Ship RecyclingSteve Wansell

Mideast Shipping and Trading

Introduction

Introduction

Mideast Shipping and Trading and Group of companies  ("Mideast") was founded in 2000  its principles having  been in the industry for over 20 years buying and selling vessels for recycling. The Group of Companies are headed up by Mr. Shabbir Baig, Managing Director and owner and an Indian National based in the UAE.

 

Introduction

Mideast have concluded hundreds of vessels over the years and are averaging approximately 70-80 vessels per annum. Mideast are one of the leading cash buyers

globally. The Groups intention is to increase the volumes of vessels and this has been reflected in the recent establishment of a London office. Further Expansion plans into the Far East are being developed.

Introduction

The Group has many strengths and has considerable depth to its operation. Mideast have a vast array of knowledge within its team from the

commercial,

operational and

technical

Introduction

Steve Wansell has recently joined the Group as General Manger after 24 years in International Banking having worked for American, German and French Banks and recently having a long posting at Bank Mandiri (Europe) Limited Deputy General Manager.  Steve has financed vessels into this recycling sector for over 16 years and has an all round knowledge of this industry.

Cash Buyers who are they?

Companies such as Mideast are known as Cash Buyers

A cash buyer purchases a vessel for cash from an owner and resells to a recycling yard

Cash buyers are the “middlemen” in the sale of ships and recycling

Cash buyers take physical delivery of the vessel and are therefore not brokers

Cash Buyers who are they?

It is very rare for a shipbreaker/recycling yard to purchase a vessel directly from a ship owner, as due to the nature of their  business, the scarp yards  usually wish to pay for vessels on a deferred payment terms under a letter of credit issues by their bankers, whereas the ship owner is required to be paid on a cash basis.

Cash Buyers who are they?

This impasse is resolved by trading companies (“cash buyers”) which stand between the ship owners and the recycling yards as principles in the transactions. The cash buyers pay the vessel owners cash for the vessels and are prepared to accept payment under letters of credit from the recycling yards.

Cash Buyers who are they?

DELIVERED In Delivered Basis the cash buyer agrees to purchase the vessel from a ship owner subject to the ship owner delivering the vessel to the recycling yards within a certain time and subject to certain conditions (ie. the condition and specification of the vessel, release of all mortgages and debts)

  The risk, responsibility and the cost of delivering the

vessel to the recycling yard is borne by the ship owner

Cash Buyers who are they?

The agreement between the cash buyer and the ship owner to purchase the vessel is evidenced by a sale and purchase agreement called a Memorandum of Agreement (“MOA”).

The MOA contains details of the vessels specifications, the date by which the vessel must be delivered to the recycling yard and will require a deposit to be lodged to secure the sale. The amount of deposit varies between 10-30 per cent. The release of the deposit is conditional upon the ship owner complying with all conditions under the MOA.

Cash Buyers who are they?

The payment and transaction method means basically what it says. The cash buyer pays the ship owner for a vessel at a price based on the condition of the vessel (“AS-IS”) at the point of sale (Where-is) ie the cash buyer pays for the vessel at it current location/last port of discharge

The cash buyer, at their own risk, responsibility and expense will then sail and deliver the vessel to the recycling yard against payment under a letter of credit from the breaking yard.

Why use a Cash Buyer ?

Marketing/Sales Industry Knowledge Best return for shipowner Risk management Efficiency in completion of Sale Structured Delivery (either delivered or AS-IS) Relationships

Why ship-recyclers use cash buyers?

Sourcing ability of vessels (owner and Broker

relationships worldwide)

Financial Resources (ability to pay outright for a vessel

and accept an LC in Return !!)

Dealing with local delivery procedures

Global representation for taking delivery

Local Representation

Risk Management (taking market risk)

Volume, Prices and Forecasts

2004- 2008

Banks calling loan defaults as cash flows under significant pressure in many cases no cash flow

Vessels laid up

Outside creditor pressure

Increase in vessel arrested   

2004- 2008

Worldwide recession collapse of the shipping industry

Charter contracts failing and being re-negotiated

Banks no longer financing

Banks under pressure to support non performing loans 

Last Three Years 2008 onwards

Recycling Prices were higher than older Trading vessels “ Supply and Demand”

Ships that should have been recycled were having their trading lives extended

Worldwide demand for trading vessels

Finance:  both shipping banks and non shipping banks lending heavily into this sector. Irresponsible lending!!

Last Three Years 2008 onwards

Finance: banks with no lending experience in the shipping sector setting up specialised desks for lending

Cash Buyers saw opportunities to become short term vessels owners. Historically this was only seen for “one voyage”

Reduced volumes of vessels being recycled into India Subcontinent, China and Turkey. 

2009

Increases in vessels being recycled into the Indian Subcontinent, China and Turkey

Continued increase in ship-owner loan defaults

Increase in vessels sold at auction

Record recycling volumes expected     

Historical Demolition By Vessel Type

0

5

10

15

20

25

30

352

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Source: Clarkson Research Services

OthersGas CarriersContainershipsBulkersTankers

m. Dwt

Historical Demolition By Location

Bangladesh33%

India30%

Pakistan8%

China21%

Other8%

m. Dwt

Source : Clarkson Research Services

Historical Demolition By Vessel Type

0

5

10

15

20

252

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Source: Clarkson Research Services

TankersBulkersContainershipsGas CarriersOthers

m. Dwt

Historical Scrap Price Development, VLCC, Indian Sub-Continent

0

100

200

300

400

500

600

700

800

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Source: Clarkson Research Services

$/ldt

Historical Scrap Price Development, VLCC, Far East

0

100

200

300

400

500

600

700

800

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Source: Clarkson Research Services

$/ldt

Historical Scrap Price Development, VLCC, Bangladesh

0

100

200

300

400

500

600

700

800

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Source: Clarkson Research Services

$/ldt

2010-2011

The ‘base case’ average lifespan of ships in different sectors is assumed to follow historical trends, although it should be borne in mind that a ‘realistic’ trend may not have been established yet for many ship types and size-range segments due to a lack of historical data.

The phasing out of single hull tankers is projected to be related to the continued impact of IMO/EU regulations, based on the 2010 enforcement scenario.

Demolition decreased in 2010 to total 880 ships, 18.3 m.GT, 29% down on 2009.

2010-2011

Removals are projected to increase in 2011-2013 to 28.0 m.GT. In this scenario remaining tanker phase-out has been spread over a number of years.

Gradual phasing out of older tonnage in the fleet projected to lead to continued increased levels of removals in the longer-term. Long-term annual average removals 2013-2023 remain projected at 25.7 m.GT, 1,409 ships, generating significant ‘replacement demand’.  

Current May 2011

Dry bulk demolition continued apace in April, with 32 vessels of a combined 1.9m dwt being sold for scrap. This is a similar level of activity to March and was driven by an upturn in the number of smaller Panamax and Handymax bulk carriers being sold for scrap in month-on-month terms. Owners appear to be responding to the poor market conditions in the dry bulk market by selling their oldest (and by extension, most costly to run) vessels first, as demonstrated by the fact that the average age of vessels scrapped in the dry bulk sector exceeds thirty years in the year-to-date.

Current May 2011

The issue of over-capacity in this sector seems likely to get worse in the short-term with over 100m dwt of new vessels still due to be delivered during the rest of 2011. A large proportion of the 6.7m dwt of dry bulk tonnage that has been sold for scrap has been constituted of elderly vessels and it seems feasible that there is scope for further significant demolitions during the rest of the year. Thus, dry bulk demolition is projected to reach 18.7m dwt, which would exceed the total seen at the height of the recession, in 2009, by 8m dwt.   

The future of recycling volume and sales

Understanding of Economic Conditions and Shipping Markets Iron Ore and Steel are of Paramount importance

On-going Developments on primary freight market and World net fleet growth

High Volatile Industry Sector prone to mega cycles in 4-5 year periods

The future of recycling volume and sales

Financial Institutions in 2008 at the peak estimated global Bank Shipping Portfolio funded and unfunded to the industry USD 382 Billion. Where are they today ?

Regulations local Ship Recycling regions

“Real Cash Buyers” who are they ?

Compliance/KYC Regulatory Requirements

Hong Kong Convention

The future of recycling volume and sales

Office of Foreign Control Sanctions (ownership, management, Flag etc

On-Sale Terms Letter of Credit Negotiation, Bill Discounting and Confirmation Services (Bangladesh, India and Pakistan)

Insurance (Increase in premiums, Piracy, Kidnapp and ransom Armed Security)

Increase in loan defaults and Banks calling time ?

Demolition Scenario Projection By Vessel Type

0

5

10

15

20

25

30

35

40

45

502

00

9

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

Source: Clarkson Research Services

OthersGas CarriersContainershipsBulkersTankers

m. Dwt Projected scenario 2011

onwards

Bangladesh challenging times

Thank you