Transportation is the primary agencies for transporting assorted trade goods worldwide. The transportation industry is loosely classified into wet majority, dry majority and line drives. Demand for transportation is chiefly driven by addition in planetary trade and commercialism. While demand for oilers is driven by oil demand, the dry majority section is influenced by the trade good demand, chiefly Fe ore and coal.
Dry majority refers to trade goods that are conformable to shipment loose and in majority as full tonss of homogeneous lading. Majority of the trade in the dry majority section is dominated by Fe ore, coal, grain, bauxite/alumina, which constitute more than 60 % of the dry majority trade.
Growth in the dry majority section has been driven by a booming steel industry and high demand for coal in Asia. The rapid growing of the Chinese economic system and its flourishing steel industry has been the most of import factor behind the rush. It is estimated that the China and India are responsible for more than half the demand growing seen in the last few old ages. India ‘s energy demands would drive dry majority trade as coal, which is the largest primary energy beginning, forms 55 % of the entire domestic ingestion.
India has emerged as the major importer of coal in the universe. Driven by a lifting population, spread outing economic system and a pursuit for improved quality of life, energy use in India is expected to lift about 450 kgoe/year in 2010. Sing the limited militias of crude oil and natural gas, ecoconservation limitation on hydel undertakings and geo-political perceptual experience of atomic power coal will go on to busy center-stage of India ‘s energy scenario.
The World Steel Association ( universe steel ) in its survey short scope mentality ( SRO ) for 2010 and 2011 released on October 2010 prognosiss that apparent steel usage will increase by 13.1 % to 1,272 mmt in 2010 after undertaking by – 6.6 % in 2009. This represents an betterment of 35 mmt over the April SRO for 2010 transcending the pre-crisis extremum of 1,222 mmt in 2007. In 2011, it is forecast that universe steel demand will turn by 5.3 % to make a record 1,340 mmt. Increase in the production of steel will strongly promote the demand of Fe ore. The production of steel and demand for Fe ore will finally increase the dry majority lading and sea lading traffic. ( *2 )
Harmonizing to AXA-Alphaliner, a Paris-based transportation adviser, the container ship fleet was up near to 20 % through the first 10 months of 2010. One container lease giver, SeaAxis, undertakings a 16 % rise in vas capacity this twelvemonth and a 13 % addition in 2011, as bearers reactivate idled ships and restart bringing of new ships. It notes that less than 2 % of the planetary container fleet remains idle, down from 11 % at the start of 2010. ( *3 )
The Baltic Dry Index ( BDI ) is a figure issued daily by the London-based Baltic Exchange. It tracks world-wide international transportation monetary values of assorted dry majority ladings and provides “ an appraisal of the monetary value of traveling the major natural stuffs by sea. Taking in 26 transportation paths measured on a timecharter and voyage footing, the index covers Handymax, Panamax, and Capesize dry majority bearers transporting a scope of trade goods including coal, Fe ore and grain. Though it has non reached to the degrees achieved in 2007 but it has started a due north Journey.
The Journal of Commerce undertakings that U.S. imports from China will turn near to 11 % in 2011, while U.S. exports to China ascent about 16 % . ( *2 )
The last two old ages have been really volatile for the dry majority market as the Baltic Dry Index touched an all-time high of 11793 in May 2008 and, thenceforth, corrected by ~ 95 % in the following six months to 663 in December 2008. Since so, BDI has remained scope edge between 2000 and 4500 degrees.
Traveling frontward Dry majority cargo rates are expected to stay hushed and scope edge over the following twosome of old ages.
The rise in demand is likely to be negated by a big figure of vessel add-ons to dry bulk fleet. Import of Fe ore and coal by China and India is likely to stay strong. However, fluctuations in Fe ore stock list degrees are likely to ensue in volatility in cargo rates.
Company at a Glance
Safe Bulkers, Inc. is an international supplier of Marine drybulk transit services, transporting majority ladings, peculiarly coal, grain and Fe ore, along world-wide transportation paths for some of the universe ‘s largest consumers of such services.
Derisked Business theoretical account – to conter the volatility of the feight rates, it judiciously deploys its vass under clip and topographic point charters. On an norm, it deploys 60-70 % of its tunnage on long-run contracts and the remainder in topographic point market. By holding a balanced mix of clip and topographic point charter, the company is able to insulate itself against the volatility in the cargo rates every bit good as take advantage of the good topographic point rates as and when the chance arises.
Young Fleet with 3.84 years of mean age ( as on 30th Sep, 2010 ) . Young fleet will give lower operating cost advantage to the company.
Company will increase its capacity by 2013 with adding 7 new Vessels to its fleet.
All of the vass of the company are in the class of Panamax and Capesize which commands higher TCE so smaller vass.
Company has high fleet use of 97 % and more for old ages 2008 and 2009
Has followed the policy of regular dividend for figure of quarters
Strong liquidness place of $ 216 Million as compared to Cap-ex demand of $ 232 Million in following 3 year.
Strong size of order book 68 % chartering for 2011, and more than 50 % for 2012.
Company is merchandising at the PE Multiple of 4.71 as compared 14.99 of the industry.
It besides has a high involvement coverage ratio of 5.43 which provides for its fiscal stableness and involvement paying ability. It could easy prolong any volatility in the involvement rates with such ratio.
High return on equity of 66.66 % as compared to 7.7 % of the industry.
Cyclic nature of transporting industry: Grosss of the transportation companies are exposed to the volatility and cyclical nature of the industry.
Decline in freight rates: Any significant downward motion in the planetary cargo rates can impact the grosss of the company.
Vulnerability to interchange rate fluctuations: A important part of the company ‘s operational disbursals is denominated in other foreign currencies. Any important depreciation of the US dollars against these currencies could impact its gross and profitableness.
High Leverage: Company has taken immense loan for buying the new vass and wages variable involvement rate. Any addition in involvement rate will negatively impact the company ‘s profitableness.
Company is presently merchandising at PE of 4.71X and monetary value of $ 7.80, we expect that it should merchandise at 5.41X for net incomes of twelvemonth 2010 and 2011 at monetary value of $ 8.92 and $ 9.90 severally. Compared to the Industry it is available at high price reduction After holding received bringing of new assets, the company is pass throughing from plus geting stage to the gross coevals stage in the following 2-3 old ages. With wise mix of clip and topographic point charter, the company would be able to deduce benefits of the stableness from the clip charter section and better charter rates from the topographic point section. ( refer exibit for Valuation Model )