Back to black

Pacific Basin Tiawai Point
Dirty tankers and dry bulk vessels to benefit most from reductions in Excess of Loss rates

Hong Kong-headquartered Pacific Basin Shipping returned to profit in 2017, the minor bulk specialist revealed, with the announcement of its full year results.

Pacific Basin notched up a net profit of US$3.6m off the back of revenue of US$1.5bn in 2017 as it the company prepared itself for a long anticipated rise in the fortunes of dry bulk shipping.

Company chairman David Turnbull said 2017 had been “a markedly better year for dry bulk shipping compared to 2016, but conceded the “improvement was from an extremely low base.”

“There is still some way to go before the dry bulk market sees sustained healthy freight earnings, but supply and demand fundamentals are now more positively balanced and we are cautiously optimistic for a continued market recovery albeit with some volatility along the way,” he added.

Chief executive Mats Berglund pointed to a demand driven recovery “with stronger seabourne trade growth apparent across most dry bulk cargo categories.

“Stronger Chinese industrial activity drove robust growth in coal and iron ore imports and, more importantly for us, in the trade in minor bulks. Global grain trade expanded more than expected primarily due to record South American grain export volumes. Longer trade distances also supported stronger global dry bulk seaborne tonne-mile demand which Clarksons Research estimate to have grown 5.1% in 2017.

“The improved earnings environment resulted in much reduced scrapping which, combined with new ship deliveries, led to total dry bulk fleet net growth of 3.0% and 3.6% in the global Handysize and Supramax fleets,” He added.

But Mr Berglund cautioned: “Despite the gradual improvement, the market remained challenging during most of 2017 with average annual freight rates at historically weak levels.”

While favourable economic winds may account for much of Pacific Basin’s improved position, the ability of the company to consistently outperform the market must also be recognised. In 2017, the company generated average handysize and supramax daily TCE earnings of US$8,320 and US$9,610 per day net, outperforming the BHSI and BSI indices by 15% and 8% respectively.

In the first half of 2017 Pacific Basin completed its latest newbuilding programme with the delivery of seven newbuildings.

Taking advantage of historically low asset values the company purchased two secondhand handysize vessels and a secondhand supramax while selling an older, smaller supramax.

In August 2017, the company signed up for a further five dry bulk vessels Four of the five vessels delivered into our fleet by year end, and the fifth joined in January 2018. The latest acquisitions has boosted the owned fleet to 106 ships.

Looking to immediate future prospects Mr Berglund said:

“The outlook for favourable global GDP growth bodes well for dry bulk demand, and supply is expected to be kept in check by the continued gap between newbuilding and secondhand prices and the uncertain impact of new regulations on ship designs, both of which cause many shipowners in our segments to refrain from ordering new ships.

“Tonne-mile demand growth of 5.1% in 2017 was higher than expected, but even if growth slows in 2018, we expect it will still exceed supply thus supporting further improvement in the demand-supply balance.

“Potential negative factors include a possible reduction in China’s difficult-to-predict coal imports and, on the supply side, the risk of excessive new ordering and increased ship operating speeds. Continued commodity demand growth, scrapping of older and poorly designed ships, and limited ordering are required for a further improved market balance.”

Mr Berglund concluded: “We are well positioned for a recovering market and, based on our current fleet and commitments, a change of US$1,000 per day in annual average TCE market rates would be expected to change our net results by about US$35-40m per year.”



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