WAM Dubai, 27th Jan 2010 (WAM) : Gulf Navigation Holding PJSC (GulfNav), one of the leading ship owning and maritime service companies in the region, has recently published an analytical study about the shipping and maritime industry, focusing on the recent challenges that the field had faced because of the economic drop, while highlighting its strong ability to remain profitable due to its solid experience and deep knowledge of the market, which enabled it to continue its successful operations despite all the economic challenges that the world has witnessed in the past period of time.
The study has showed that the Shipyard Order Book rate has dropped radically in the past year. At the beginning of 2009, the Order Book rate was close to 40%, and in the same period of January this year, the rate has dropped down to reach approximately 24%. The situation has affected most of shipping and maritime companies, of which some have come under high pressure.
Abdullah Al Shuraim, Chairman of the Board of Directors, GulfNav, said: "The past year was definitely very difficult and stressful for most companies in the field of shipping and maritime. We saw lots of companies who moved backwards and tried to recover from the loss that the economic drop has caused. The rate drop of the Order Book clearly indicates the pressure that those companies are facing, and I'm pleased to state that GulfNav wasn't one of those companies".
The first cause for the Order Book rate drop was that a lot of ship owners have managed to cancel the orders they have placed in previous years, in one way or another. Ship yards have received monetary compensations last year from ship owners in order to stop the building of contracted ships, which was then removed from the Order Book and hence the percentage has dropped.
Another reason is that a lot of the contracts were converted into different types of ships, for example a lot of oil tankers were turned into dry cargo carriers instead, which again affect the Order Book records. It's worth mentioning that the request of cancelling a ship or turning it into a new item happens before the construction phase starts, in other words before the steel cutting begins.
The company also stated that if we look back at the market situation few years ago, we will notice that ship building prices have increased dramatically between the year 2004 and 2008. As an example, the price of building a new product tanker with a capacity of 47,000-51,000 DWT (Deadweight Tonnage) has increased (on an average) from $ 36.05 in 2004 Million to $ 51.67 Million in 2008. That was prior to the drop that the shipping industry faced in the end of 2008. Despite the high increase in price, a lot of ship owners were still, surprisingly, in the buying mood and many contracts were signed at that time for almost double prices.
The prices have started to go up in the beginning of 2005. Prices reached the top in August 2008 at a $ 53.5 Million for a building a new product tanker. Between September 2008 and June 2009, prices continued to drop from $ 52.5 Million to 42.5 Million. In the end of 2009, the price of the ship reached $ 35 Million or below, and one ship is recently recorded sold for as low as 32 Million Dollars.
Between 2006 and 2007, a lot of ships were contracted at that time despite the price increase. Contracts are usually restricted with payment terms, where 10% to 20% down-payments must be made when signing the deal, if not more. The ship construction process can take several years, and a lot of ship owners - especially before the steel cut phase as explained earlier- have managed to either cancel the order for a monetary compensation to ship yards, or convert the order, or delay the delivery.
Another important aspect of this is financing. In previous times, banks used to provide between 70% to 85% finance of the contract price of the ship, but the contract clause would typically state: 'The percentage of finance provided will be as per Fair Market Value at the time of delivery of the ship'.
For example, if a ship owner signed a deal in November 2007 for the same ship mentioned above, the shipbuilding contract price would be at $ 52.5 Million, and a bank would finance to up to 80%, i.e. up to $ 42 Million. Assuming that the vessel will be delivered in 2010, the same ship would be worth $ 32 Million, and as per the Fair Market Value clause, the bank will then finance a maximum of $ 25.6 Million, which will leave the company with a difference of approximately $ 26.9 Million to pay on its own in order to get the ship into operations. This will put many companies in jeopardy, especially if they have more than one vessel on order.
Per Wistoft, CEO of Gulf Navigation Holding, commented on this matter: "During the past few years we were quite sure that ship building prices would definitely decrease again. GulfNav was very cautious in terms of signing new deals at that time. As a matter of fact, the company made sure not to jeopardize its position and go into any risk of purchasing new ships with such high prices. We have over 30 years of experience in the market, and we have seen similar fluctuation scenarios".
GulfNav was on the right track for the past few years. With its strong decision not to make expensive acquisitions, the company managed to remain stable and continue its position as one of the leading shipping and maritime firms in the world. With its 11 specialized subsidiaries and 15 owned tankers including new buildings and charters, GulfNav continues to satisfy its worldwide crude oil and petrochemicals clients.
WAM/TF
