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Pacific Basin Dry Bulk

Our Performance in 2014

Our Pacific Basin Dry Bulk business generated a net loss of US$30.0 million (2013: US$26.1 million profit) and a positive EBITDA of US$94.0 million.

This disappointing performance reflects the impact of weak dry bulk spot market rates, which fell more than 60% over the year. Additionally the Group’s consolidated results were affected by non-cash accounting charges and provisions of US$130 million comprising:

  • a non-cash provision of US$101 million for inward chartered vessel contracts taken at higher rates primarily in 2010; and
  • a non-cash unrealised derivative charge of US$29 million relating mainly to the fair value change of bunker fuel hedges following a more than 50% drop in fuel prices

Our positive EBITDA in this challenging market was driven by our ability to generate daily earnings that outperformed the market and our continued good control of our owned vessel operating costs

Key Performance Indicators

Performance vs Market

  • Our outperformance compared to spot market indices reflects the value of our business model, fleet scale and cargo book, and our ability to optimise cargo combinations and match the right ships with the right cargoes


  • In difficult market conditions, we generated Handysize daily earnings of US$9,340 and daily costs of US$8,750 on 56,210 revenue days
  • We operated an average of 155 Handysize and 62 Handymax ships resulting in 7% and 9% year-on-year increases in our Handysize and Handymax revenue days
  • Our capacity increased as our purchased vessels continued to deliver, increasing the proportion of our owned ships and enhancing our service to customers
  • Handymax vessels chartered in on a short-term basis at higher cost at the end of 2013 impacted our first half performance, and we incurred losses on long-term chartered ships we took at higher rates primarily in 2010

Segment Operating Performance

Headcount increased primarily due to the significant expansion of our owned fleet
US$ Million 1H14 2H14 2014 2013 Change
Handysize contribution 26.2 2.3 28.5 51.9 -45%
Handymax contribution (10.7) (4.1) (14.8) 8.5 -274%
Post-Panamax contribution 2.7 2.8 5.5 5.7 -5%
Segment operating performance before overheads 1.0 19.2 66.1 -71%
Direct overheads (24.7) (24.5) (49.2) (40.0) -23%
Segment net (loss)/profit (6.5) (23.5) (30.0) 26.1 -215%
Segment EBITDA 53.4 40.6 94.0 115.0 -18%
Segment vessel net book value 1,539.0 1,539.0 1,436.3 +7%
Segment net assets 663.0 516.9 516.9 494.5 +5%

Return on Net Assets

  • Our return on dry bulk net assets was negative 6%
  • We aim to achieve solid long-term returns on assets, so we have invested counter-cyclically for enhanced returns in stronger markets
  • As our owned fleet of dry bulk ships expands and we securing new loans, additional finance costs and borrowings were fully allocated from Treasury to our dry bulk segment thus impacting our dry bulk segment net assets

Future Earnings and Cargo Cover

  • We have covered 56% and 66% of our 40,220 Handysize and 12,480 Handymax revenue days currently contracted for 2015 (cargo cover excludes revenue days related to inward-chartered vessels on variable, index-linked rates)
  • While ship operators such as ourselves typically face significant exposure to the spot market, our long-term contract cover provides a degree of earnings visibility

Our Business Highlights


We have taken delivery of all 33 high-quality secondhand ships that we committed to purchase since late 2012 at prices which we consider attractive for the long term. Together with a number of delivered newbuildings, they have more than doubled the size of our owned fleet and slotted well into our cargo systems, and are performing well and making a positive cash contribution in a weak market.

We currently operate 218 dry bulk ships of which 80 are owned, 41 are long-term chartered and 97 are on index-linked or short-term charters. A further 18 owned and 14 chartered newbuildings are scheduled to join our core fleet over the next two years, which will increase the number of our owned fleet to a record of almost 100 dry bulk ships.

Our Resources in Action

Our Capitals – the resources and relationships we rely on to create value

Our owned fleet expansion programme cemented our position as the world’s largest owner and operator of Handysize ships complemented by a sizeable Handymax fleet. The increased scale of our fleet of owned and long-term chartered “Handies” – supported by our award-winning in-house technical management team – ensures our ability to deliver industry leading reliability and shipment frequency and a competitive service for our customers without over-depending on third-party spot market ships.


Our service delivery is backed by 11 customer-facing offices from which our dynamic regional chartering and operations teams of 29 nationalities provide our customers with localised commercial and operational support. Our global network covers all major continents and oceans so that we can offer a reliable, tailored and flexible freight service anywhere in the world and at any time.

We strengthened our in-house technical management team in Hong Kong in tandem with the expansion of our owned fleet. We now employ around 3,000 seafarers and, both ashore and at sea, we continue to operate to the highest workplace and operating standards to ensure healthy working conditions and a strong safety culture.


Underpinning our strength is the endorsement and support we have earned from our over 400 customers for whom we carried 52 million tonnes of cargo in 2014. Despite weak forward market pricing, we continued to secure several multiyear cargo contracts – extending up to 2022 – at reasonable long-term freight rates for us and our customers alike. We work hard to build and maintain understanding, trust and support with our partners, including also tonnage providers, suppliers and agents.

In part due to our partners’ strong endorsement of Pacific Basin, we were awarded the first ever “BIMCO Shipping Company of the Year” award for our innovative customer service and solid service reliability – high recognition and a great honour coming from our industry’s largest association.


Our ability to combine our physical, human, relationship and other Capitals – leveraging one against the other – is what enables us to outperform. The synergies of our fleet scale, global office network, efficient cargo systems and operational expertise enable us to generate average daily vessel earnings which outperformed the BHSI and BSI spot market indices by 28% and 12% respectively in 2014.

Our ability to combine our Capitals also makes Pacific Basin stand out as a strong, transparent, long-term counterparty for cargo customers and tonnage providers alike. We offer a healthy, visible balance sheet and a performance track record to match. We are committed to responsible business practices and a high standard of corporate social responsibility which we consider a necessary obligation to all our counterparties and stakeholders.




  • Growth in Chinese imports of minor bulk commodities
  • Solid US economic growth providing stimulus to the global economy
  • Lower oil and other commodity prices stimulating greater demand, industrial output and dry bulk exports
  • Market pressures causing actual newbuilding deliveries to fall significantly short of scheduled deliveries


  • Low fuel prices causing a general increase in vessel operating speeds potentially increasing global shipping supply
  • Further reduction in Chinese economic growth
  • Lower commodity prices shutting out smaller producers often using Handysize or Handymax ships
  • Declining newbuilding prices may lead to increased new ship ordering and excessive fleet growth
  • Greater national protectionism favouring domestic supplies over foreign imports


At the time of writing, the Baltic Dry Index (BDI) is at its lowest since indices began in 1985 and the freight market has become dysfunctional in some regions where cargo availability is very limited – exacerbated by the lull around the lunar new year holidays in China.

2015 has started with a larger dry bulk supply surplus than a year ago due to the unexpected failure of demand to outpace moderate fleet growth last year.

Demand growth continues to be threatened by the Indonesian mineral exports ban, reduced Chinese coal imports, lower growth in Chinese economic and industrial development, and the softer growth outlook for most developed economies with the notable exception of the US.

Low crude oil and other commodity prices in time may stimulate the Chinese and OECD economic and industrial output, but they pose a significant threat to dry bulk shipping in the nearer term. Low fuel prices and, in turn, a return to normal vessel operating speeds threaten to worsen the demand-supply imbalance and impede any freight market recovery.

Consequently, we take a cautious view on the freight earnings outlook in the medium term.

The longer term outlook for our own business remains more positive as the versatile Handysize vessel class is better protected in weak markets by greater geographical and cargo diversification and less exposure to the iron ore and coal trades where the vessel surplus is concentrated. In addition, we acquired most of our ships at historically attractive prices, so our large owned fleet benefits from a competitive cost base that helps us to weather protracted market weakness.


Our core business remains firmly focused on the Handysize and Handymax segments and these will receive even more of our attention as our towage business scales down.

We are managing our business for a weak market scenario over the coming few years which ensures we are also well placed to capitalise on improved trading conditions, should they return sooner. We strive to deliver profitable contributions even in a weak market, and we seek to safeguard the Company’s continued strong cash position and EBITDA generation.

We are working hard on making our dry bulk platform even more robust. That includes initiatives to reduce our costs and grow our customer relationships which enhance our access to cargoes – in turn facilitating our continued outperformance of the market.

Good control of our vessel operating expenses, efficient workflows and minimising administrative costs are especially important in these difficult times. We are implementing new ship management and accounting software to facilitate these objectives.

In Handymax, we will concentrate our fleet and cargo focus on a tighter geographical range to enable better shipcargo matching and to optimise our front and backhaul combinations to generate better vessel earnings.

While we are currently neither buying nor taking ships on long-term charter, we will continue to supplement our core fleet with low-rate short-term chartered ships, which make a good contribution to our service and our results even in the depressed market.

However, this difficult market will present acquisition and chartering opportunities for companies able to access capital.

We remain satisfied with our 51 acquisitions from late 2012 to early 2014, we have more than doubled our owned fleet at historically attractive prices and have enhanced our competitive cost base. All are well suited to our cargo systems, and will leverage the market recovery when it comes.

Analysis of Daily Vessel Costs

The cost of owning and operating dry bulk ships is the major component of our Group’s total costs, and our ability to maintain good control of our “daily vessel costs” has a significant bearing on our operating margins and our financial performance overall. We provide below a short analysis of our daily vessel costs for a better understanding of their components and development.

Our dry bulk fleet incurred cost of services (including bunker fuel costs and port disbursements) of US$1.63 billion (2013: US$1.55 billion) representing 93% of total Group cost of services (2013: 94%).

Our proportion of owned Handysize and Handymax vessels increased 6% and 10% to 42% and 24% respectively with the delivery of purchased vessels. That proportion will increase further as our remaining 18 owned newbuildings deliver.

Handysize Daily Vessel Costs

Handysize Daily Vessel Costs

Opex -The daily opex element of our vessel costs increased 6% for Handysize and 5% for Handymax mainly due to increase in crew wages and more vessels on Atlantic trading which incurred higher costs for stores and spares.

Depreciation – Handysize daily depreciation (including capitalisation of dry-docking costs) was substantially unchanged compared to 2013. Handymax daily depreciation increased due to delivery of our newer and larger size vessels.

Finance costs – Daily finance costs increased due to i) the reallocation of all the financing and associated costs for dry bulk vessels from treasury to the Pacific Basin Dry Bulk segment, and ii) the increase in bank borrowings

Handymax Daily Vessel Costs

Handymax Daily Vessel Costs

Charter-hire – Chartered-in days represented 58% and 76% of our total Handysize and Handymax vessel days respectively. Our Handysize chartered-in days decreased 2% to 32,850 days (2013: 33,650 days) while our Handymax chartered-in days decreased 3% to 17,190 days (2013: 17,720 days). We reduced the use of chartered vessels with the delivery of our vessel purchases. A non-cash provision of US$101 million was made for inward chartered vessel contracts taken at higher rates primary in 2010.

Daily cash cost – Our average owned and chartered daily cash cost was US$7,520 (2013: US$7,410) for our Handysize fleet and US$10,220 (2013: US$9,970) for our Handymax fleet. With the delivery of our committed newbuildings, the number of Handysize and Handymax owned vessel days in 2015 are expected to increase to 24,970 and 5,650 respectively. Applying the same daily opex and finance costs as in 2014, and applying the existing committed 13,500 Handysize and 5,440 Handymax inward chartered vessel days, the average owned and chartered daily cash cost would be US$7,020 for our Handysize fleet and US$8,440 for our Handymax fleet.

Vessel Operating Lease Commitments

Analysis of our long-term, short-term and index-linked inward charter commitments

Direct overheads comprise chartering, operations and technical staff and office costs related to our dry bulk ships. Its increase was mainly due to the full-year effect of a step increase in dry bulk headcount following a 31% increase in owned vessels and overhead cost inflation. Spread across our vessel days, the US$49.2 million aggregate overhead translated into a 15%
increase in daily cost to US$620 per day (2013: US$540 per day), reverting to 2011 and 2012 levels.

During the year, we secured 11,740 Handysize vessel days (2013: 10,980 days) and 2,540 Handymax vessel days (2013: 2,190 days) via variable-rate, inward charters with rates linked to the Baltic Handysize and Supramax indices. These index-linked vessels represented 36% and 15% of our chartered Handysize and Handymax vessel days respectively.

Our fleet of owned and finance-leased dry bulk vessels experienced an average 0.4 days unplanned technical off-hire per vessel during the period – down from 2.0 days in 2013.

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