Deepak Kumar Sharma, Managing Director calls for Sustainability despite all the market fluctuations at Asia Dry Bulk Cargo Summit 2022

The present times have been volatile at best. And as I say this, many of you might think I have the pandemic in mind. But my reference here, in particular, is the economic unpredictability we all have been witnessing in the recent past. And this shall be my take off point, for sharing with you my views about the industry as an Operator. How significant are market fluctuations? What threats and opportunities arise in such situations, what is the desirable attitude in such moments– all these will be the points I shall briefly touch upon.

We all are aware that the last few months witnessed drastic market fluctuations, and significant changes are observed every 2 weeks. Earlier it would be possible to arrive at a tentative pattern, witnessed over a period of a few months. And this would guide one’s planning and strategy. But now, we note a shift. I have always been asked – which market is good for the asset-light operators like us, or should it matter at all. After all, we are a part of the service industry and optimizing finances is key. When the market is low, one seeks to book the cargo at a low freight and take the vessel on a lesser hire. On the contrary, when the market is on a northward curve, one books the cargo at a high freight rate and pays more to hire the vessel.

But it is not that simple. More than the back-to-back business, there are other factors involved which affect our decision making. You also might be having long terms positions on either the cargo or the vessel so there is a significant exposure.

But let me acquaint you with the Operator’s perspective on a market that is low and one that is high. The past decade has witnessed the great fluctuation of market price. But lately the dynamics are changing more often than not, and it is not merely demand and supply which dictate the market but outside factors like geopolitical tensions, trade wars, physical wars, oil sanctions, domestic political obligations are the one which are influencing the market. Lately we are even observing that infact it is the FFA papers which is driving the market while it should be other way around. And we all know that, and I will also take liberty to say on this platform that there are a lot hedge funds and other financial institutions which are investing in papers and so now it is certainly not about demand and supply. So, when so many outside factors involved – how to you read and predict the market.

Talking about the first scenario, the good thing about low market is that it is easy to charter a vessel from the Owner who just want to find an employment of the vessel and you only need to get a cheap freight for your clients. One of the biggest concerns during a low market is the risk of counterparty default. The price of freight is relative to the price of the commodity. And at times we see that the freight value is more than the commodity value. So in case of any default by the Charterers, one doesn’t have an adequate buffer for cushion. Similarly, when the vessel’s hire is below the breakeven at the Owner’s end, one sees them defaulting on bank mortgages in which case we see banks arrests the vessel which can a very very bad situation to be in. Another practical challenges which all operators face is that fixing the business becomes very difficult as you never what is the bottom low and there is constant undercutting of the nos.

Moreover, when the entry barrier to the trade becomes low, you see many new players emerging and constantly disrupting the market dynamics. These challenges continue to surface when the market hits a low.

Next, let us talk about the moment when the market displays an upward trend. I think the best thing about the high market is that fixing becomes very easy. Contrary to the low market when you are looking for the floor, here everyone wants to ride the tide and lock the rates. Here it is crucial to add an important observation – in the high market, more than the rates, it gets very difficult to negotiate the terms with the headowners and this can get quite unreasonable at times. They attempt to negotiate on all clauses and as operators we carry a lot of unrelated exposure on our shoulders. High market is capital intensive market whereby even for a small business – at times investment can go up to more than a million of US Dollars and thus huge monetarily risk at stake. And now with the ongoing congestion vows there is a significant amount of cash stuck in the business due to demurrages and other factors.

What kind of a market is good for the operators? Answer to this question has many aspects, each with its own pros and cons. But my motive was to share with you a slice from our experience as the Operators. At BainBridge, like with most other Operators, of prime importance is sustainability– having the capacity to weather the storm and continue to remain in business despite all fluctuations. And we notice that resilience and adaptability are put to test amidst high volatility. While we cannot influence the market, we can surely prepare to handle it well, making decisions on the basis of what is best at hand.

Thank you