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Monday, December 9, 2019

Maritime Logistics Professional

Drybulk recovery…”It has legs” or “weak in the knees”?

Posted to Maritime Musings by Barry Parker (by on October 24, 2013

At recent ASBA conference, not everyone was convinced that the recent drybulk strength will continue.




ASBA’s annual cargo conference is now going way beyond cargo. With an increasing delegation of ship agents, and an emerging Latin American flavor, this event is now firmly on the map. ASBA President Bill Stewart, no stranger to computers and communications, described the job of shipbrokers (and agents also) as being in the business of filtering vast reams of digital information for their clients.  Still, brokerage and agency work is still enormously people intensive- where face to face contact is vital to cementing relationships. Not surprisingly, there was a hefty social component built into the agenda, a golf outing (where the rain held off until hole #17) , a catered welcome reception, various meals and coffees…very strong coffee (especially in the morning), and an evening boatride around the waters of Miami Beach.

Amidst a line-up of suberb economic presentations, the current travails of agents, who face a variety of measures to stretch cash flows, brought about the liveliest discussions. Lawyer Ray Burke, well known from his work with Burke & Parsons, offered perspectives on obligations under the law of agency, and also reminded everyone about the duties of agents in representing their principals.

Jeff Pribor, a top investment banker (now heading up maritime investment banking at industry stalwart Jefferies & Company, offered a brighter capital markets picture. The message is that investors are interested in shipping. Pribor went down a list of sectors, checking off numerous boxes where investors were looking to get in. He identified LPG, product tankers and drybulk as three current favorites among the Wall Street crowd.

Pribor, who believes that the drybulk recovery is indeed real, engaged in some friendly sparring with economist Arlie Sterling from Marsoft Inc., who acknowledged that the market had gone up “…about 10%...” (according to an index that he has constructed for ASBA), but wondered whether the strengthening might be short-lived. Dr. Sterling suggested that a short term investment, with a holding period up to two years, might be the way to play drybulk, since spikes now might well encourage more ordering- the scourge of a recovery. Slow steaming was also a topic on this panel, with a general acknowledgement that ships speeding up (in response to an improved hire environment) would have the impact of increasing available supply.

The conference keynote speaker was John Wobensmith, the CFO of Baltic Trading Company, a drybulk company formed three years ago and now raising money (with some help from Jeff Pribor), again, to take advantage of a hoped for cyclical rise in hires and asset values. Wobensmith’s speech, looking at the history and the prognosis for the drybulk markets, concentrated on the sharp reductions in the vessel orderbook, the reduced backlog of newbuilds for delivery, and likely continued movements of iron ore.

The “Energy Renaissance” in the U.S. permeated the discussions, whether the topic was exports of LNG (where Bill Cooper from the Center for Liquified Natural Gas predicted additional approvals of terminals), propane and butane exports (discussed by Jerrod Kotter from Enterprise Product Partners), or bullish prospects for product tankers (with input from Tesoro’s Bill Osmer and Navig8’s Jason Klopfer).



The timing of the conference, following a huge run-up in the Capesize market, brought a tinge of optimism to the event. Keynote speaker John Wobensmith believes that the tide has turned- his speech concentrated on the sharp reductions in the orderbook, a reduced delivery schedule, and likely continued strength in iron ore movements. Investors obviously believe this picture; two weeks ago, Baltic Trading completed its second “follow on” offering, raising $55 million to buy vessels. A brighter capital markets picture was the message from Jeff Pribor, who heads up maritime investment banking at Jefferies & Co. (one of BALT’s underwriters on the recent deal). Going down a list of sectors, he identified LPG, product tankers and drybulk as three current favorites among Wall Street investments.

Talking about drybulk, he said “We think that this recovery has legs.” Economist Arlie Sterling, from Marsoft, sounded a cautionary note, pointing out that by 2015- 2016, an again- growing orderbook, and renewed vessel deliveries,  could be a drag on the market. Dr. Sterling hinted to the audience that a short term investment, of several years duration, may be the way to play the drybulk cycle. Additional perspective on an anticipated resumption in healthy demand growth, had come from J. Lauritzen (USA)’s Jesper Bab, who said “We are still in a supercycle.”

LPG (mainly propane and butane) came up in a number of contexts; Jeff Pribor identified the U.S. energy renaissance as a factor which has contributed to the more positive investor view of shipping; he made special mention that “Investors are asking us about LPG”.  Mr. Jerod Kotter, from Enterprise Product Partners, went into some detail about how increased gas production creates a supply of  “liquids” byproducts for export; he noted that the U.S. is now the world’s top propane exporter, having surpassed Qatar- a prodigious gas producer.

As always, forecasting is dangerous, especially concerning the future (to quote the noted philosopher Yogi Berra); certain critical assumptions need to be the subject of scenarios rather than being presented as certainties. In discussions at various points in the conference, questions came up about the impact of speeding up the fleet- which would increase effective supply and push capacity utilization downward. Dr. Sterling also asked the audience to ponder a scenario of oil prices moving sharply downward and all its implications. One looming “what-if?” that came up in discussions concerns shale oil- not in the U.S., but, rather, in China and India  What if these countries, which figure in economists’ future estimates of hydrocarbon demand, were to produce tight oil from shale formations?


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