Thailand-listed dry cargo ship owner Precious Shipping failed to win the arbitration proceeding against the Chinese Taizhou Sanfu Ship Engineering over fuel consumption issues on Ultramax bulkers built by the yard.
“The arbitration process with Sanfu on the excessive fuel consumption issue has been completed with the Tribunal’s ruling going against us. As a result, we will have to repay the USD 32 million unsecured corporate loans that Sanfu had given us,” the company said announcing third quarter results.
Precious Shipping has until October 4, 2018 to make the payment plus simple interest at 6% per annum from the date of receiving the loan until the date of repayment. In addition, the company has to pay legal fees worth USD 750,000.
Sanfu Ship Engineering had provided unsecured loans to the shipowner for the newbuildings that were part of the order for ten ships dependent on arbitration on the first two newbuildings from the batch over fuel consumption.
In June, Precious Shipping cancelled the final Ultramax newbuilding order at the Chinese shipyard.
The company said that the final shipbuilding contract for hull a 63,345 dwt bulk carrier was automatically terminated on May 31, 2017 as Sanfu was not able to fulfil one of the conditions precedent.
With the latest cancellation, the shipowner finalized its newbuilding program with Sanfu with six delivered and four cancelled shipbuilding contracts for Ultramax vessels.
In April 2016, Precious Shipping decided to cancel three shipbuilding contracts at Sanfu due to the expected delay in delivery following several settlement agreements with the yard.
For the third quarter Precious Shipping reported a net loss of USD 5.23 million from an average of 36 ships in the quarter. However, the earnings per day per ship during Q3 came in at USD 9,399, 35% higher than that in Q3 2016.
Speaking of the market developments, the company said that despite a growth in demand, seen from the cargo numbers for China, “net increase in supply has exceeded our most pessimistic expectations at 21.64 MDWT easily surpassing the entire net supply increase of 18.51 MDWT in all of 2016!”
Only 12.80 million DWT of dry bulk ships have been scrapped up to the end of Q3 this year compared to last year’s 25.98 million DWT.
“Negative sentiment has started to dissipate from the market unfortunately, resulting in ship-owners refusing to scrap their older ships. This has allowed an overall net fleet growth of 2.7% in the 9M of this year. If scrapping doesn’t accelerate, the BDI will continue to fluctuate sharply, solely dependent on what the demand side does.
“In other words, shipowners are not helping their cause by not scrapping ships, making the recovery in 2018 to 2020 slower, extremely volatile, and totally dependent on demand continuing to outperform,” the company added.