Don't do it. That was the message of Pacific Basin Shipping's chief executive to anyone thinking of ordering new bulkers that would add to fleet supply.
Mats Berglund's efforts to tamp down enthusiasm to build new vessels came as the Hong Kong shipowner and operator reported improvements in rates across its fleet during the third quarter.
"We have banks, we have analysts, we have investors listening to this call. Please help us in this effort of keeping new ordering low," he said during the bulker company's third-quarter conference call on Wednesday.
"It doesn't make any sense, with the very large gap that we have between newbuilding prices and secondhand prices."
Secondhand ships are much more attractive to buy or invest in, he added.
Bulker ordering activity is at around 1.2% of the live fleet, which should be "easily" offset by scrapping, which is currently at around 1.7% on an annualised basis, Berglund said.
This, he said, will eventually lead to reducing net fleet supply, which is "what we need to tighten up this market".
The Hong Kong-based bulker outfit specialises in owning and operating handysize and supramax bulk carriers.
The combined handysize and supramax orderbook is currently at 2.5% of the live fleet, which is forecast to fall to 1.6% in 2021, according to Pacific Basin's investor presentation.
'Wait for certainty'
But it is the uncertainty surrounding future vessel technologies that would really make it a foolish bet to order new ships right now, Berglund said.
"If you order a ship today, you will still get an engine that is built to run on heavy fuel oil — and who in his right mind orders such a ship today for delivery two years from now and you need 25 years' life out of that ship? You're not gonna get it," he said.
"Wait, with newbuildings, until new technology and new fuels are available — but that will take time."
Pacific Basin has "significant hope" that newbuild contracting should "logically" remain low while demand remains firm, he added.
"There's been nothing wrong with demand, other than the Covid period. It's been supply that's been too high," Berglund added.
Recovery in cargo availability
Pacific Basin said it has seen the market for handysize and supramax bulk carriers rebound on the back of improving cargo availability during the third quarter.
Time-charter equivalent (TCE) earnings for the firm's handysize vessels were $8,000 per day during the three-month period, which is 11% above earnings during the first half of the year.
Its supramaxes saw a 12% improvement over the same period and had TCE earnings of $11,200 per day during the third quarter.
Pacific Basin said a significant upturn in minor bulk cargoes has caused overall dry cargo loadings to reach just over 5bn tonnes during September, the highest monthly level seen during the past two years.
Between January and September this year, dry cargo loadings overall dipped 1.9% or 66m tonnes year on year, according to the company.
Minor bulk cargo loadings have seen a year-on-year fall during 2020 to date but have recovered strongly in recent months, totalling around 1.65bn tonnes for the month of September, the company said.
Grain exports from South America were particularly strong during the first six months of this year and high levels of exports from the US were seen during the third quarter, he said.
Demand for coal, meanwhile, has been the weakest in terms of large-volume commodities so far this year, due to lower energy consumption.
However, increasing coal imports to India have helped loadings of coal cargoes climb month by month since July, reaching 1.1bn tonnes in September.
New independent director
Meanwhile, John Mackay McCulloch Williamson will join Pacific Basin's board as an independent non-executive director on 2 November.
Williamson has been on the board of Hong Kong Exchanges and Clearing Limited since 2008 and currently chairs its risk committee.
He also currently serves as non-executive chairman of UK Tote Group, the British pool betting operator.
Between 2011 and 2018, Williamson was chief executive officer of SAIL Advisors, a fund of hedge funds based in Hong Kong that manages around $2bn.
