The markets for supramax and handysize bulkers are finding support because vessels are slowing down in the wake of IMO 2020, according to the chief executive of Pacific Basin Shipping.

Mats Berglund told TradeWinds that a reduction in fleet supply following the fuel switch will have a "very positive" underlying effect on these vessel segments, but headwinds are offsetting the benefits.

"The main effect of the IMO 2020 rules is that the vast majority of ships that are burning low-sulphur fuel are steaming at slower speeds now," Berglund said.

"Clearly, you can see that from the fourth quarter the speeds are reducing."

He also noted that a fall in crude prices has played a part in this slowdown.

Vessels could potentially speed up again if the price of low-sulphur fuel oil falls in line with crude, which would increase supply in the market and lower rates.

But Berglund conceded that any growth has been muted because of the effect of the coronavirus on demand for shipping in the handysize and supramax segments.

“The coronavirus is overshadowing everything and freight rates have been very weak,” Berglund said. “But you should note that rates have actually increased for our segments in the last two weeks every day.

Pacific Basin in numbers

Total fleet breakdown

  • Owned vessels: 115
  • Chartered long term: 24
  • Chartered short term: 96
  • Total: 235

Handysize fleet

  • Owned vessels: 81
  • Chartered long term: 17
  • Chartered short term: 41
  • Total: 139

Supramax fleet

  • Owned vessels: 34
  • Chartered long term: 7
  • Chartered short term: 55
  • Total: 96

Source: Pacific Basin Shipping.
Figures as of 29 February 2020.

'China coming back to life'

"China is clearly gradually coming back to life and that has increased freight rates for handys and supras every day in the two-week period, albeit from low levels."

Berglund said Pacific Basin, which is headquartered in Hong Kong, has kept its office open throughout the Covid-19 epidemic.

The company has implemented measures such as the ability to work from home, plus flexible working hours to allow staff to commute at times when they can avoid large crowds and reduce their risk of exposure to the virus, he said.

Berglund reiterated that Pacific Basin’s focus on being “a proper shipowner” would continue in 2020.

The company should be expected to continue its acquisitions this year, particularly in the supramax segment.

“We are in a strong financial position,” he said. “We did several new financing facilities last year as well at very attractive terms, so a very low margin over Libor, and had $383m available in liquidity at the end of the year.

“So we’re in a position to continue to expand our fleet — and, again, it’s primarily the supra fleet — but we are expanding.”

Volatility

Berglund said the segment, being a larger vessel type than handysizes, offers more rate volatility.

“We believe that, in the medium or longer term, we’re definitely heading to stronger markets and hence we will have more leverage, more upside in the supra segment,” he said.

He said Pacific Basin typically has about 200 supramaxes on the water, but only around 40% are owned, “so we still have a lot of room to grow”.

But this does not mean the firm will decrease its exposure to the handysize segment, Berglund added.

“We tend to trade up — we sell some of our smaller, older handys and we buy the larger handysize ships, you know 38,000 tonners,” he said.

For Pacific Basin, being an asset-heavy business is about being able to assure customers of a certain level of quality, according to Berglund, who has a dim view of asset-light bulker operators.

"They have no control whatsoever over the crews, captains or the safety systems of third-party owners that have just contracted a ship for one voyage or a three-month period," he said.

"That's why we're asset-heavy — it is to be able to provide a real Pacific Basin service to our customers and we think that long-term customers appreciate that.

"It allows us to build a larger cargo-based system rather than an opportunistic asset-light company."

Pacific Basin posted a net profit of $25.1m for the full year 2019, which is a 65% reduction compared to its net result of $72.3m for 2018.