It is a measure of the catastrophic conditions underlying the dry bulk trade in 2016, that Hong Kong-listed Pacific Basin Shipping, one of the best operators in the sector still saw losses increase more than four-fold over the year. But better times may be on the way.
Pacific Basin declared a net loss for 2016 of US$86.5m compared to US$18.5m in 2015, off the back of a 14% fall in revenue to US$1.09bn. The losses came despite the company outperforming the market through vessel earnings and positive operating cash flow.
Pacific Basin chief executive Mats Berglund said: “Freight rates were undermined at the start of the year by the general seasonal slowdown in demand, lingering oversupply of dry bulk tonnage and reduced movements of coal.
“Freight earnings then improved over the remainder of the year benefiting from increased South American grain exports in the second quarter and stronger US grain exports in the second half, and growth in trades such as cement into North America. Chinese industrial activity was significantly down at the start of the year, but improvements from March onwards drove a revival in the iron ore and coal trades and minor bulks such as logs, cement and copper concentrates in the remainder of the year. However freight rates remained historically low, and conditions challenging for shipowners overall,” he added.
Pacific Basin has acted positively to the harsh environment through a number of initiatives. The company’s divestment of non-core businesses in recent years has been a means to generate cash, streamline the company and focus on the handysize and supramax business.
In June 2016, the company raised US$143m through a one-for-one rights issue of new shares. And in October it reached an agreement with ten shipowners to whom it issued US$13m of new Pacific Basin shares as payment of existing long-term charter-hire obligations in 2017 and 2018 to reduce cash outlay in the two covered years.
Mr Berglund concluded on a positive note: “2017 has started stronger than last year, and we believe the worst of the current market cycle is behind us and that supply-side corrections have begun to lay the foundations for an eventual market improvement. We believe 2017 will be better than 2016. Through our cost-savings and fundraising, we have positioned ourselves to capitalise on improving market conditions ahead, but we must remain patient.
“A market recovery needs lower net growth in the global dry bulk fleet. Negligible new minor bulk ship ordering and non-delivery of some existing newbuilding orders should mean significantly reduced deliveries which will help cap supply in the next few years.”