Lauritzen Bulkers - best ever results
In 2007, EBITDA was USD 239.5m, up from USD 77.6m in 2006. This improvement was due to the very strong market for ocean transport of dry bulk cargoes combined with segmented cover strategy. Operating income benefited from USD 61.4m gains from the sale of vessels, up from USD 16.9m in 2006.
Net results were USD 326.2m compared to USD 86.7m in 2006 and included earnings from associates of USD 20.5m in 2007, up USD 14.8m on 2006, and net financial gains of USD 21.3m, up USD 17.7m on 2006 due to gains on securities. Results were better than expected and very satisfactory.
Main events
Lauritzen Bulkers’ growth strategy continued in 2007.
Orders were placed for six Capesize bulk carriers with four 180,000 dwt from Hyundai Heavy Industries Co. Ltd., Korea, for delivery in 2009-11, one 180,000 dwt from Imabari Shipbuilding Co. Ltd., Japan, for delivery in 2011 and one 174,000 dwt from Namura Shipyard Co. Ltd., Japan, for delivery in 2009. Long period charters were concluded for two of these newbuildings on delivery from the yard.
Two 33,400 dwt open-hatch Handysize bulk carriers were ordered from Kanasashi Heavy Industries Co. Ltd, Japan, for delivery in 2010-11.
During the year, part ownership was acquired in 6 newbuildings for delivery in 2008-11.
Two purchase options were exercised for a Panamax bulk carrier, which was subsequently sold, and one Handysize bulk carrier.
During the year, Lauritzen Bulkers took delivery of one Panamax and six Handysize newbuildings and a further nine time-chartered secondhand vessels were added to the fleet.
Based on the current contract portfolio, the controlled fleet will increase by 50 newbuildings in coming years with seven in 2008.
Market trends
In 2007, dry bulk market freight rates broke all previous records with the Baltic Dry Index (BDI) reaching some 11,000 in late October. At the end of the year, 12 month period rates were about 140% above the opening levels for Capesize, 110% above for Panamax and 100% above for Handysize, cf. Figure 3.
The market showed volatility during the year, with BDI increases of almost 50% during the first five months, before falling back by 20% from mid-May to mid-June, followed by a 110% increase by the end of October. At the end of 2007, the BDI had dropped back by 16% from the October peak.
During the year, second-hand prices went up by 70% for a five year-old bulk carrier and new building prices increased by 25-40%, depending on size.
Demand for bulk carriers
Demand for seaborne dry bulk trade increased by an estimated 5% in volume terms during 2007. Longer haul voyages and increased waiting time at ports raised demand even more in dwt terms.
Strong activity in building and construction as well as in machinery and car manufacturing led to a buoyant market for steel globally. In consequence, the demand for iron ore and other inputs for steel production increased strongly.
Shipments of iron ore, driven by strong demand from China and increasingly supplied by Brazil formed the largest contributor to growth in demand. Seaborne trade in coal benefited from rising demand and longer average trips. Alumina, scrap and steel products enjoyed high growth rates as did phosphates and manufactured fertilizers, whereas seaborne trade in grains, cement and forest products only grew very modestly.
Supply of bulk carriers
The dry bulk fleet grew by 6% to slightly above 390m dwt, based on deliveries of 25m dwt and deletions of a mere 1m dwt during 2007.
New orders were exceptionally high with 150m dwt contracted during the year, at the end of which the order book amounted to nearly 60% of the existing fleet compared with 22% at year-end 2006.
Delivery schedules are heavily biased towards 2009 or later delivery, cf. Figure 4. Fleet developments will also be affected by conversions of single hull tankers to very large ore carriers, most likely with effect from late 2008, but precise volumes are uncertain.
Lauritzen Bulkers’ fleet
In 2007, Lauritzen Bulkers’ total number of ship days reached 26,092 with 71.5 vessels on average, which was up 14% on the 22,799 days from 62.5 vessels on average reported in 2006, cf. Figure 5.
Lauritzen Bulkers’ fleet of Handysize bulk carriers, commercially managed in a joint-venture with Island View Shipping (IVS), averaged 55 vessels, which was up from 47 vessels in 2006. At year-end 2007, the combined Handysize fleet stood at some 65 vessels.
On average, in 2007, Lauritzen Bulkers’ Handymax fleet comprised 6.5 vessels compared to eight vessels in 2006, with a further five Panamax vessels (up from four in 2006), and three Capesize vessels (two vessels in 2006).
At year-end 2007, Lauritzen Bulkers operated 31 long-term time-chartered vessels, some of them with purchase options, in addition to its fleet of owned vessels.
The wholly-owned fleet comprised 11 vessels at the end of 2007 and Lauritzen Bulkers had part ownership of a further 15 vessels.
Fleet management for Lauritzen Bulkers’ fleet of own bulk carriers is undertaken by part-owned New Century Overseas Management Inc., Manilla (NCO), a subsidiary of Good Hope Overseas Management Inc. Vessels are registered in the EU, Singapore, Panama and the Bahamas.
The off-hire rate of the own fleet, including scheduled dry docking was 1.1%.
Events after year-end
In January 2008, a 53,000 dwt Handymax second-hand bulk carrier was acquired and sold and a 31,800 dwt Handysize bulk carrier was ordered in Japan for delivery in 2011.
Long period charters were concluded for two of the Capesize bulk carrier newbuildings and for two Handymax newbuildings on delivery from the yard.
Prospects for 2008
The volatility witnessed in 2007 is expected to continue in 2008. In general, it is envisaged that demand growth will continue at a healthy rate despite the slight weakening of the economic trends. Due to exhaustion of nearby suppliers, China and other Asian economies will have to source supplies of iron ore and coal from even further away which will mean longer hauls. This will support demand growth as will continuing port congestions caused by logistical problems.
Freight rates are expected to be lower towards the end of 2008 than at the end of 2007 as supply growth starts to outpace demand growth. Supply trend prospects for 2008 are fairly uncertain. Whereas projected deliveries of the order of 30m dwt, equivalent to about 7% of the existing fleet, are fairly certain, deletions and in particular conversion of tankers into ore carriers are very difficult to anticipate. We estimate the net effect of the two latter components at 1-2% of the fleet.
During the year, Lauritzen Bulkers will take delivery of seven Handysize newbuildings and one Handymax newbuilding.
Lauritzen Bulkers’ expects profits before tax to be in line with 2007.
