Recession presents bargains for Gulf Navigation

For the chairman of the Dubai-based shipping company Gulf Navigation, the recession could not have come at a better time.

For Abdullah al Shuraim, the chairman of the Dubai-based shipping company Gulf Navigation, the recession could not have come at a better time. Two years ago, he put off a Dh1.7 billion (US$462.8 million) plan to almost double the size of its fleet of oil and chemicals tankers because of high prices. With the price of tankers now down by half in six months, those plans are back. The ship owner, which operates 18 oil and petrochemical tankers for blue-chip customers such as Saudi Basic Industries Corporation (SABIC) and Shell, is in an acquisitions phase and is considering purchasing smaller shipping firms, used vessels or brand new ships. "We are looking at all these options," Mr al Shuraim said on the sidelines of the Gulf Petrochemicals and Chemicals Association Forum in Dubai.

The company is highly liquid, with cash reserves of Dh800m and has a "good record" with banks. With some shippers under threat of bankruptcy, Mr al Shuraim has seen his chance to enlarge Gulf Navigation's fleet less expensively. "This will create an opportunity for good, liquid companies to take the opportunity," he said. The global shipping industry carries 95 per cent of world trade and has been hit hard by the global economic slowdown and the fall in the price of oil, which closed just above $40 on Friday.

Shipping rates for dry bulk carriers has fallen about 90 per cent, container ships have dropped by up to 60 per cent and chemical and oil tankers have also had to lower rates. The fall in rates has a direct affect on the price of new and used vessels on the market. That is in stark contrast to the past few years, which saw a record rise in chartering rates and the price of new ships. The average price to hire a capesize dry bulk carrier, which can hold 150,000 tonnes, reached $228,000 a day in June, according to Freight Investor Solutions (FIS). A capesize ship is a popular means of transporting dry commodities such as iron ore, coal and grains. Today, the ships hire for $2,800 on the daily charter market.

A fall in ship values has followed, with some valuations of vessels down 50 per cent. The breathtaking rise in ship values last year was inconsistent with historical trends, Mr al Shuraim said. "The numbers were not working right. We decided it was not the time [for acquisitions] and we should wait until the market made sense." Gulf Navigation is searching the market for ships under construction whose owners may be in financial distress and unable to finance the vessels.

"Secondly, we will look for second-hand vessels between one to five years that will be reasonably priced now," the chairman said. "Finally, we are interested in companies perceived as adding value to our business, if the type of fleet they have is suitable for future growth, and future plans are focused on the oil and chemical industries." [e-mail]