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from Breakingviews:

Titanic’s century-old metaphor misses the point

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Life is like boarding a boat that sets sail and sinks. That Zen-like wisdom came to life, and death, for the roughly 1,500 people who drowned a century ago when the RMS Titanic sank on its maiden voyage. As it says in the Bible, “Even the wise die; the fool and the stupid alike must perish and leave their wealth to others.” There’s nothing like a disaster on a luxury liner to bring the lesson home.

But many people, from then to now, have decided the real lesson of the disaster that met the largest and most elegant ship then afloat - and on its first Atlantic crossing - was more topical than eternal. The technological hubris of a vessel designed to be virtually unsinkable was supposedly punished by nature’s nemesis, in the form of an iceberg.

The arrogance of humans about the world in which they live may yet doom the race, but the experience of the Titanic teaches the opposite lesson. After it sank, the civilisation that built the ship did not revert to magic or decide to simplify. It went full steam ahead with its reliance on technology and bureaucracy. Enquiries were held, leading to changes in practices and equipment. The changes worked. Sea passage, like land and air travel, is safer now than then.

Really, though, an iceberg was hardly likely to disrupt a worldview that had been becoming more firmly entrenched for over a century. A more plausible threat to that view came a few years later: the most destructive war in history, in the most advanced countries. That was followed by the advent of some of the most oppressive governments ever seen and then another, even more destructive war. But the death of more than 100 million people in those two epic conflicts hardly slowed the increase in the sway of technology and bureaucracy.

These modern forces have done and do much good, leading to richer, longer and, yes, safer lives for almost everyone. But technology cannot eliminate human error, neutralise nature’s destructive power or guarantee everlasting peace. More Titanic moments are almost inevitable. They should be taken for what they’re really worth.

from Breakingviews:

UPS could be bidding against itself for TNT

By Christopher Swann and Quentin Webb The authors are Reuters Breakingviews columnists. The opinions expressed are their own. TNT shareholders are waiting for a much bigger buyout package. There’s good reason for the Dutch parcel service to expect UPS, its American suitor, to sweeten its bid of 4.9 billion euros, or $6.3 billion, given the huge synergies that would probably result from the union. But with rivals FedEx and DHL inhibited in varying ways, TNT investors may not get the bidding war they’d like.

UPS hasn’t unwrapped the expected cost savings from acquiring TNT. Stripping out expenses would be relatively easy, though, given UPS’ formidable presence in Europe. And the opening offer suggests it would retain a large slug of these benefits for itself.

But for now at least, UPS is bidding against itself - and it could stay that way. FedEx has a negligible 3 percent market share in European delivery, a third of what UPS claims, according to HSBC. That would make it harder for FedEx to extract synergies of a similar magnitude. As a result, Barclays estimates FedEx savings from a tie-up with TNT at just $240 million. Taxed and capitalized, this amounts to about $1.8 billion. UPS is already offering TNT a premium of $1.9 billion, meaning FedEx shareholders wouldn’t necessarily cheer a competing offer.

What’s more, FedEx has a weaker balance sheet. UPS may have been deliberately taking advantage of this fact with its all-cash offer. Matching the 9 euros a share bid in cash would take FedEx’s net debt to three times operating cash flow including leases, according to HSBC, against a multiple of just two times for UPS.

Deutsche Post DHL, meanwhile, faces a different kind of obstacle. Acquiring TNT would create a titan with a 33 percent market share in Europe - almost four times larger than nearest rival UPS. Though there could be divestiture workarounds, antitrust authorities would quickly descend on any such proposal.

A rival bid can’t be ruled out, of course. FedEx, for example, may calculate that the risk of being totally outgunned in Europe warrants paying over the odds. Still, TNT investors are expecting at least 9 percent more right now. As it stands, it’s not obvious their shipment will come in.

from MacroScope:

Baltic shipping index getting drier

An obscure gauge of shipping costs rose to prominence in geeky macro circles during the financial crisis because its plunge provided a telling lead on the economic crash that unfolded in 2008 and 2009. Now, the Baltic Dry Index has again taken a nosedive, falling to its lowest level in more than two decades.

This time, analysts are explaining it away as a reflection of an increased number of carriers at sea.

Julian Jessop at Capital Economics, acknowledges this has indeed been a big factor behind the index’s decline. Still, he suggests the magnitude of the drop should give forecasters some pause.

We think it would be wrong to dismiss entirely the warning signals that the sinking of the Baltic index is sending about the underlying demand for commodities and the health of the world economy more generally. If the BDI fails to rebound soon, now that the peak of the holiday season has passed, it may well be telling us something important about the health of the global economy after all.

from Krishna Das:

ANALYSIS-Small ships to unlock rate boon for bulk owners

By Krishna N Das and Jonathan Saul

BANGALORE/LONDON, Feb 8 (Reuters) - Dry cargo shippers with smaller vessels are shifting to more-risk, more-reward spot markets, eyeing rising demand for sugar and grains -- commodities well suited to versatile supramax and handysize ships.

Ship owners generally prefer long-term charters in a weak market. The Baltic Dry Index <.BADI> o-year lows in recent weeks but confidence has been rocked by South Korean dry bulk group Korea Line Corp <005880.KS> filing for bankruptcy protection, highlighting the risk of charter-party defaults.

"Concerns now persist industry-wide, as speculation grows as to whether faults," Deutsche Bank analyst Justin Yagerman said.

"Continued charterer defaults could bring into question many companies' above-market charters." Flooding in Australia, the world's biggest coal exporter, and weather-srupted coal shipments and dented sentiment for capesize vessels -- the giants of seaborne trade routes, typically hauling 150,000 tonne cargoes such as iron ore and coal.

Demand for grains, though, has soared. Wheat prices in the European Union, the world's No.2 exporter, a year, aided by a Russian export ban due to drought and strong demand from North Africa and Middle East countries.

Global food prices, which hit their highest level on record last month, is a mounting worry for world leaders. Recent catastrophic weather around the globe could put yet more pressure on the cost of food, an issue that has already helped spark protests across the Middle East. Egypt is the world's biggest wheat importer.

from Money on the markets:

ANALYSIS-Small ships to unlock rate boon for bulk owners

[CROSSPOST blog: 2049 post: 28]

Original Post Text: By Krishna N Das and Jonathan Saul

   BANGALORE/LONDON, Feb 8 (Reuters) - Dry cargo shippers with smaller vessels are shifting to more-risk, more-reward spot markets, eyeing rising demand for sugar and grains -- commodities well suited to versatile supramax and handysize ships. 

    Ship owners generally prefer long-term charters in a weak market. The Baltic Dry Index <.BADI> has tumbled to around two-year lows in recent weeks but confidence has been rocked by South Korean dry bulk group Korea Line Corp <005880.KS> filing for bankruptcy protection, highlighting the risk of charter-party defaults.

    "Concerns now persist industry-wide, as speculation grows as to whether Korea Line is the beginning of broader charterer defaults," Deutsche Bank analyst Justin Yagerman said. 

    "Continued charterer defaults could bring into question many companies' above-market charters." 

   Flooding in Australia, the world's biggest coal exporter, and weather-related problems from Colombia to Indonesia have disrupted coal shipments and dented sentiment for capesize vessels -- the giants of seaborne trade routes, typically hauling 150,000 tonne cargoes such as iron ore and coal. 

from Global Investing:

Not so rough waters?

Given high volatility in global financial markets, the waters appear to be less rough in the shipping industry -- which generates annual global revenue of over $600 billion.

The industry, which transports almost 90 percent of global trade, has gone through a choppy ride after the credit crisis as a slowdown in global trade hit charter rates  and vessel values, aggressive use of leverage for new ship building led to bloated order books and maritime lending markets were dysfunctional.

For example, spot market charter rates for some bulk carriers fell by 99 percent after the crisis.

However, the contraction in 2008 is opening up investment opportunities in what is a niche alternative asset class, for some institutional investors  looking for a private equity-like return profile in the niche market.

"The opportunity exists for new purchasers to buy vessels with lower valuations that reflect lower charter rates. This provides investment managers with the ability to earn a profit and significant cash yield on the ship’s operations while they wait for valuations to improve," U.S. consulting firm Mercer says in its latest report.

Mercer says net internal rate of return of 18-25+ percent can be achieved, although the investment thesis is opportunistic and high returns are dependent on partial recovery in underlying vessel asset prices. Most shipping funds, according to Mercer, are structured with 2-3 year investment periods.

from Felix Salmon:

The shipping industry’s $350 billion debt

Landon Thomas's story on dodgy shipping loans has some absolutely astonishing numbers, the biggest of which is simply the size of the market, which he pegs at a whopping $350 billion.

The story is pegged to Eastwind Maritime, a shipper which went bust this summer owing $300 million on a fleet of 55 ships. That's about $5.5 million per ship, which isn't very much when the average five-year-old vessel was valued at about $88 million as of June of 2008. But things are different now:

Aozora Bank, a Japanese bank that in addition to being one of Eastwind’s top lenders is a major creditor of Lehman Brothers, found to its dismay that the value of the 12 Eastwind ships it now controlled was considerably lower than its $77 million exposure.

The biggest at-risk bank is German state-owned lender HSH Nordbank, with $50 billion of shipping loans. So far, it's provisioned just $800 million of those, although it's also received $19.4 billion in support from its shareholders, the regional German states of Hamburg and Schleswig-Holstein.

The problem is that the collateral on these loans is the ships themselves, and many of these ships are simply worthless given the glut of newer ships coming on to the market. So far, the shippers have been making their interest payments, which has helped the banks to avoid writing down the loans. But if the business dries up, the banks aren't going to be happy with their security. It's not a pretty picture for anybody concerned.

from Commentaries:

Hapag-Lloyd unity needed to nail loans

Germany showed with retailer Arcandor that the government won't write blank cheques. This lesson is not being lost on the owners of Hapag-Lloyd who are seeking 1.2 billion euros in state loan guarantees for the German container shipping firm.

There is no time to waste. Some estimate that the shipper will run out of cash in October and needs almost 2.0 billion euros ($2.9 billion) in financial support. Rainer Feuerhake, chief executive of TUI, the travel company that is among Hapag-Lloyd's shareholders, is banking on Berlin granting the guarantees this month.

TUI and the Albert Ballin consortium, which owns 57 percent of Hapag-Lloyd and includes Swiss-based German billionaire Klaus-Michael Kuehne and the city of Hamburg, appear to have overcome their differences despite mutinous murmurings from Kuehne earlier in the process.

They have agreed to convert existing credit lines into equity or hybrid loans while unwinding an earlier deal to sell Hapag-Lloyd's 25 percent stake in Hamburg's Altenwerder container terminal. This should pave the way for the German government to make the loan guarantees available.

Kuehne -- who owns 55.8 percent of Swiss logistics firm Kuehne & Nagel -- has bigger plans for Hapag-Lloyd, pushing the idea of a tie-up between Germany's largest container shipping company and a European or Asian peer.

Kuehne's instincts are probably right in the longer term. He clearly knows the business and how to run a successful logistics company. But it was necessary to paper over the differences between shareholders in order to keep the German government onside.

After all, the case of retailer Arcandor, which was allowed to collapse into insolvency, shows Berlin will walk away if it doesn't get the reassurances it wants. With a general election fast approaching, the government may be feeling more generous. Hapag-Lloyd's shareholders should not let the opportunity pass.

from Summit Notebook:

No more green shoots, but lots of bottoms

From the start, "green shoots of recovery" was not necessarily the British government's wisest choice of words and after a few months of being on everyone's lips, has given way to a more lowly metaphor. Business Minister Baroness Vadera raised the hackles of the political opposition in January when she spotted "a few green shoots" on a day of large-scale job losses and collapsing share prices. Evidence of economic revival is still elusive, but there are ever louder hints that we have at least seen the worst -- or bottomed, to use the mot du jour. Bottom as a noun and a verb was widely brandished by speakers attending Reuters Global Energy Summit this week, who based on their analysis on a slight increase in available credit, a tentative pick up in energy demand and rising commodity prices. OPEC Secretary General Abdullah al-Badri has an interest in spotting the kind of confidence that has driven oil prices up from a low below $35 a barrel in December to almost double that. "I have no doubt that the recession has bottomed out, but is it a V shape or a U shape?" he asked during a Reuters summit session. Others were less convinced and the most bearish of them all was a representative of the very oversupplied tanker market, where freight rates have sunk to their lowest levels in decades, with not a green shoot in sight. "We have seen lower than the bottom," said Erik Ranheim, a manager at oil tanker association Intertanko.

from Summit Notebook:

AUDIO-Pirate Avoidance 101

The best way to avoid pirates on the open seas? Outrun them, said Seaspan CEO Gerry Wang, speaking to the Reuters Manufacturing and Transportation Summit on Tuesday.

Somali pirates have wrought havoc in recent years, but Wang, who runs container shipper Seaspan, said his ships were too fast and too tall to attract their attention.

While the pirate's speedboats are thought to top out at 22 knots, Wang said his boats generally speed through the areas patrolled by pirates much faster than that -- at speeds of around 29 knots.