Global Ports Forum

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

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

Dec. 6 (Bloomberg) — Toyota Motor Corp.’s new plug-in Prius threatens to cast a shadow over competitors’ hybrids.

A successful debut of the Prius PHV, which Toyota will begin selling in 2012, may help Toyota secure its place as the industry leader in gas-and-electric vehicles and undermine General Motors Co.’s prospects with its Chevrolet Volt. Though the Volt, introduced a year ago, was the first plug-in hybrid on the market, its sales are trailing the company’s target. The model has also been beset by a government investigation into battery fires after collision tests.

“Toyota carries the image of being a leader in hybrids and the recent problems with the Volt’s batteries give consumers an extra reason to choose the plug-in Prius over the Volt,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Toyota’s new plug-in Prius will definitely have a negative impact on GM’s sales of the Volt.”

Toyota, poised to lose its crown as the world’s biggest carmaker to Detroit-based GM this year, said the PHV goes on sale in January in Japan and March in the U.S., where it will be about 20 percent cheaper than the Volt.

GM believes the Volt is a different kind of car than the Prius plug-in and will appeal to different buyers, said company spokesman Rob Peterson. The Volt can go farther in electric drive than the Prius and offer much better efficiency for drivers with a short commute, he said. The Volt’s electric drive system also provides the kind of soft, quiet ride befitting many luxury cars, he said.

Plug-in Push

“We think the Volt is a better proposition,” Peterson said. “The Volt is much more refined than a Prius.”

The auto industry as a whole is making a push in to the plug-in market. Nissan Motor Co. plans to introduce a plug-in hybrid by 2015 to complement its gas-free electric Leaf compact. The automaker has sold about 20,000 Leaf compacts since they went on sale on December last year. Honda Motor Co. has said it will embrace the plug-in variation of hybrid engines by as early as next year.

Mitsubishi Motors Corp., which makes the i-MiEV electric car, has said it will introduce a plug-in in the second half of next year. Audi AG expects to introduce such vehicles in 2014 and South Korea’s Hyundai Motor Co. has said it also plans to roll out its own plug-in hybrid.

Toyota, however, may have the edge. “No other carmakers have a car like” the PHV, said Chris Richter, a Tokyo-based analyst at CLSA Asia-Pacific Markets. “Toyota’s plug-in has a much better efficiency and range than the Volt, which is much more expensive.”

‘Ample Demand’

Toyota has targeted global sales of 60,000 units of the PHV in its first year, and may consider adding production if there’s “ample demand,” said Shiori Hashimoto, a spokeswoman for the company. That’s triple the 19,010 units delivered when the Prius first went on sale outside of Japan in 2000.

GM sold 6,142 Volts this year through November and will miss its sales target of 10,000 cars this year, said Don Johnson, the carmaker’s vice president of U.S. sales, on Dec. 1. GM expects, though, expects to raise production of the Volt to 60,000 next year with 45,000 earmarked for the U.S. and the rest for export.

The Prius is Toyota’s third-best selling car after the Corolla and Camry, and the fastest-growing Toyota car this year, as higher gasoline prices boost demand for fuel-efficient automobiles. Still, the Japanese carmaker isn’t giving up on traditional cars, with President Akio Toyoda saying last week that he “loves the smell of gasoline and the sound of engines” as he introduced the company’s new 86 sports coupe.

The PHV, which will first go on sale from 3.2 million yen ($41,100) in Japan in January and from $32,000 in the U.S. in March, differs from today’s Prius by offering the driver the choice of running solely on electricity. After the electric battery runs out, though, the vehicle operates like a third- generation Prius, according to Toyota.

The car can be recharged using a standard wall outlet at home, can cover 15 miles on electricity alone and 49 miles per gallon on gasoline, according to Toyota’s website. That compares with the Volt, which can go 40 miles on electricity power before the gasoline engine kicks in and powers a generator, which recharges the battery.

The new Prius will use a lithium ion battery supplied by Panasonic Corp.’s Sanyo, replacing an earlier battery from Primearth EV Energy Co. GM’s Volt also uses lithium-ion batteries, which are supplied by LG Chem Ltd. Takeshi Uchiyamada, executive vice president of Toyota, said in an interview last week that the company has carefully assured the safety of its batteries, which is one reason why the Prius took longer than expected to reach the market.

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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