Companies hiring ships to haul coal and other raw materials are adding to financial pressure on vessel owners by taking advantage of the lowest charter costs in a quarter of a century, according to Precious Shipping Pcl.
Precious lost business handling logs for a regular client who was won over by a lower-priced rental accord from a rival vessel owner, Khalid Hashim, managing director of the Bangkok-based company, said by e-mail today. Hire rates “barely” cover operating expenses, leaving owners struggling to repay bank loans from dwindling reserves, he said.
“Charterers have reveled in their joy at being able to squeeze the very living daylights out of their ship owner ‘adversaries,’” Hashim said. His company is the largest Thai carrier of dry-bulk commodities by sea.
Breaches of contracts between owners and ship charterers are likely, Matt Jamieson, Asia-Pacific head of research at Fitch Ratings, said by phone from Seoul today. More owners are in financial distress as a glut of tankers and bulk carriers overwhelms demand for seaborne cargoes, depressing freight rates and weighing on cash flows, Fitch said last week.
The Baltic Dry Index, a measure of commodity shipping costs, reached the lowest level since August 1986 on Feb. 3. Average rates for three of the four vessel types the gauge tracks will be the lowest this year since at least 2003, Oslo-based investment bank RS Platou Markets AS said this month in a report that also predicted higher risks of charter defaults.
Dry-bulk owner Paragon Shipping Inc. said Jan. 30 it ended a charter agreement 27 months early after Deiulemar Compagnia di Navigazione SpA stopped paying for a Supramax vessel on long-duration hire from Jan. 5. The ship was hired out to another company a week later, statements from Paragon showed.
PT Berlian Laju Tanker, Indonesia’s largest shipping company, said Jan. 26 a unit was declared to have breached loan conditions and others failed to make payments. China Cosco Holdings Co. said in August it resolved disputes over 18 dry-bulk vessels.
Customers who select the cheapest vessels and weakest owners risk having cargoes caught up in bankruptcy proceedings, according to Hashim of Precious.
“All we need is one spectacular bankruptcy of a large shipowner with lots of ships afloat with tons of cargoes belonging to different receivers all over the world,” he said.