(26-04-2014, 06:08 PM)Greenrookie Wrote: It looks like a positive upward trend since 2009. Why are the ports like HPH, or containers play like NOL struggling like nobody business?
Market demand has been recovering, but still lacking behind the sector oversupply. That is one of the reasons behind the poor performance, IMO.
PUBLISHED MAY 12, 2014
Private equity rush is bad news for shipping
Vessel-buying spree may result in glut from 2016: analysts
[SINGAPORE] The shipping industry faces a looming capacity glut as billions of dollars pumped into it by private equity have stoked a vessel-buying spree, threatening its prospects just as the sector is emerging from its worst downturn in three decades.
Backed by private equity and hedge fund financing, shipping companies have placed orders for thousands of new ships over the past two years, reminiscent of the ship-ordering binge of the mid-2000s that eventually led to overcapacity after the global financial crisis severely hit cargo demand.
The demand-supply equilibrium could tilt into overcapacity again from 2016, straining shipping companies' finances. It may also make private equity's exit from shipping less profitable, shipping experts said.
"Shipping is not a get-rich-quick business. By virtue of the capital that the private equity funds are pumping into shipping, they are in effect destroying the very prospects that they are chasing," said Jan Engelhardtsen at Olso-listed tanker and terminals company Stolt Nielsen.
"Because the investment horizon for private equity is short-term and shipping is fundamentally long-term in nature, private equity's entry into shipping in most cases is never going to end well," Mr Engelhardtsen told Reuters.
Private equity companies such as Oaktree Capital, Apollo Global Management and Blackstone Group have invested in tankers, container ships and bulk carriers, set up or acquired shipping companies and bought ships and shipping loan books from banks such as Germany's Commerzbank and the Royal Bank of Scotland.
Estimates vary, but maritime fund management company Tufton Oceanic says private equity has invested about US$32 billion in shipping in the last two years.
Among major private equity shipping deals are Global Maritime Investments' move to invest in around 20 dry cargo ships. And Oaktree Capital Management bought into Star Bulk Carriers Corp last year, but later trimmed its holding. Star Bulk has 28 dry bulk ships, including 11 that are on order.
The current global ship order book is worth US$297.6 billion although US$110 billion remains unfunded, according to figures from Britain's Clarkson Research Services and Tufton Oceanic.
The investment will help create a surge in ship deliveries with ships totalling 299 million deadweight tonne (dwt) due to enter the global fleet from May compared with a current global fleet of 1.7 billion dwt, according to Clarkson data.
Global seaborne trade, including commodity shipments, is expected to grow 4 per cent in 2014, Clarkson has forecast. If trade growth remains at similar levels in the next two years, it will potentially create a supply glut of tonnage from 2016.
Ng Siu-fai, chairman of Oslo-listed dry cargo ship owner Jinhui Shipping and Transportation, in a reference to private equity, said the company had seen new participants placing new orders "with a primary, if not only, objective of speculative gain in asset price appreciation rather than working these . . . assets for long-term positive cashflow".
But Albert Stein of debt and restructuring specialist AlixPartners in London, which advises private equity among others, said shipowners must share the blame for the coming glut. "You can't blame private equity alone. (look at) who sold them the idea that the market's going to expand," said Mr Stein.
Private equity firms typically have a three to five-year investment horizon and exit through asset sales or initial public offerings. "PE firms come in all shapes and sizes and have varying investment horizons. However, they're all trying to generate returns of 15 per cent plus per annum, which restricts them to relatively short investment periods," said one Hong Kong-based ship financier.
"The majority of the PE who purchased tonnage in 2009-2011 will see healthy returns in the high teens to mid twenties if they can monetise their positions within the next 24 months," said Randee Day at US consultancy Day and Partners. "Sophisticated private equity will not remain in exposed positions over the next 18-24 months," she said.
Weak public investor sentiment has led to the postponement of several shipping IPOs. Uncertainty over the success of IPOs and a rise in asset prices has led some private equity to lengthen their investment time horizons. - Reuters
PUBLISHED JUNE 11, 2014
STRAIT TALK
Where is liner shipping heading?
It could be an industry with mega-vessels or a monopoly
BYDAVID HUGHESPRINT |EMAIL THIS ARTICLE
THERE are two incompatible but widespread views on today's liner shipping industry. One is that it is a highly efficient money-making machine that is increasingly dominated by a few players, to the detriment of cargo owners and, ultimately, consumers - PHOTO: BLOOMBERG
THERE are two incompatible but widespread views on today's liner shipping industry. One is that it is a highly efficient money-making machine that is increasingly dominated by a few players, to the
detriment of cargo owners and, ultimately, consumers. The other is that, despite continual efficiency gains, unregulated competition and resulting overcapacity prevent the carriers from ever seeing sustained returns that could justify their huge investments.
The Global Shippers' Forum (GSF), of course, adheres to the first point of view. So, it is not surprising to see that the body representing cargo interests has welcomed the recent decision of the European Competition Commission to closely monitor the new giant P3 container shipping alliance for compliance with EU competition rules.
GSF secretary general Chris Welsh said: "Effective monitoring of P3 compliance with EU competition rules is absolutely essential in view of the unprecedented market power of the world's three largest lines that collectively represent over 40 per cent market share in the world's main liner trades, including over 46 per cent market share in the Asia-Europe market. If there are any signs of a reduction in service quality or elimination in effective competition between the P3 lines and in the liner market generally, we would expect immediate action by the European Commission against the P3 lines, including the imposition of appropriate sanctions for competition abuses."
PUBLISHED JUNE 11, 2014
Commodity shipping demand to surge
[LONDON] Demand for ships to haul iron ore, coal and other cargoes poised to surge this year, outpacing expansion in the fleet of vessels that can transport the commodities, according to ACM Shipping Group, a shipbroker.
Demand for ships to haul dry-bulk goods will jump 12 per cent this year while the supply of vessels expands 4.7 per cent, ACM said in a report on Monday. Fleet utilisation will jump 7.3 per cent, the most in more than five years, and by a further 8.1 per cent next year, it estimates.
Demand is strengthening because falling prices for iron ore are driving up shipments to China from countries including Brazil and Australia, ACM said.
Bulker demand is for ships in excess of 100,000 dead-weight tons hauling iron ore and coal. - Bloomberg
start reading ARs from Chuan Hup Offshore, COSCO, Yangzijiang, KEPPEL, Sembawang?
also got analysts reports..
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR!
4) In BULL, SELL-SELL-SELL!
11-06-2014, 10:58 PM (This post was last modified: 12-06-2014, 12:02 AM by D123.)
(1) Martin Stopford's textbook "Maritime Economics" is a good resource to understand basic shipping economics and the various shipping industries.
(2) If you want something shorter and free, Chapters 6 and 10 of The Blackwell Companion to Maritime Economics are good places to start.
Let me share some personal observations on the shipping industry.
What is shipping?
Shipping is a form of transportation service. Its substitutes are road, rail and air transportation but in most cases it is still the most cost effective mode of moving large quantities of goods around the world. Shipping is also a commodity in the sense that there is little differentiation between one Capesize vessel and another. Cargo owners who wish to move their goods do not really care if your ship is new or old, high-tech or low-tech if you can do it cheaper for them with the same amount of operational risk. There may be certain regulations that need to be adhered to such as double hulls for tankers and washing procedures, but generally the contract for shipment usually goes to the one with the cheapest cost (ignoring human factors like bribery, charismatic charterers/brokers etc.). However, unlike conventional commodities such as minerals and grains, shipping services or freight, is not storable. Prices of conventional commodities are very hard to predict, especially for globally traded commodities. The lack of a cost of carry relationship between spot prices and future prices for freight makes its price prediction all the more difficult.
Freight and freight markets
Let me back up and explain my understanding of freight rates. Freight rates are the revenue received from chartering out your ship. Knowing where freight rates go will have a big impact on the profitability of your shipping investments. However, as mentioned, it is notoriously difficult to predict freight rates. There are five main freight markets that might affect freight rates directly: the market for spot freight, the market for time charters, the market for newbuildings, the market for second-hand ships and the demolition market. Apart from that, given that demand for shipping is derived from the demand of the goods the vessel transport, one has to monitor demand and supply conditions of those goods as well. For example, let’s say freight rates for crude oil tankers have suddenly gone up. To understand why that is and if it will persist, we need to look at the crude oil market and see if demand has sustainably increased or if it is just a short term supply shock. Then we need to look at the spot and time charter markets to see if there are many ships that can be brought out from lay-up or from ends of charters to ease the upward pressure in freight rates. After that look at the newbuilding market and see what the orderbook is like for freight and see if there is a large number of vessels coming online in the near term. If all the tanker shipyards are operating at full capacity with most of the delivery far into the future, this might also mean that high freight rates might persist for a while because it will take a long time for new capacity to come in. You get the drift. The exact implications of movements in each freight market and the market of its cargo on freight rates is too complicated and lengthy to go into here but interested people should definitely read up more about it.
Cyclicality
Having said that, there are some general trends that we can observe from the history of freight rates. Firstly, like GG, Nick, Drizzt and others have pointed out, the freight market is characterized by cycles. The cycles are often between long periods of low freight rates and low volatility and short periods of high freight rates and high volatility. This is due to the shape of the demand and supply curve for freight rates, which are highly inelastic at high freight rates and very elastic at low freight rates (Figure 1). Long term in shipping cycles can be looooong (sometimes lasting decades from peak to trough), much longer than your average business cycle (3-5 years). Secondly, over the long run, say at least 15 years, freight rates exhibit some kind of mean reversion. It cannot explode upwards infinitely or go down to zero. The ceiling is set by the profit margins of commodity producers and the floor is set by the marginal cost of investments in ships. Historically, the mean reversion line is somewhere slightly above the marginal cost. The question is if this marginal cost is on an upward trend due to inflationary pressures or downwards due to advancements in technology. If you look at the Baltic Dry Index, when it started in 1985 the index value was 1000 (Figure 2). Almost thirty years later today, it is still around 1000. So the upwards movement of freight rates is definitely not a guarantee and analysts shouldn’t project increasing freight rates into infinity.
Individual shipping industries
So far, I have talked about the shipping industry as a whole. In truth, there are different individual shipping markets, each with different dynamics. The tramp bulk shipping market operates closer to perfect competition. This means many ship owners with more or less the same ships (cannot differentiate a capesize from another) and no market consolidation by a single player is possible. Like Ow Chio Kiat once remarked, any man and his dog can buy a ship and start a (bulk) shipping company. The barriers to entry are just too low and the only significant barrier is financial capital. However, in the liner market, there is more room for monopolistic behaviour because the routes are fixed, volumes are more consistent and the shipping companies can entrench themselves by buying up ports and logistic service providers for these routes.
Last remarks
Some aspects of the shipping industry remind me of the airline industry and the textile manufacturing industry in US in the early 20th century. Equipment (or aircraft or ship) salesmen will approach one company and tout its new technologically advanced product that will save time, save labour, save operating costs etc. Then they will turn around and sell the same thing to its competitors. In the end, companies are always paying more for their capital equipment but unable to charge their customers significantly more, if at all. All the savings they would have made goes to the equipment (or aircraft or ship) manufacturer. Having said that, I believe it is still possible to earn money investing in shipping, but the fact that most value investors shun it should make us question ourselves more than usual why we think we can do it.
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