cosco after it halted payments on high-priced charter contracts, the Financial Times reported. Mr Economou said he had the industry’s biggest exposure to Cosco with 17 or 18 ships on charter to the company.

At least one Cosco-operated vessel in Singapore has already been detained so far due to outstanding debts, a Cosco official said.

It is not unusual for vessels to be detained at ports because of disputes between owners and operators, but typically they are released within a few weeks after a resolution is reached.

Despite the contract disputes, Cosco is expected to maintain its influence in the industry because of its size and because it is state-owned.

‘They have over 400 dry bulk vessels and around half of that is chartered. Given the size of it, they will still be a major player,’ said Andrew Lee, an analyst at Nomura International.

Cosco’s Hong Kong-listed shares have dropped 49 per cent so far this year, underperforming a 15 per cent fall on the broader market.

Cosco, which is also the world’s No 6 container ship operator, issued a profit warning this month, saying it would likely suffer a net loss in the first half of this year due to falling freight rates and high oil prices. In the first six months of last year, Cosco reported a net profit of 3.45 billion yuan (S$651 million).

Cosco is expected to name a new chief executive this week due to the age of the current CEO and not because of the company’s performance, officials said on Tuesday.

China Shipping Group’s vice-president, Ma Zehua, will replace 61-year-old Wei Jiafu as CEO. – Reuters

Gates vows new weapons for US role in Asia
By Dan De Luce (AFP) – Jun 3, 2011
SINGAPORE — Defense Secretary Robert Gates on Saturday vowed the US military would maintain a “robust” presence across Asia that includes new high-tech weaponry to protect allies and safeguard shipping lanes.
Seeking to reassure Asian countries mindful of China’s growing power and Washington’s fiscal troubles, Gates told a security conference in Singapore that Washington’s commitment to the region would not be scaled back.
Instead, the US military would expand its presence, sharing facilities with Australia in the Indian Ocean and deploying new littoral combat ships (LCS) to Singapore where it has regular access to naval facilities, he said.
The LCS is a speedy, lighter ship designed to operate in shallow coastal waters. The waters around Singapore, a staunch US ally, are among the world’s busiest commercial sea lanes.
Singapore’s defence ministry told AFP the US was exploring the deployment of “one or two” vessels usually manned by 75 crew per ship.
“The LCS is expected to make other port calls in the region to engage regional navies through activities such as exercises and exchanges,” the ministry said in an emailed reply.
Gates said the US was also considering “prepositioning” supplies to improve disaster response in the region, which has been hit in recent years by a slew of natural disasters including the massive March quake and tsunami in Japan.
The Defense Secretary, who steps down at the end of the month after more than four years in office, said the US military will conduct more port calls and training programmes with Asian countries as part of its security commitment.
His speech, made before he flew later Saturday to Kabul, came as countries facing a rising China watch the US for signs of its long-term security plans in Asia, amid mounting disputes over territorial rights in the potentially resource-rich South China Sea.
Gates warned that clashes may erupt in the South China Sea unless nations with conflicting territorial claims adopt a mechanism to settle disputes peacefully.
“I fear that without rules of the road, without agreed approaches to deal with these problems, that there will be clashes. I think that serves nobody?s interests,” he said.
On the US presence in Asia, Gates cited investments in radar-evading aircraft, surveillance drones, warships and space and cyber weapons as proof that Washington was “putting our money where our mouth is with respect to this part of the world — and will continue to do so”.
The planned weapons programmes represent “capabilities most relevant to preserving the security, sovereignty, and freedom of our allies and partners in the region”, he said.
They also include maintaining America’s nuclear “deterrence” amid continuing concern over North Korea’s atomic weapons.
Senior US officials have long pointed to China’s military buildup, saying Beijing’s pursuit of anti-ship and anti-aircraft missiles as well as cyber warfare capabilities pose a potential threat to US naval power in the region.
Without naming China, Gates said the new hardware was a response to “the prospect that new and disruptive technologies and weapons could be employed to deny US forces access to key sea routes and lines of communications”.
Although the Pentagon’s budget would come under growing scrutiny and military spending in some areas would be cut back, Gates predicted that investments in the key “modernisation” programmes would be left untouched.
This would ensure “that we will continue to meet our commitments as a 21st century Asia-Pacific nation — with appropriate forces, posture, and presence”, he said.
Gates held talks with his Chinese counterpart Liang Guanglie on the sidelines of the Singapore meeting.
He said efforts to promote a security dialogue with Beijing had borne fruit and military relations had steadily improved in recent months.
Copyright © 2011 AFP. All rights reserved. More »

Shipping News
Published August 1, 2011

(SINGAPORE) Plunging rates for chartering container vessels that carry sneakers, furniture, and flatscreen TVs may signal a US consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.

Problems: Shipping lines are also contending with fuel costs that have jumped 53% in a year in S’pore trading, alongside a rise in oil prices, and an expanding fleet
Fees for hiring vessels have fallen 9.3 per cent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels.

Last year, the index surged 56 per cent in the period, as lines added ships on demand from US and European retailers restocking for the back-to-school and holiday shopping periods.

‘The troubling part is that charter rates are falling in the peak season,’ said Johnson Leung, head of regional transport at Jefferies Group Inc in Hong Kong. ‘Sentiment among consumers and retailers isn’t very strong.’

Lines including Hanjin Shipping Co, Orient Overseas (International) Ltd, and Mitsui OSK Lines Ltd have also delayed the introduction of peak-season surcharges on Asia-US routes by about two months as US unemployment above 9 per cent and slowing sales of new homes damp demand.

Combined inbound container traffic at Los Angeles and Long Beach, the two busiest US ports, dropped 4.6 per cent last month, the first decline since January 2010, according to data compiled by Bloomberg.

‘The delay in imposing peak-season surcharges shows how dire the situation is,’ said Um Kyung A, a Shinyoung Securities Co analyst in Seoul. ‘The US economy isn’t recovering fast enough to help increase demand.’

US orders for durable goods unexpectedly dropped 2.1 per cent in June, the Commerce Department said last week, as companies lost confidence in the strength of the recovery.

The cost of shipping 40- foot containers to the US west coast from China has slumped 42 per cent over the past year to about US$1,600 per box, according to data from Clarkson Securities Ltd, a unit of the world’s largest shipbroker. Derivatives show the price won’t exceed US$1,962 before the end of next year.

Concerns about the sustainability of economic growth are also contributing to container lines renting ships for shorter periods. Average charter lengths have declined to seven months from 10 months at the beginning of the year, according to Alphaliner.

Shipping lines are also contending with fuel costs that have jumped 53 per cent in a year in Singapore trading, alongside a rise in oil prices, and an expanding global fleet.

There were 5,056 container ships afloat at the start of July, compared with 4,968 at the start of January, according to shipbroker Clarkson Plc. Total capacity increased 5 per cent in the period to 14.89 million boxes.

Rising fuel costs and declining rates mean that China Shipping Container Lines Co, the nation’s second-biggest cargo-box carrier, will likely report a first-half loss, it said last week. Hong Kong-based Orient Overseas last week said the full-year outlook was ‘disappointing’.

Kawasaki Kisen Kaisha Ltd, Japan’s third-biggest shipping line, has also made losses on some container routes, president Jiro Asakura said in an interview last month.

Freight rates may rise later in the year as US retail inventories are still low by historic standards. May stockpiles were 7 per cent down from three years earlier. That could help cause retail container imports to jump more than 10 per cent from last year in September, October, and November, according to the National Retail Federation.

Shipping lines have also cut services in a bid to boost rates. Mitsui OSK and partners APL Ltd and Hyundai Merchant Marine Co suspended an Asia-US service earlier this month.

Compania Sudamericana de Vapores SA has also halted a similar route. AP Moeller Maersk A/S, Mediterranean Shipping Co, and CMA CGM, the world’s three largest container lines, also delayed the start of a joint Asia-US service to next year from May, according to Alphaliner. — Bloomberg

Shipping News
Published August 2, 2011

(SINGAPORE) Malaysia’s government has ordered seven floating storage facilities with a capacity to hold about 1.9 million tonnes of crude or fuel oil anchored off the south-eastern port of Pasir Gudang to leave by the end of this month, industry sources said yesterday.

When contacted, a senior Malaysian government source confirmed the directive, but declined to give details or the reasons for the move.

‘Yes, I can confirm that the directive has been issued, and it was decided last month,’ he said.

These players must find alternative homes for their vessels either at nearby Tanjong Pelepas, also a floating storage hub, Indonesia’s Karimun island, or in international waters.

Some could destock their inventories and exit the floating storage market, due to higher costs at the alternative locations, the industry sources said.

‘There might be some short-term impact in the market if the destocking volumes are high, but it’s too early to tell now,’ a fuel oil trader said.

The reasons for the move are unclear but industry sources said it could be because Malaysian authorities want to improve access to several existing and planned oil terminals around Pasir Gudang, including the proposed Petronas refinery.

‘They have been talking about wanting to do some dredging works at the water channel for a while, as the draft is quite shallow, and it can’t even take a fully-laden aframax,’ a Singapore-based storage operator said.

‘Right now, there are two shore terminals in the area, but more are coming up, including the site of Petronas’ proposed refinery. But the new projects won’t be ready for at least four years, so I don’t understand why they are doing it now.’

Currently, there are two land terminals in the area – Cosco Feoto’s 200,000-cubic metre facility in Pasir Gudang and the 500,000 cu m plant in Tanjong Langsat, occupied solely by Trafigura.

Another new terminal, with a capacity of 1.3 million cu m, is being built further east in Pengerang, where the proposed 300,000 barrels-per-day Petronas refinery is also to be located.

The Pasir Gudang area has been used by floating storages for the past 8-9 years at least, with the Malaysian government issuing licences to operators such as Hong Kong-listed Titan Petrochemicals.

Demand for the floating facilities has grown tremendously, with the Malaysian government opening up the south-western port of Tanjong Pelepas for the same purpose later.

Currently, there are at least 15 converted Very Large Crude Carriers (VLCCs), with a total capacity of about four million tonnes, and occupied by the industry’s major players such as Vitol, Glencore, Mercuria, ConocoPhillips and Trafigura, among others, in the two locations.

The volumes that will have to move in Pasir Gudang represents about half of this total, with five of the seven supertankers holding fuel oil, while the other two are holding crude, traders said.

The VLCCs could relocate to other areas, but costs will be higher, and logistics will be less convenient, they added.

The most viable alternative is Tanjong Pelepas but there are only two more spots in the crowded anchorage that is already home to eight vessels. — Reuters

July 29 (Bloomberg) — HNA Group Co., the airline and hotel operator controlled by China’s Hainan province, is in exclusive talks to buy the shipping-container lessor co-owned by General Electric Co., a person with knowledge of the matter said.
HNA may reach a deal within a week if the lessor, known as GE SeaCo, opts to proceed with a sale, said the person, who spoke on condition of anonymity because the talks are private. The price under discussion values GE SeaCo at more than $1 billion, or about $2.5 billion including debt, the person said.
“The fundamentals for container leasing are pretty good right now,” Art Hatfield, a Morgan Keegan & Co. analyst in Memphis, Tennessee, said in a telephone interview. “Despite the fact that there’s too many ships out there, there’s a fairly tight container market.”
A successful bid for SeaCo, the world’s fifth-biggest container lessor, would be the latest demonstration of Chinese companies’ appetite for global acquisitions. Purchases in the past year include a $2 billion Norwegian chemicals operation and a General Motors Co. parts division.
HNA prevailed in an auction that also drew interest from Textainer Group Holdings Ltd., the largest container lessor, and private-equity firm Kelso & Co., according to people with knowledge of those firms’ interest.
‘Strategic Alternatives’
“As we stated previously, we continue to work through our strategic alternatives process, and really have nothing further to add,” said Dori Abel, a spokeswoman for the GE Capital unit at Fairfield, Connecticut-based GE.
Tong Fu, a spokesman for HNA Group, said he wasn’t aware of such a bid. Textainer Chief Financial Officer Ernest Furtado confirmed that the company is no longer involved in the bidding. George Matelich, a principal at Kelso, declined to comment about the SeaCo sale.
Led by Chairman Chen Feng, HNA began as the province’s regional airline and was once known as Hainan Airlines Co., its website says. It bought other carriers and is now China’s fourth-largest aviation company, the website says. HNA’s operations include airports, hotels and department stores.
In May, HNA agreed to buy a 432 million euro ($619 million) stake in a Spanish hotel chain. The company said this month it may bid for Hochtief AG’s airport-operating unit, bringing it control of airports in Hamburg, Sydney, Budapest and Athens. It also agreed to invest in Turkish cargo carrier, ACT Airlines Inc.
Joint Venture
GE Capital formed Barbados-based GE SeaCo as a 50-50 joint venture with Sea Containers Ltd. in 1998. Sea Containers, based in Hamilton, Bermuda, later filed for bankruptcy and emerged in 2009, with control of the company in the hands of former creditors.
Sea Containers’ successor, SeaCo Ltd., confirmed in February that an investment bank was hired to review “strategic alternatives” for GE SeaCo. Deutsche Bank AG is the investment bank, and it is also working to assemble financing for HNA’s bid, one of the people with knowledge of the matter said.
With a fleet of 950,000 twenty-foot equivalent units, GE SeaCo is the world’s fifth-largest, according to a ranking included in a Textainer regulatory filing. Textainer, based in Bermuda and run from San Francisco, has 2.3 million TEU.
In May, another one of the top leasing companies changed hands when Chicago’s Pritzker family sold Triton Container International Ltd. to a pair of private-equity firms, Warburg Pincus LLC and Vestar Capital Partners. Bermuda-based Triton is the second-biggest container lessor, according to the Andrew Foxcroft ranking in the Textainer document.
Freight Demand
Container lessors are benefiting from growing freight demand, limited supply and climbing prices for new units. The cost of a new-cargo box rose to a record this year, according to the World Shipping Council, a Washington-based trade group.
Higher prices are prompting shippers to lease rather than buy, said Brian Sondey, chief executive officer of lessor TAL International Group Inc., on an April conference call. The Bloomberg U.S. Container Leasing Index, which includes shares of Textainer and TAL, returned almost 100 percent since the start of 2010.
The GE SeaCo stake is among finance assets grouped together to wind down or sell as CEO Jeffrey Immelt reshapes GE to focus on industrial units. He is shrinking the portion of total revenue from GE Capital as well as its assets.
To contact the reporters on this story: Zachary Mider in New York at zmider1@bloomberg.net ; Natalie Doss in New York at ndoss@bloomberg.net .
To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

July 28 (Bloomberg) — Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.
Fees for hiring vessels have fallen 9.3 percent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels. Last year, the index surged 56 percent in the period, as lines added ships on demand from U.S. and European retailers restocking for the back-to-school and holiday shopping periods.

Container-Ship Plunge Signals U.S. Slowdown: Freight Markets

“The troubling part is that charter rates are falling in the peak season,” said Johnson Leung, head of regional transport at Jefferies Group Inc. in Hong Kong. “Sentiment among consumers and retailers isn’t very strong.”
Lines including Hanjin Shipping Co., Orient Overseas (International) Ltd. and Mitsui O.S.K. Lines Ltd. have also delayed the introduction of peak-season surcharges on Asia-U.S. routes by about two months as U.S. unemployment above 9 percent and slowing sales of new homes damp demand. Combined inbound container traffic at Los Angeles and Long Beach, the two busiest U.S. ports, dropped 4.6 percent last month, the first decline since January 2010, according to data compiled by Bloomberg.

Container-Ship Plunge Signals U.S. Slowdown

‘Dire’ Situation
“The delay in imposing peak-season surcharges shows how dire the situation is,” said Um Kyung A, a Shinyoung Securities Co. analyst in Seoul, who cut her rating on Korean shipping lines to “neutral” from “overweight” yesterday. “The U.S. economy isn’t recovering fast enough to help increase demand.”
China Shipping Container Lines Co., the nation’s second- biggest cargo-box carrier, fell 6.9 percent, the biggest drop in almost two years, to close at HK$2.17 in Hong Kong. China Cosco Holdings Co., the nation’s largest, declined 3.7 percent to HK$5.50. Hanjin Shipping Co., South Korea’s largest container shipping company, dropped 4.3 percent, the steepest drop in more than two weeks, in Seoul.
U.S. orders for durable goods unexpectedly dropped 2.1 percent in June, the Commerce Department said yesterday, as companies lost confidence in the strength of the recovery.
The cost of shipping 40-foot containers to the U.S. West Coast from China has slumped 42 percent over the past year to about $1,600 per box, according to data from Clarkson Securities Ltd., a unit of the world’s largest shipbroker. Derivatives show the price won’t exceed $1,962 before the end of next year.
Shorter Periods
Concerns about the sustainability of economic growth are also contributing to container lines renting ships for shorter periods. Average charter lengths have declined to seven months from 10 months at the beginning of the year, according to Alphaliner.
U.S. retailers have slowed imports after inventories reached the highest since January 2009 in May, according to Commerce Department data. Their container shipments likely declined 0.8 percent from a year earlier in June, and they will probably drop 1.3 percent this month before rising 0.6 percent in August, according to the Washington-based National Retail Federation.
Shipping lines are also contending with fuel costs that have jumped 53 percent in a year in Singapore trading, alongside a rise in oil prices, and an expanding global fleet. There were 5,056 container ships afloat at the start of July, compared with 4,968 at the start of January, according to shipbroker Clarkson Plc. Total capacity increased 5 percent in the period to 14.89 million boxes.
First-Half Loss
Rising fuel costs and declining rates mean that China Shipping will likely report a first-half loss, it said yesterday. Hong Kong-based Orient Overseas last week said the full-year outlook was “disappointing.”
Kawasaki Kisen Kaisha Ltd., Japan’s third-biggest shipping line, has also made losses on some container routes, President Jiro Asakura said in an interview last month.
“Container rates have fallen slightly short of our expectations,” he said. The shipping line has plunged 30 percent in a year in Tokyo trading. In Hong Kong, Orient Overseas has slumped 25 percent and China Shipping Container has tumbled 24 percent.
Lines including K-Line, Orient Overseas, Mitsui O.S.K. and Hanjin Shipping are seeking to impose peak-season levies of $400 per 40-foot containers for shipments to the U.S. west coast from Asia, beginning on Aug. 15. Surcharges of that size were expected to be introduced June 15, according to a statement last year from the Transpacific Stabilization Agreement. The group, comprising 15 lines, has limited antitrust protection, which enables it to advise on rates and surcharges.
Retail Inventories
Freight rates may rise later in the year as U.S. retail inventories are still low by historic standards. May stockpiles were 7 percent down from three years earlier. That could help cause retail container imports to jump more than 10 percent from last year in September, October and November, according to the National Retail Federation.
Retailers have pared stock levels as they “are so fearful of getting stuck with inventory” after losses during the 2009 slump, said Barclays Capital analyst Jon Windham. “That means more people will be trying to stuff in cargo later in the year.”
Shipping lines have also cut services in a bid to boost rates. Mitsui O.S.K. and partners APL Ltd. and Hyundai Merchant Marine Co. suspended an Asia-U.S service earlier this month. Compania Sudamericana de Vapores S.A. has also halted a similar route. A.P. Moeller Maersk A/S, Mediterranean Shipping Co. and CMA CGM, the world’s three largest container lines, also delayed the start of a joint Asia-U.S. service to next year from May, according to Alphaliner.
Expanding Fleet
Overall, shipping lines have cut Asia-Europe capacity by 3.5 percent and trans-Pacific space by 3.9 percent, according to Um. The size of the laid-up container fleet may also more than double to a capacity of about 400,000 20-foot containers by the end of this year from 120,000 boxes, according to Alphaliner.
Still, with the overall fleet expanding as new ships enter service, that may not be enough to revive earnings, Um said.
“Any hope of a rebound in the container-shipping industry has been pretty much washed away for this year,” she said. “Demand hasn’t improved much, while capacity and fuel costs have jumped at a much faster pace.”
To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net .