647, good heavens – the market deeps down to…Hades!

Markets, News, Politics and Government — By on February 27, 2012 at 8:53 AM
John Faraclas

647, yes you read correct!

The 25 plus years low of the BDI on the 3rd of February is yet another milestone of an otherwise predictable market by the writer, …err John Faraclas, and the continuation of erroneous market predictions, assessments and failures by the hoi polloi of the Square Mile, down town Akti Miaouli and Wall Street- I am not mentioning the Far East/Pacific Basin centres yet. It is the second major bottom-out of the market following the 662 one in December 2008, proving, in my humble view, that there are no cycles anymore, and if for argument’s sake same exist, are parabolic…

The big change begun 12 years ago, in the millennium, yet another year of the Dragon! At the “Sea Power at the Millennium” conference in Portsmouth, organised by the Royal Navy, Portsmouth City Council, the Society of Nautical Research, The Naval Review, the Greenwich Forum and the Royal Naval Museum – I mention the organisers as a hint for the importance of the event, needless to say who was present, the new era in shipping begun. This international conference examined in parallel sessions all aspects of sea power, strategic, commercial, industrial, and social at the turn of the millennium. Particular attention was given to the influence of sea power through the ages, and especially in the latter half of the 20th century, and the conference focused on the forward coming events to the likely impact and importance of sea power in the new millennium. What was discussed and debated, particularly at the reception -where The Princess Royal attended as she did for the first day events – more or less is happening today.

The warning though come as far back as in April/May 1986 by Jim Davis, the Chairman of IMIF, at the Worldfleets conference in London, when he said: “There is a way ahead but I am bound to say that it will only be attainable if the industry shows self-discipline, common sense and a preference or the secure but unspectacular return over the elusive jackpot”. The conference was about setting out genuinely the identification of measures which might have helped (then) to change the bleak state of the worlds’ shipbuilding and shipping industries. He continues to remind us our…greediness by quoting George Santayana’s cliché: “Those who cannot remember the past are condemned to repeat it”. We are now in a far more damning situation; we are in dire straits!

To emphasise more the failure of advising the shipping public by the hoi polloi, immediately the indices gain some points from Monday the 6th of February 2012, everybody rushed to write his long and short view, except this medium. “What do we read in various papers, sites, and blogs and shipbrokers weekly reports?” In answering this question: “The long and short explanation and euchologion from the morons of the industry – and their cronies (that’s the best branding epithet one can attach them under the circumstances), with excuses (for the upturn), such as “…that the Chinese are singing new contracts after their New Year festivities, ” “…that the xyz situ is in place” and so forth – what a hullabaloo!” Indeed the Chinese AND others are signing contracts, but this is not the point.  Very few shipbroking houses are slowly slowly admitting that the market is bad… It’s like what happens nowadays in Europe and the World at large with the contagion due to the world’s coming worse recession crisis – you haven’t seen anything yet; even the USA is under economic caution!

All is happening and reported is basically to cover-up the sins of predictions and wrong market analysis which, failing to perform the appropriate projected risk assessment – coupled with tough ALARP mechanisms, brought this state in the shipping markets. Add the cover-up of bad loans via re-finance, or loans arranged to develop the shipbuilding industry in the Far East – to the detriment of Europe in particular, as with the Far Eastern and other synergies, the Far Eastern Shipbuilding industry is thriving. This will lead, very soon, to unspeakable repercussions very soon, add the fact that there wasn’t any regulation in place whatsoever, any quota let’s say – like fishing quotas where you dead well know what’s happening with the frigates ready to sink you if you intrude or do something incompatible with the “agreement”…, for allowing the construction and finance of thousands of ships…. Well, you see now what’s happening! There is a long way to go. I repeat: You haven’t seen anything yet; I hope that the part on “Politics and War” which follows will help you understand the happening!

The Baltic Dry Index (BDI) at the time of 647 – source: the Baltic Exchange

As people talk and say 647, it sounds as if you go to a black-tie ball specifying the time, 6 for 7; isn’t? So I have to celebrate for yet another accurate prediction.  A month ago I gave you a clue as to where we are heading – most agreed and only one thought to brand my prediction as well as the total market situ, as nonsense… well then; you can’t hide! Where are you?

Politics

The market, and given the parameters (credit crunch, luck of  war, 21st century dirty politics, religious- political fundamentalism and the American eagle testing its appetite – as well as flexing its muscles, earthquakes, tsunamis, floods, social capitalism in the Far East, energy as a tool for manipulating nations, transparency at its worst ever point, human business rights indeed at a very low level, despite the abbreviation of HR…, being excessively overused, mild social upturns -as yet, and other parameters) is going to be interesting! Don’t forget: we are living in interesting times…

For the purpose of understanding the Markets and conversely the Politics and geopolitics involved, one has to distinguish Liner Shipping from Tramp Shipping, Tramp Shipping chartered by mega liner groups; Shipping Transporters/Carriers of the former colonial powers, Shipping Companies – liner or tramp belonging to the G7 Group, State owned companies; “Public” Companies and of course the most populated nations’ companies, such as China and India. BRICS, PIGS and the lot of silly abbreviations, unfortunately, count to a leaser extend. Within this melee you have the Greek boys (sorry …WISTA’s) and the Flags of Necessity groups. The Greek boys by the way managed to prove of being the best and most reliable transporters mostly in dry and general cargoes, offered the optimum freight rates to assist the super power and its allies in carrying the goods/cargoes to rebuilt the World in four decades following World War II, and as a “compensation” to Greece, coupled with Greek seamanship, they were very successful  – by the way let me remind you what Thucydides c.420 B.C said: “Seamanship, more than anything else, is an art and is not something that can be picked up and studied in one’s spare time. Indeed, it allows one no spare time for anything else.” It was, and still is that due to seamanship capabilities, the Greeks created these successful shipping enterprises.

So you now have the flavour of the “Politics” involved… well not quite; read further:

Politics where you register your vessel’s company; Politics of her flag, Politics of her Finance status and Politics of where the Mortgage is safely retained until the final repayment, Politics of Ships Arrest and conversely Politics of Ships auctions; politics of Human Recourses – Crewing Matters, which nationalities and why we should prefer; Politics of Safety and Security – …not to mention Piracy and Terrorism, where politics and above all human life have been ridiculed;  Politics for health issues affecting on-board  – sex harassment  or diseases and ashore matters such as Shipbreaking and office hours; Politics from where you run your business from;  Politics from which shipping capital or centre to charter or sale your vessel – this has now, thanks to Zeus and Poseidon, being eradicated; Politics of Maritime Education and Training, not to mention Academic issues, such as where to study, and which curriculum to follow;  Politics for the Environment and Emissions coupled with Stock Markets issues…; Governmental Politics; Politics of Ethics; Politics of the shipping Media; Trade Politics such as Cabotage matters, Shipping conferences deriving from liner trade; Energy politics,  such as the interpretation of the Law of the Seas and in particular EEZ issues – territorial waters and the lot; Politics for Insolvency – that’s another big scum as well as that of jurisdiction for auctioning and foreclosing bad ships debts – and not ships, or what about Politics of Bribing and Transparency; Politics for lending money,  not for bankers’ performance bonuses, but for the real thing: C o m i s s i o n! One can go on and on, the list never ends. Now you see why ship-shape is the buzz word, not only to save Greece et al – per previous reporting, but how things are being done excellent with the multi experiences we all have acquired from this vast industry, the biggest in the world: Shipping! After all Politics is Strict Business!

Now, the issue is that I am pleased that we are in a bad market, in this credit crunch and the lot surrounding the world today, as a good thing will come out of it; “pleased” of the state of fraud and political hooliganism, business hooliganism yet a more than a necessity to be crushed together with the opportunism, as the Greeks have a maxim for this situation we all live in: “ουδέν κακόν αμιγές καλού” – translated into Latin as: “Malum quidem nullum esse sine aliquo bono”, in free translation meaning: “Lining no evil: in everything, as it may seem negative, is always a good thing”.-

So, let us get briefly straight to the Markets as same stands today in nearly all sectors/fronts:

Liner shipping: the end of the beginning, as the freights and tariffs established by the shipping conferences on a contractual base for a certain period of time or for a specific quality or type of goods, and other reasons, this field might enter in full jeopardy. Just take for example the New Zealand enfolding saga. Liner trade is expensive, particularly under today’s circumstances; liner trade is a state within a state, so to speak – not fair for the open market, not fair for the consumer. It’s the trade of past era. Goods will be cheaper for the end user, particularly with the anathema of globalisation (begun on another basis and purpose and ended up in creating unemployment, bankruptcies, the lot at the other end of the line) if these goods are carried by tramp tonnage, even chartered-out to liner companies before they die, it will be for the benefit of all!.- A war can break-out from the way this pattern of trade rips-off the middle man in the street!

Tramp shipping: the best free market for all, subject to non-political dependency and dirty tricks! If finances and shipbuilding quotas, together with eco-friendly ships are in place, there is a future for the most capable shipowners. Sorry, the cake will be divided for the few and most capable ones; not for the upcoming shipping hooligans, sorry guys and dolls, you distort the markets with incalculable repercussions to the public, to the consumer, the seafarers, to all. One needs though to address the destruction by the ship-financing system which slowly slowly destroyed the bulk of the “international body” of shipowners, particularly the small to medium ones (with 2  to 6 vessels each) who comprised the 70 centum of the fleet 30 years ago and now this amounts to a mere 40 centum level. These owners kept the business healthy and the competition alive to all parties benefit! Caution over the companies which enjoy the Stock Market listings. Sorry, you will be diminished, even if you sort out your courtyard; All things being equal, your less than twenty years trading , except some very very few of you, you produce problems to all! The result will be from 59 down to 29 down to 9!

When I entered the competitive Ships Sales and Purchase and Finance in 1979, they were about 400 shipbroking houses and 400 banks and financial institutions. Guess how many are left today, particularly in Shipfinance…

Shipping of the industrialised countries, former colonial powers and the G7 or G8 Group: Well, I maintain the view, that for the time being we should continue calling it the G7, sorry Vlads.- These “traders” are in tatters and will continue to be as the oligopolistic situs these days prepare the burial  for the lot.

I guess that with the cost of fuel, diesel, lubs, piracy and other problems/costs, we are going back to National Fleets and then obviously we will say good bye to piracy and many other problems. But who is orchestrating this return? Watch this space!

Bulk trades: The merge of mining groups and further consolidation  of companies with modern synergies involved will greatly affect all bulk trades. China is just one factor, but not the catalyst as some would like to say and portray!

Panamax’s have suffered and will probably suffer when the new Panama Canal opens for trade; the crossing/sailings via these new “techno/geographical dire straits” will see a new era for these ships, particularly the Post-Panama-Canal- Tonnage (PPCT). Eco-PPCT’s will be en mass in hundreds on order. Other tonnage will end up recycled! The shipyards and equipment companies will be saved, hopefully!  Turkey too has ambitious plans for a new Canal to link the Sea of Marmara and the Black Sea; and what about the Skra peninsula…?  Never forget the geared panamax: it can cause trouble to sister gearless size-wise containerships, a self-sustained versatile super-hull!

Capers: The 170, 000 dwt ones will always have a future, especially the new eco-friendly ones. Danger though looms from the 200-400, 000 dwt hull with mega loading/discharging terminals on the cards.

Handy size: Always afloat always accessible.- The bread and butter of the industry today – sizewise; again new eco-friendly tonnage in all respects, remember this, is needed. TEU/FEU capa and 40 tons gear is a must.

Wets

Aframaxes: Again all tonnage would be rebuilt in an eco-friendly manner. Obviously this brings catastrophical results for banks, institutions and all the clever dicks who thought to make a quick kill and enter the Dragon’s market will be seating on the pole…. Given that some banks are being Nationalised. Share-holders of tonnage within the stock markets will suffer too…. Du gambla du fria, as the latinos say…

VLCC’s: the same applies here; this tonnage is much needed, as climate change is her best charterer! Expect to see VLCC’s/VLBC’s (combined ones) on en mass orders…

ULCC’s: Et tu Brute?  Scandinavians and in particular Norwegians the best in the field, save some Japanese, US, Mediterranean and Middle-Eastern flag-of-necessity owners. Yes ULCC’s are a specialist tonnage to safeguard the world in the preliminary stages of a possible social upturn and the destruction of oil fields and depos from sleeping terrorists… Well, all things being equal, never forget what happened in the mighty Roman Empire and in particular its eastern part: the Revolution of 602 A.D! It was an event of pivotal importance in the history not only of the Roman Empire, but of the world as a whole! In a sense, its consequences still reverberate today, for it weakened the Empire at a critical time and led to the de-Romanisation of most of the Balkans, the loss of 70 centum of the Empire and, perhaps most significantly, the rise of Islam. Never forget Santayana’s cliché at the prologue of this report.  This is a risk assessment, a probability, alike the closure of Canals or Straits or even shipping lanes and inland waterways. One has to be covered for every, repeat every eventuality. The culprits, who blew us up on 9/11 or that terrible July twice in London, or the Madrid railway station and Bombay’s Hotel’s horrible incidents, to name but a few terrorist attacks, can strike again; they call them “vigilante”, correct? So, be on guard too!  Don’t forget that the WWI “started” after a “terrorist” assassinated Archduke Franz Ferdinand of Austria in Sarajevo.

Chems and products: One of the best investments; any size can do, subject the trade and the type of tanks coating are the best, in my view the stainless steel ones. Also what’s you rapport with A1 traditional and political based charterers; “religion” too can pay dividends – at the time of festivities.  Again, modern eco-tonnage is needed.

The big issue in Energy matters comes from Arctic Shipping and Arctic shipping’s oil and gas trades. This will create other balances and as long the oil belly of the world is on fire from the Straits of Gibraltar to Borneo – this zone-belly extends 3, 000 miles to the south, and will most probably be the new hot spot. The Arctic will change the world in many ways: climatic, commercial, geopolitical, social to name but a few. And if say countries within the oil belly misbehave, then they will go on to the shelve of business oil history… as he Arctic is the alternative. In a statement back in 1983 at the then Output magazine, I said that the Persian Gulf should be completed close down (due to the Iraq- Iran War and other manipulations), so as the heavily indebted Africa and Latin American countries sell and also explore more oil to pay part of their colossal debts!

Containers: I have always maintained the view that even water will be carried in containers. The problems here are the correlation of newbuilding costs, too expensive maintenance, expensive bunkers to run them on fuel, lack of crew specialist members, needless to mention what can happen if industrial protectionism takes place, something feasible if the IMF wants to see the debt ratio of many economies to stabilises and come down, given the aggressive expansion of imports from the Far East. If LNG’s engine tonnage comes quicker than anticipated, the powerful and capable owners, can expect some medium to long terms profits.

Reefers: Moving to total reefer containers-ships, will most probably enhance earnings as traditional reefer tonnage becomes “obsolete” and too expensive to run for what it offers. The 90’s are over long before. Even cheap tonnage of the old type can become obsolete. 1, 000 TEU reefer container the best size to conquer the markets. The markets due to the rise of the overall standard of leaving of the rich, can sustain reefer products and the climate change helps too! The Tourist Industry and catering’s new menus adds as a plus!

Car carriers: oppppppppssssss! The tonnage to watch! Combined ownership or car-makers participation can slush the charter costs! Again, protectionism of car-makers will also affect the markets. The big ten car-makers group are already at war.

Passengers/Ferries and Ro/Ro’s: Ideal for island areas and short distances alike the Dover – Calais or the Scandinavian short routes, or the Greek Islands or Indonesia or Caribbean, the Red Sea, but what about the bunkering costs?  What about the structure of ownership(s)? Given the rise of accidents, sinkings and the speed factor, the majority of the world fleet needs to be rebuilt. Conversions are too expensive for what they offer and cannot anymore be adjusted to switch from one geographical area to another. As for the Fast Catamarans and fast mono-hulls I guess the investment is right subject there is a correlation between the number of passengers, speed/cost of consumption and minimum equilibrium profits. Also add the fact that these crafts should be designed and trials should take place in the area for which they will trade. There have been many fiascos already!

Inland waterways: The bigger the volume the better; still too expensive and need to see at least a 30 centum reduction in freight rates to make it viable and good for all. There is future and with logistics’ intermodal synergies this sector can do well. The improvement say in Europe’s Danube – Rhine – Elbe – Oder interconnection will greatly improve the trade and reduce goods prices. It’s about time more funds are allocated. With the Black Sea countries and its periphery in desperate need to export/import, this is a major necessity for the viability of all owners.  The gas/oil counter trade from Russia and its periphery can balance the situation. Equally the Loire – Rhone in France interconnection could be the parallel supporting scheme for enhancing Europe’s capabilities. In the US, Brazil and in the Far East, China in particular, the inland waterways is like Father Thames for London and the entire south-east of England. The Black Sea – Caspian Sea region too is of importance, but some treaties have to be adjusted to today’s reality and the new world order. Otherwise more troubles around will surface and will lead to settle old scores, and given the Iranian factor within the Caspian Sea, you never ever know what’s best for all leading to a square deal – just study this case!

Coastal shipping/short sea shipping:  In principle favoured, financed and claimed to be “subsidised” too from many regions worldwide for the benefit of the coastal areas.  Subject proper-sized feeder tonnage is included in these schemes, there is a chance with modern tonnage too for one to make steady profits. Interwoven with proper intermodalism this sector can revive the economy in certain regions and, combined with the inland waterways shipping, can bring down/reduce goods prices, much needed in today’s volatile and uncertain economic environment, in areas such as the European Union and Europe at large. Far-eastern Countries and Indonesia – Australia region as well as the Caribs too, look promising under the same proviso.

LNG: Definitely the rising demand will squeeze the markets, but lately the introduction of LNG as marine fuel will make the markets go berserk! We have recently already covered articles and news on this matter in this medium. There’s going to be a big change. LNG overall is the new buzz word for energy – we shall see… The USA’s impact on “shale gale” is tremendous! Mind me, the LNG industry is capital incentive and projects have a long lead-time.  Are we in the age of Natural Gas? Given the terrorism factor and the vulnerability of pipelines gas, the LNG vessel has a future. Things are moving east of Suez…. Try to interpret this! LNG/FPSO’s something I would recommend for investment if you can find cheap capital/cash and obviously the availability.

Listening to the song “Live and let die”, particularly where it says “…but in this ever changing world in which we live in, makes you give in and cry..”, now on a macro level in… this changing market environment, being innovative will become a necessity, not just luxury for those with time to spare. On the micro level, indeed it nourishes an entrepreneurial spirit, much needed these days of credit crunch and reduction of costs and it creates good business. Following the trend is one thing, do shape and form the trends which will benefit you from this changing market, yet another issue! At the end of the day you will never cry!

The shipping industry finds the operational savings that gas offers to be very compelling. Similarly, the significant environmental benefits that LNG fuel provides are of increasing importance, isn’t?

LPG:  Since the millennium there has been a surge of 20 centum and will continue too given the Chinese and Indian market needs. Fierce competition from LNG above, but it is an alternative and ammonia is great and will-be-cheap. Caution on both, as political energy issues are to the fore. Be on guard twice. Too expensive ships as yet to construct. –

The Cruise industry and conversely Tourism: An important ingredient of the Markets and the World Economy is travel and tourism and we are very much involved in the shipping industry – with cruises, yachting, sailing, you name it, even sports. Maritime Tourism is the biggest chapter and gold-mine still untapped! Mega ships accidents should only alarm us to have an ALARP on and more discipline, effective discipline for seamanship issues. Mentoring, as in all cases, a must. Whatever happens you are responsible for the incident or accident involved. You have been told and you have to perform within your Mentors’ guidelines! Being a master mariners son, I dead well know what I am writing down. Having been at sea too, prohibits me to remain silent; we have to speak up!

Now, small and flexible 1, 000 passengers ships with 300 crew on, is the name of the game; you don’t have to be big and beautiful, unless you can respond to every, repeat every eventuality!

Need a break, well, I guess you do, but firstly look at the current state of the main indices, gold price and the Euro/US Dollar parity at 1, 34… and think how these indices and figures  affect our shipping markets:

With Nikkei at 9, 647, DJ Industrial Average at 12, 982 and FTSE at 5, 935, gold at US$ 1, 771 and the US$-Euro saga making waves, we are entering the dangerous zone.

The indices are doing well given the state of the market and world economy, obviously there’s a big bubble to burst like the one in Europe, Greece is the minimum of problems, but the way same is being portrayed makes you think otherwise; you have never ever imagined what else is to come if there is not a political union in Europe and more open admittance of what went wrong so far! Name and Shame! The US is under caution for the state of its economy; indeed it’s the economy stupid! They tell me that we might soon experience controversies over the level the stock market indices and the Baltic ones too. We shall see and will watch with interest the happenings. Personally, I like it…

The G20 had an agenda dictated by the big, powerful and famous within the system. It was a crucial weekend in Mexico, but I do not expect any results coming out, enough pragmatic and executional to shape for good the markets, poverty, tax evasion, unemployment and many more issues. Nothing spectacular unless you don’t get the message. If the Eurozone or a country within the Eurozone collapses, then tell me what’s up doc…

The Oil rich Indian Ocean close to the shores of Somalia is going to be a very hot spot and I wonder what’s gone to happen… For a start I am recommending the few and glitterati to go on with oil platforms and rings and save the area…Did I hear you say gas too in the region?  There is ample, in vast portions! So we have interesting things ahead, so be on guard and take the opportunity as it comes. The battle of Mogadishu was almost 20 years ago now. It was one of Clinton’s biggest blunders, cigars aside. I guess President Obama has another agenda; will he use it? Will he also save the lives of hundreds of seafarers being demonised, executed or kept in captivity by the pirates there? Billions of US Dollars are the profit-making of pirates, enough! ITF should really lead the way, it can be done. Following September 11 atrocity, I have warned of the “system” imposing the Armed Guards Regime on board vessels and I guess it is about time this matter of Piracy to get rectified. Do please declare Mr. President, Mr. Obama the entire area a War Zone with whatever this entails and with rules of Engagement. I am sure the Secretary-General of the UN and that of IMO will assist! The Piracy case must be resolved here and now!

With respect to Politics and War – our theme for this reporting per editorial schedule, one has to understand that we have Super Powers, Big Powers, Middle Powers and Small Powers. Today and for the foreseeable future the United States of America is the Super Power and flexes its muscles as necessary to protect its vested strategic and commercial interests around the globe on a 24/7 basis. Other powers too, big, medium or small, do the same but to a lesser extent. Be pragmatic, we all know that the whole situ is an oxymoron!

We have recently experienced the North Africa saga and West Middle East and there is more to come in this area with Syria being a big issue and Iran’s uranium progress a threat to trade, unless there is a square deal. Hostilities can lead to a major conflagration, which I like it… but still Iraq, Afghanistan and other regions have as yet to enter the peace era; and what about “developments” in the South-west Atlantic? Will the United Kingdom and Argentina come to terms, or else? I wonder the strategists how do they feel these days. There is more to come.

You see “War Father of all”, an axiom, not just a cliché of the Ancient Greeks.  If you do not destroy you cannot rebuilt; this is the pitiful message in history. War is good even for the warring ones. Indeed I am cynical and pragmatic; why should be a “pacifist” hypocrite?  Have you ever imagine what was the product of the Second World War? The long period 10-12 years timecharters to rebuild the world to all intents and purposes!  From where all these rich people made their money from and who saved the bankrupted banks? The rest is philological moron’s excuses!

Look forward to your written comments and let’s see what enfolds from now on!

P.S. What if WISTA International adopts Lysistrata revisited?

    2 Comments

  • Alderman says:

    Wow, what a general review John, I am impressed. Regarding the BDI 647 it is too damn close to the hated 666 where it better not stabilize. Nevertheless, may I suggest a toast in the good health of all those idiots who have killed the freight markets through their criminally negligent over – ordering. May they live long to remember what they have achieved.

  • Dear John,

    I read your article as abstract of your speech at LL Conference held at last November. My mind came back at Ledra Marriott LL Conference 2008 when both broke up the euphoria from the floor to state our gloom view about shipping close future, therefore we predicted the imminent collapse. Unfortunately most of them considered us blighter, so along few times I was “banned” from shipping market, nowdays all of them are rethinking and are prompt to change their opinion, however new shipowners generation is self-opinionated and never admits to be wrong, even if tight (or negative) operating cash-flows confirm that.

    At soon see you.

    Kind regards.

    Fabrizio

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