¡¡¡¡Background

¡¡¡¡A piece of news, first published on May 10 and then much copied by different media units, has attracted a great deal attention from society: NYK, MOL and K-Line, due to soaring fuel prices sand operation costs and low profits, and particularly on account of long-term service contracts (which, while remaining a source of stable income, have nevertheless mired them into the ¡°late period effect¡±), are making less and less money. They are therefore looking at every possible way to cut short such contracts, and most effectively in their view, by putting their ships on the market.
¡¡¡¡It has been disclosed that the daily rent for each large or small Handysize stood at about USD 3,000 per day last year. Now with the quick growth of salaries, insurance and maintenance fees etc, the basic expenditure for such has already run to as high as USD 5,000.
¡¡¡¡Meanwhile, the daily rent for a 52,000-ton Handysize reached USD 12,000 last year, but now sits at USD 20,000. But Norden, a carrier from Denmark, thanks to the large number of long-term dry bulk contracts clenched, has been able to charter ships from all three at a price lower than the general market level.
¡¡¡¡By law, Japanese carriers must re-invest the profits made in the first two years back into production. Yet rising shipbuilding charges, tighter loan controls by banks and the mounting burden of the long-term charter necessity have together significantly lowered their ability to re-invest. Thus, the profit and operation problems often caused by long-term transport contracts may possibly affect the further development of carriers.

¡¡¡¡Dry bulk market still in boom

¡¡¡¡We may try to understand recent moves by Japanese carriers from the following figures.
¡¡¡¡In the 2007 fiscal year, NYK¡¯s net profit increased 23% to USD 1.3 billion, that of MOL 5% to USD 1.85 billion, and that of K-Line to about USD 0.75 billion, which were all considerable achievements in effect.
¡¡¡¡Yet the fact is both transport costs and rent for bulk ships have been spiralling. Some shippers have even found it necessary to get their bulk cargo containerised for carriage by a container liner, which is sure evidence that dry bulk transport remains in big boom.
¡¡¡¡The price of dry bulk vessels too is growing. At an open tender for second-hand ships, a shipowner was recently so surprised as to exclaim happily, ¡°An old ship like this can still get so much money, 20% higher than the very best we had ever expected. Why, it is simply incredible¡±
¡¡¡¡Therefore, for the three Japanese carriers, it is the dry bulk fleets that are profiting the most. In comparison, the container ships, although faster in speed, are more oil consuming, and are thus much less economical.

¡¡¡¡Waiting for the best possible opportunities

¡¡¡¡Now that the situation is so satisfactory, why then the news they are to sell their vessels?
¡¡¡¡To the author¡¯s knowledge, this is most probably because the ships concerned had been leased out under long-term agreements in a period when transport costs were low. Presently, however, the drastic rise of crew pay, management, insurance, and maintenance fees, lubrication expenses etc has put too much pressure on operations, and made ship-selling appear very much a wise decision.
¡¡¡¡No legal problems exist for such a manoeuvre though. If the charter parties are still to expire, they can all be transferred to the new shipowner as well.
¡¡¡¡In comparison, the current charterers are likely to be the most active and appropriate buyer-to be. Partly because they are the best acquainted with the ships¡¯ performance, technical status, adaptability, as well as the yearly profits they can earn. Besides, as a long-term charterer enjoying favourable rent rates, they know how to take this into account when driving bargains with the seller. And what¡¯s more, they must have made enough money with the ships over recent years.
¡¡¡¡It is learned, Japanese shipowners tend to operate their dry bulk fleets in five ways: self-operation for self-owned ships; self-owned ships for leasing-out; self-owned ships for bare-ship leasing; self-operation for ships (bare ships included) chartered under term charter parties, and; re-leasing out of ships (bare ships included) that are chartered under term charter parties. If the above strategies were adopted in equal proportion with the ships owned or controlled, no serious damage would be caused for any single failure of the operation manners. And, of course, the shipowner has an equal opportunity to operate in an offset manner for any single failure. For instance, it must also have ships chartered in a period when the rent was low, and may put them under the mode of self-operation in a period when the transport charge is high.
¡¡¡¡Considering that they are all leading carriers of Japan with large fleets at their control, the loss made by one fifth of the ships of any single fleet would not produce any serious impact upon the whole company at all.
¡¡¡¡There may be other reasons behind the story: unsustainable operation costs caused due to flying fuel prices and the regulation that profit made in the first two years must be re-put in production etc. But to the author, as the ships to be sold are very much likely bound still by term charter parties, and shipowners don¡¯t need to pay fuel for such ships, high fuel prices should have no direct play in this matter. What¡¯s more, whether shipping profit must be re-invested in a designated manner also seems to have nothing to do with the selling of dry bulk vessels.

¡¡¡¡Editor¡¯s word:
¡¡¡¡Reporters are sensitive to everything unusual, especially in a period of shipping fluctuations. The problem is, sometimes the rumour will turn out to be true and sometimes it won¡¯t. Although one may try every possible way to ensure what is reported is accurate, the fact is often the result is unknowable. This is an ever-lasting contradiction inherent in every rapid response.
¡¡¡¡As news workers, we are duty bound to pursue and probe everything of news value, including its details and entirety. But the reality being what it is, it is always hard to achieve perfection, especially with hot news. All we can do is continue tracking, pursuing and probing.