Scandinavian shipping – hopes are high despite market unpredictability

saw significant growth. Port congestion has also

skewed rates on certain trades.
Scandinavia’s owners and operators have been more
successful than many of their peers in riding the waves spewed
forth by the travails of the global economy. While they may have
avoided the worst impacts of global financial recession and the
collapse of freight rates, bottom lines have not escaped the
fallout and companies have been forced to reconstitute
operational strategies over the last year to cope with what is
essentially a new and unknown market.
One aspect of this has been a major refocus on cost
reduction with owners looking to shave expenditure where
possible from ship management activities. Torm, for example, has
dismissed 19% of its shore-based employees over the last two
years, and even this year plans to reduce costs by a further
US$50 million compared with 2008. This, claims the company,
will reduce vessel operating costs by some 15% per vessel and
administrative expenses by around 20% compared with two
years ago. Even so, Torm’s chairman of the board predicts the
company will post a loss before tax of some US$15–60 million
in 2010.
Norden, Torm’s arch competitor, saw its dry cargo
department’s EBITDA fall by some 70% last year to US$139
million despite cutting administrative costs by 29%.
Another regional bulk carrier stalwart, Lauritzen Bulkers, saw
its net result for 2009 after adjustment for one-off items yield a
profit of US$15 million, a long way short of the US$232.7 million
adjusted figure for 2008. “Results were better than expected
and acceptable in view of the depressed and volatile trading
conditions during the year,” said parent group J.Lauritzen.
Scandinavia’s leading operators have also done more than just
crank the wrench on costs to protect profits. Norden has
tightened up its counterparty terms following a number of
contractual disputes with companies unable or unwilling to meet
commitments. The new system includes ongoing credit checks
on business partners.
The drop in second hand vessel prices by over 60% between
mid-2008 and the end of last year has also seen a sea-change in
the fleet expansion programmes of owners and prompted many
to turn to the Sale & Purchase markets.
Last year Torm sold three older Panamax vessels and two
from its orderbook due for delivery in 2010 for a total profit of
$46m.
Norden, meanwhile, signed agreements to sell 17 bulk
carriers to release tied up cash and realise profits, but also to
trim the company’s portfolio of owned vessels on the
expectation that similar vessels will be available in the future at
lower prices.
Chartering strategies have also been adjusted for the new
market. On 31 December 2008, Torm had just 27% of vessel
sailing days covered in 2009 at an average rate of US$46,200/day.
A year later and the equivalent figures for 2010 read 71% at just
US$18,100/day.
It is no surprise that Torm is being cautious with its
chartering strategy. The market has been nothing if not volatile
in recent years, not least the Panamax sector which provides
much of Torm’s income. After the peaks of mid-2008, at the
start of 2009 Panamax rates stood at just US$4,300/day, the
lowest level in ten years. At the start of 2010, they had climbed
to US$28,600/day on the back of Chinese imports of iron ore
and coal.
Taking time charter rates in the forward contract market for
panamax vessels at the start of March this year as supplied by
Imarex, it is predicted that in each quarter panamax rates will
remain higher than the average rate of US$16,099/day realized in
2009, but they will decline from US$28,117/day in the first
quarter of 2010 to US$21,880/day in the final quarter.
The newbuilding orderbook remains the key to understanding
the cautious strategies being adopted by Scandinavia’s bulk
carrier owners. While global demand growth for bulk carriers in
2010 looks strong, albeit highly reliant on China, a strong net
increase in the fleet is expected this year with the orderbook
for vessels over 60,000dwt at the start of the year amounting to
almost 70% of the sea-going fleet. Some 50% of the 195m dwt
on order at the start of the year was due to be delivered in
2010 so, without taking into account cancellations, scrapping and
delivery delays, supply growth of over 30% is expected this year.
Mogens Hugo, chairman of Norden, calls bulk carrier supply
the “joker” in any analysis of the bulk carrier market. Although
the analytical uncertainties now were less significant than a year
ago, he warned that the global crisis “has not gone away” and
rates in 2010 would largely be influenced by the pace of
newbuilding deliveries.
Around 40% of dry bulk deliveries were estimated to have
been cancelled or deferred last year, and a similar percentage is
thought likely to suffer the same fate this year. So factoring
those numbers in, the fleet will still expand significantly quicker
than demand during 2010, even if port congestion continues to
offset some of this growth.
Even so, despite the risk inherent in the current supplydemand
equation, Hugo predicted 2010 would be far more
lucrative for bulk carrier owners that last year. Indeed, Norden
expects its dry cargo department to double its operating profit
this year.