Bloomberg News

Bankruptcies to Climb for Handymax Ship Owners, DVB Bank Says

October 19, 2011

Oct. 19 (Bloomberg) -- Bankruptcies will increase among owners of handymax vessels that haul minerals and grains as hire costs are forecast to remain below break-even levels until 2014, according to transportation lender DVB Bank SE.

One-year hire rates, at $20,800 a day last year, are set to fall to $9,500 in 2012, the Frankfurt-based bank said today in a report. That will result in two years during which earnings will be below what owners need to pay operating expenses and finance costs, it said.

“The current slowdown can significantly increase the number of owners going bankrupt due to cash-flow problems,” said DVB, Europe’s largest specialist shipping lender with a portfolio of $14 billion.

Earnings have been pressured as vessel supply outpaces demand growth, according to the report. The price of a new handymax plunged 30 percent in two years to $32.8 million in 2010 as secondhand ships dropped 47 percent to $31.6 million, DVB said.

The world’s 2,073 handymax-sized vessels, each able to haul between 40,000 and 55,000 metric tons of cargo, carried about 13 percent of all global dry-bulk trade in 2010, DVB said. Demand to ship dry-bulk commodities at sea will rise 11 percent to 3.4 billion tons in 2011, according to the report.

Coal Cargoes

Handymaxes call mostly at ports in emerging economies where infrastructure is less developed, with coal and ore shipments between Australia, Indonesia, India and China most prevalent, DVB said.

There are 598 handymax ships on order at shipyards, with 290 delivered in 2010 and 246 entering service in this year’s first nine months, according to DVB. A further 200 will join the fleet in 2012, even accounting for order delays or postponements of 40 percent, the report showed.

Handymax earnings will bottom at the end of 2012 and stay under pressure until the beginning of 2014, weighing on prices for the ships, DVB said. That may worsen if financiers are forced into asset sales to shore up balance sheets, according to the report.

A new vessel ordered in 2010 had a daily break-even cost of $18,782, while one contracted two years earlier needed $24,587, DVB calculated. That’s based on eight-year financing and daily operating costs of $5,000, the bank said.

--Editors: Dan Weeks, Sharon Lindores.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale in London at anightingal1@bloomberg.net


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