Gulf Navigation to renegotiate South Korean order

Gulf Navigation Holding said it plans to either cancel or renegotiate a contract for two ships with South Korea's SLS shipyards, even as it announced plans to buy four additional ships.

Per Wistoft, CEO of Gulf Navigation Holding, told Emirates Business last week that it aims to go ahead with plans to acquire new ships and has set aside around $50 million (Dh183.5m) to $100m for the purpose.

The company currently has a fleet of 12 ships and has plans to expand its capacity. "Our fleet includes one VLCC, one suezmax, four chemical tankers and six probos, said Wistoft.

"The chemical tankers are sort of the backbone of the company. They are continuing with 15-year time charter to Sabic, the world's third largest petro chemical company in Saudi Arabia. The VLCC is presently on a time charter to a Swiss oil trader. We are operating the Suez charter in a pool together with other suezmaxes run by OSG Ship Holding in New York. And the six probos are all trading in dry cargo at the moment," he said.

The dry cargo market, he said, is much stronger than the tanker market. "We are enjoying rates that are $4,000 (Dh14,680) to $5,000 better per day per ship, than if they had been employed as tankers. Personally, I had not expected to see all six of them at dry cargo at the same time. But they have really turned out to be much more profitable than we expected at the beginning of the year," Wistoft added.

The current economic situation notwithstanding, the company would continue to invest for "the right type of ships at the right price", he said.

Commenting on the cancellation plans, Wistoft said: "The two 46,000 deadweight tonne (DWT) chemical carriers were originally due for delivery last year. We are considering the option, as the shipyard is late in delivering and we can contractually cancel the orders. The ships have a capacity to load 29 different types of cargo at the same time.

"Our idea is to now renegotiate these orders. If we don't get these ships at a renegotiated price, we will find other ships. We are looking at that option. However, we do not have any fixed employment for the ships. We have also set aside $50m to $100m for acquiring new ships. That will give us four to six ships. We are within the range of 40,000 to 300,000 DWT.

"Ship building costs have tumbled since 2008. At that time these ships were selling close to $60m each. Today they are selling at around $45m."

In a recent study, the company said the ship building prices have increased dramatically between the year 2004 and 2008. The price of building a new product tanker with a capacity of 47,000-51,000 DWT has on an average increased from $36.05m in 2004 to $51.67m in 2008. Between September 2008 and June 2009, prices continued to drop from $52.5m to $42.5m. By the end of last year, the price of the ship reached $35m or below.

On the tanker market's future, Wistoft said: "I see a diversified 2010 where crude oil will be a bit more strong, while refined products will be a bit more complicated. This is predominantly because there is a lot of new product tankers being delivered this year, and it will keep the rates depressed."

However, he said there was no need to panic as the number of cancellations were equally high. "If you look at the order book, on the surface it might look massive and very worrying. But if you start looking into each segment, you can still find segments where it does not look that bad. But most interestingly, everybody out there is out at the shipyards, either renegotiating or trying to cancel the orders," said Wistoft.

According to him, many buyers have agreed with the yard to extend the delivery. "Instead of delivering at the second half of 2010, it will be delivered in 2012-13 and at times even in 2014. The number of ships that are being cancelled is huge," he said.

Quoting Clarkson, the leading ship broker, Wistoft said: "Between 33 per cent and 35 per cent of all bulk carriers that were supposed to be delivered in 2009 have been postponed. For oil tankers, the number stands at 24 per cent, while there has been 51 per cent postponement in container ships. All these are ships where the yards and the ship owner have renegotiated their contracts, and they will deliver them later.

"However, Clarkson puts the bulk carrier cancellations at 144. From handisize to capesize, from 20,000 deadweight to 170,000 deadweight, many have been cancelled in 2009. In the capesize segment alone, about 43 ships were cancelled. The bulk carrier fleet is five times bigger than tanker fleet. On Tankers for instance, the cancellations in 2009 were 27 ships. Also 15 VLCCs were cancelled last year," he added.

Wistoft said there would definitely be further cancellations this year. "Everybody that has a ship on order right now is either trying to cancel or get a later delivery. This means that the fleet size will go back to 2005 levels. Although the order books look scary, there is so much going on right now that by the end of this year it will totally look different," he said.

However, it is not necessary to worry of an immediate shortage, he said. "As far as the tankers are concerned, today the world is using approximately 80 million barrels of oil per day. Each million barrel of oil consumption that goes up requires the need for 30 extra VLCC's. If you suddenly see an increase in oil consumption, of one to two million barrels, over a short period of time, then we could see a shortage of tankers. However, the ship yard capacity can be turned up again," he added.

Adding to the woes is the current freight rates, he said. "Crude oil improved during the first quarter of 2010, compared to last year, whereas product tankers have remained relatively flat but are still better than the rates we saw during 2009."

On the dry cargo market, a lot of activity in both China and India has increased the rates, "which is why we have all our six vessels operating as dry cargo".

He said tackling piracy was the key issue. "Policy makers so far have been unable to come up with a legislative solution to deal with piracy. We are immensely grateful to countries that have contributed to the international naval force to curtail piracy, said Wistoft.

"Some ship owners are also debating the option of placing armed guards onboard. It is a difficult and very emotional discussion. While some in the industry are favouring it, some are not. We as a company have chosen not to opt for it. We believe that we are protecting our seafarers in a better way by not doing it," he said.

Among the measures the company is adopting to protect its ships from pirates include putting barbed wires around the ship and on the railing and avoiding passing through the danger zone without a naval escort.

"We only transit pirate infected areas with naval escort. If there's no naval escort, we wait until we get one. To have the ship waiting costs us anywhere between $15,000 to $50,000 per day. The costs is even higher as we also pay an additional insurance premium of $15,000 per voyage when we go through the area. However, through constructive discussions with the cargo owner we are getting them to share the cost as well," Wistoft added.

In its annual results announced last month, the company revealed that it achieved a net profit of Dh26.55m by the end of 2009, compared to Dh148.22m in 2008.

In 2009, the operating profits before depreciation and interest stood at Dh145.13m, compared to Dh219.45m the previous year. It generated Dh338.16m of revenue in 2009, compared to Dh395.93m in 2008. Total assets stood at Dh2.93 billion, compared to Dh3.04bn for 2008. The inventories increased from Dh8.15m in 2008 to Dh31.15m in 2009.

Four more ships

Gulf Navigation Holding on Thursday announced that together with its partner Stolt-Nielsen, an agreement to buy the four 44,000 deadweight tonne modern chemical carriers has been reached. Two of the new build tankers will be delivered soon and two are being finalised at SLS Ship yard in South Korea. The Gulf Navigation joint venture with Stolt Tankers, Gulf Stolt Tankers in Dubai, will own the four vessels and is scheduled to take delivery of the first two vessels immediately while the remaining two will be delivered in June and July respectively. The four sophisticated tankers will be employed in the Stolt Tankers Joint Services and be technically managed by Gulf Stolt Ship Management in Dubai.

In line with the current new-building cost the vessels are purchased at substantially lower prices compared to the originally contracted price in 2005. These four quality vessels have an overall deadweight of 176,000 metric tonnes. They will have the capability of carrying a broad range of petrochemical products so as to meet the highest industry standards.

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