Lauritzen Bulkers
President Jens Ditlev Lauritzen
EBITDA was USD 77.6m in 2006 compared to USD 130.8m in 2005. Earnings were influenced by a softening of freight rates in the first half of the year. However, overall results were better than expected and most satisfactory.
Profits before tax were USD 93.4m compared to USD 165.9m in 2005. This included gains from the sale of vessels of USD 16.9m down from USD 23.6m in 2005 and also included result of USD 5.7m from associated companies compared to USD 9.6m in 2005.
Main events
During the year, six additional 32,000 dwt Handysize bulk carriers were ordered from the Hakodate Shipyard in Japan for delivery in 2008-11, bringing the total number of newbuildings in the series to eight.
Four 58,000 dwt Handymax bulk carriers were also ordered from Tsuneishi, Japan for delivery in 2011 from their Cebu shipyard in the Philippines.
One second-hand Handymax bulk carrier was acquired and two Handymax bulk carriers were sold in 2006.
Four second-hand Handysize bulk carriers were acquired as well as the remaining 50% of two part-owned Handysize bulk carriers. Three part-owned Handysize and one part-owned Handymax bulk carriers were acquired in 2006. Finally, a Handysize newbuilding for delivery in 2007 was taken on long-term time-charter.
Two Capesize bulk carriers were taken on long-term time-charter, thus strengthening Lauritzen Bulkers’ presence in this segment.
Market trends
Spot market rates opened on a fairly weak note in 2006. In June, however, a broadly based recovery of the market started doubling spot market rates. Period rates took off at the same time. Towards the end of the year congestion was building up again in Australia and South America, putting further upward pressure on market rates, cf. Figure 9.
Second-hand prices increased modestly during the first half of 2006 but ended the year by having improved by about 35% on average depending on vessel size and age. New building prices for bulk carriers increased by 10-20% during the year.
Demand for bulk carriers
Global seaborne shipments of bulk cargoes increased by about 4% in 2006, slightly less than in 2005. Iron ore shipments enjoyed yet another year of strong growth, again led by China but also supported by increased imports into Europe and Japan. Shipments of coal also rose considerably whereas grain movements continued to be subdued.
Movements of minor bulks benefited from strong activity in the building and construction sectors in North America and Europe, leading to a strong rise in movements of cement and steel products, for example, from the Black Sea and Asia.
Prices of most dry bulk commodities are currently higher than 12 months ago with metals on a generally falling trend at the end of 2006. Price trends supported the build up of stocks, which has in turn had a positive effect on demand for bulk carriers.
Tonnage supply
The global bulk carrier fleet grew by an estimated 7% in 2006 to more than 365m dwt. In terms of fleet growth, the Handysize segment was static whereas the Handymax, Panamax and Capesize segments all grew by 7-9% between year-end 2005 and year-end 2006.
Deliveries amounted to approximately 300 bulk carriers, equivalent to approximately 23m dwt during 2006, compared to 21m dwt in 2005, cf. Table 1.
In 2006, orders amounted to 34.5m dwt, up from 27m dwt in 2005. In terms of numbers of vessels, the first half saw 168 units being ordered, with a further 257 units during the second half of 2006, cf. Table 2. In dwt terms and as a percentage of the existing fleet, the order book stood at approximately 22% at year-end 2006 compared with 19% at year-end 2005. Capesize and Handymax currently have the largest order books, whereas the Handysize order book accounts for 11% of the existing fleet.
Table 1: Number of vessels delivered in 2006*)
*)Excluding bulk carriers 10-25,000 dwt.
Source: Clarkson Research Services, Professional register
During 2006, scrapping of bulk carriers remained modest as total deletions were estimated at 3m dwt, or 0.9% of the global bulk fleet compared to 2m dwt in 2005.
Fleet
In 2006, Lauritzen Bulkers’ total number of ship days reached 22,799 (62.5 vessels on average) up 1.8% on the 22,386 days (61.3 vessels on average) reported in 2005.
Lauritzen Bulkers’ fleet of Handysize bulk carriers which is commercially managed in joint-venture with Island View Shipping (IVS) averaged 47 vessels over the year, up from 45 vessels in 2005.
Table 2: Number of vessels ordered in 2006 *)
*) Excluding bulk carriers 10-25,000 dwt.
Source: Clarkson Research Services, Professional register
On average during 2006, Lauritzen Bulkers’ Handymax fleet comprised 8 vessels (11 vessels in 2005), the Panamax fleet comprised 4 vessels (4-5 vessels in 2005), and the Capesize fleet 2 vessels (1 vessel in 2005).
At year-end 2006, Lauritzen Bulkers operated about 35 long-term time-chartered vessels, some of them with purchase options, in addition to its fleet of owned vessels.
Figure 9: Charter rates for Handysize bulk carriers 2005-06 (USD per day)
Source: Clarkson Research Services, Shipping Intelligence Network
The fully owned fleet comprised 11 vessels at the end of 2006 and Lauritzen Bulkers also owns 7 vessels in partnerships.
Fleet management for Lauritzen Bulkers’ fleet of owned bulk carriers is undertaken by New Century Overseas Management Inc., Manila (NCO), a subsidiary of Good Hope Overseas Management Inc. Owned vessels are registered in Singapore, Malta and Panama.
The figure for off-hire of the owned fleet, including scheduled dry docking, was 3.0%.
Events after year-end
In January 2007, Lauritzen Bulkers acquired 35% of a 33,000 dwt second-hand Handysize bulk carrier. In February 2007, Lauritzen Bulkers acquired 30% of a 28,000 dwt second-hand bulk carrier.
Prospects for 2007
Growth in the demand for bulk carriers is expected to remain healthy and to continue to benefit from the current strength of the world economy and continuing growth in China. Some weakening in demand trends may be expected if global economic growth slows during the latter part of 2007.
Based on the current order books deliveries amounting to about 7% of the existing fleet are anticipated. Although the age profile of the fleet in general indicates a strong basis for scrapping, owners’ present financial strength combined with expected rate levels suggest another year of modest demolition in 2007, although probably above the mere 0.9% seen in 2006. Annualized net growth of the order of 5% is thus expected for the fleet.
The forecast is for the supply of Handysize bulk carriers to grow very slowly, if at all, whereas the Handymax, Panamax, and Capesize segments all are expected to grow by about 6% in 2007.
Freight rates and tonnage prices are expected to remain at a high level, with risk of a downward adjustment as supply may overtake demand in the second half of 2007. However, port congestion may contribute to volatility.
In 2007, Lauritzen Bulkers will take delivery of two Handysize newbuildings from Japan and one part-owned second-hand Handysize vessel.
One time-chartered Handysize newbuilding and one time-chartered Panamax newbuilding will also be added to the fleet during the year, as will one time-chartered second-hand Handysize and one time-chartered Handymax.
Results for 2007 are again expected to be satisfactory and in line with 2006. Profits before tax are expected to be about USD 85-90m excluding possible gains from sale of vessels.
