Not all dry bulk operators will drop into the red for 2014, a year that, to be fair, can be described as rather dreadful for most dry bulk carriers, as they one by one ahead of Christmas and into the new year as well announced one major impairment after another.
Pacific Basin recently announced a USD 132 million impairment while Jinhui Shipping, listed on the Oslo Stock Exchange, also warned of a massive impairment of the company's Supramax fleet. But at Norwegian Torvald Klaveness, which operates upwards of 120 vessels in the dry bulk segment, Jan Klingsholm (photo), Head of Drybulk, explains that the carrier managed to stay above water. Even though the full-year 2014 result for dry bulk has not been completed, the carrier will achieve a positive bottom line, he tells ShippingWatch.
"As it looks now, we look set to finish with a significantly better result than our competitors," he says.
The dry bulk operator works in the same market as Pacific Basin, Norden and Western Bulk, among others. Like everyone else, Klaveness expected a strong year at the beginning of 2014 and had great expectations for a year that Jan Klingsholm, now, generally describes as a huge disappointment in spite of the anticipated positive bottom line.
"We were all hoping for a strong second quarter, which didn't happen. The Atlantic market was actually the worst in ten years. After that we thought that things would come together again in the third quarter, but the quarter became another disappointment," he says.
When the fourth quarter approached, the entire market thus expected that the recovery would come. But the large decline in Chinese coal imports, in particular, pulled developments in the opposite direction again. According to Klingsholm, the dry bulk operator reacted fast to market developments already in the second quarter, where Klaveness turned the book around, so to speak. In early 2014 Klaveness had more ships than cargoes, but the carrier quickly made adjustments once reality dawned on the operator:
"When we saw that values were not developing as they were supposed to in the second quarter, we turned the book around and reduced the long-term position to a short position instead, and we made a profit on that. That's what operators do: You have cargo contracts, time-charter vessels and the derivative market, and the combination and sum of these three factors enabled us to finish the year as we do," Jan Klingsholm tells ShippingWatch.
As Klaveness does not own any ships, the company naturally does not have to adjust values here. When carrier Norden adjusted its expectations to a deficit of USD 230 - 290 million, the move was the result of time-charter contracts relating to chartered tonnage. Klaveness has been frequently adjusting the value of chartered vessels and cargoes to have them fit with the current market value, and the company will therefore not adjust its chartered fleet of around 60 ships.
New view of 2015
Where optimism was very much bubbling at the beginning of last year, there is a markedly different atmosphere in the industry today, a fact that is also reflected in the numerous impairments. Norden's interim CEO, Klaus Nyborg, described the carrier's impairment as a necessity following a far too optimist view on 2014.
Today, last year's optimism has been replaced by more bleak expectations for the current year, with markets still characterized by far too many ships and not least depending on developments in China, for instance, where coal imports were a huge disappointment to dry bulk carriers in the second half of the year.
At the beginning of 2014 the market projected between USD 13,000 and USD 15,000 per day for a standard Panamax - now the market has dropped to half of what it stood at in early 2014, says Jan Klingsholm.
"We might have been a bit too optimistic for 2014. Now the market consensus is completely different, the industry is very negative and doubtful about growth in China and especially the country's coal import, and there are still a lot of ships entering the market. Supramax, in particular, is experiencing a bigger influx of ships than in 2014," he says.
Yet he allows himself to be cautiously optimistic about 2015. He bases this notion on factors such as the dramatic slide in the oil price, which provides a solid foundation for growth in the global economy. The US economy is developing strongly and could serve as an interesting driver, as Klingsholm says. Meanwhile the balance between supply and demand might be in better balance today than before, where there were more ships on long-term charter, he says.
"And there'll also likely be more tonnage scrapped, so from a supply perspective things might look a tad brighter, though with the reservation that the Ultramax sector could come under pressure," he says, referring to Supramax vessels.
Jan Klingsholm adds that the decreasing price on commodities last year resulted in higher cargo volumes, and that this could continue into 2015. The key player in the dry bulk market will be China.
"China is vital to this development. China has imported incredible amounts of iron ore and grain in 2014. The country exported a lot of steel and then disappointed in terms of the coal import, which is important to the Panamax sector, so we're excited to see what's going to happen," he says.
A contributing factor to this cautious optimism is the backside of a lower oil price, the lower fuel price, which could make ships speed up if growth emerges. And this represents and indirect danger that could sustain overcapacity on the supply side.
"But one should not be surprised if lower commodity prices and a lower oil price help the Chinese growth," says Klingsholm.
Klaveness operates two commercial dry bulk pools. One for Panamax (Baumarine) and one for Supramax (Bulkhandling). And the company notes a growing interest for both these pools, according to Jan Klingsholm.
"The industry is looking for consolidation. We have a good tool for this through our two pools, and we're seeing a growing interest in collaboration. This could be strategically or downright that players are looking to place ships in pools in order to improve earnings. And we're also noting a growth in demand from our cargo customers, he says.
"This could be because the market is more risky, that we're a more established player, and then we've shown during the last few years that that we can perform regardless of whether the market is high or low."
In addition to its dry bulk activities, Klaveness businesses include container shipping, combination vessels and selfunloaders. In 2013 Torvald Klaveness achieved a consolidated result after taxes of USD 27 million, compared to USD 5 million deficit in 2012.