Investors have found a renewed interest in drybulk shipping as hires have turned upward; the sector is once again on[ds_preview] the agenda. Equities analysts are not yet convinced of the newfound »strength« albeit with hires still below full daily breakevens for most owners. Speaking at the Capital Link 11th Annual International Shipping Forum in New York drybulk player were enthusiastic about the sector’s prospects. Hamish Norton, President of Star Bulk Carriers emphasizes the importance of controlling costs; John Wobensmith, CEO of Genco Shipping & Trading amplifies on this theme – suggesting that listed companies should act defensively and prepare themselves for lengthy downturns by bolstering balance sheets for a long ride down the »runway«. Mr. Mats Berglund, the CEO of Pacific Basin Shipping mentiones an idea that featured across multiple panels, saying »Let cargo drive the upturn.«
Representatives from banks suggest a renewed importance of financing shipping is part of a broader commodity chain. Pac Basin’s Mr. Berglund emphasizes that real increases in demand were paramount as drybulk climbs out of its long abyss. Several players –more positive than the equity analysts – emphasize that now is a time to buy; Scorpio Bulk’s CEO, Robert Bugbee, a huge cheerleader for the industry, says that companies that have maintained liquidity are now in a good position to buy tonnage.
When discussing about lessons learned, there is some divergence of opinion; Mr. Wobensmith offers a hope that finance providers (including private equity) had learned not to support over-ordering. Mr. Bugbee, with a lengthy career and sense of industry history, expresses doubts about the industry’s discipline. On a positive note, Mr. Bugbee notes that recent demand growth was much stronger than anticipated by market participants, expressing a view that drybulk is heading for another upward cycle.
For the tanker industry Nikos Tsakos, CEO of Tsakos Energy Navigation mentiones another bright spot, saying: »A year ago, we were sitting here terrorized by drop in demand from China. A year later, they kept up demand.« Euronav CEO Paddy Rodgers reveals his company’s in-house view that demand has remained surprisingly resilient – including additional ton miles generated by changing trade patterns AFTER the OPEC cutback. The major concerns he voicead were on the supply side, and what the ultimate disposition of shipyard berths in Korea might be. All in all, he suggests that 2017 might see »range-bound« hires, which makes a positive contribution – so not a bad thing. Navios Vice Chairman Ted Petrone says: »There’s a lot of oil coming from the Atlantic. It’s really a ton mile game.« In spite of this optimistic tone, Mr. Tsakos offers a cautionary note as well, saying: »What is worrying us, though, are any moves towards towards protectionism in world trade overall.«
Mr. Robert Burke, CEO of privately held Ridgebury Tankers, says that he did worry about demand. After referring to forecasts of 9.5 MB/D oil production in the States, he says »We are seeing more oil coming out of the U.S. Gulf – we are hopeful, though, about the next few years.«
Lois Zabrocky, CEO of International Seaways, mentiones a new trend »reverse lighterings« where U.S. oil is loaded into Aframaxes that transfer cargo to VLCCs, which are then bound for Asia. She says »For all of us, we all want oil to move – a price somewhere in the $50’s is a good place for oil to be. The forecast growth of 1.5 MB/D for world oil production increases is also a big positive.«
Longer term, constrained industry funding could tamp down the tendencies towards over-supply of tankers. Paddy Rodgers expresses a hope that the industry could to longer term financial sustainability with less boom and bust. But, still there are dark clouds. Mr. Rodgers cautiones about the »grey market in ship finance« in the form of State-owned funds providers and leasing companies in Asia.
For equity investors enjoying strong stock markets, he notes that »At P/E multiples of 18x, investors may think twice about investing in shipping.« Bob Burke, whose company is backed by PE, offeres an impression that investors that he’s talking to are much better informed. Nevertheless, in the words of Mr. Rodgers: »Equities are over-priced, there is still some risk on earnings forecasts … the story is still being developed.« There is more to the uncertainty … with Mr. Rodgers concluding with: »And, by the way, politics is important.«
