moving forward

letter from the president

2011.01.31

2010 ended with the Baltic Dry Index (BDI) near its lowest level in two years due to a continuous influx of new tonnage and a Chinese economy struggling to keep up pace with her aggressive growth trajectory. With fears of an imminent Chinese slowdown, widespread political uncertainties and the global economic recovery still not quite…recovered…the future of all shipping remains bleak.

Unfortunately, the sheer size of the orderbook in all segments remains the largest threat for freight rates to return to healthy levels. Objectively speaking, demand for commodities is actually quite strong considering the financial meltdown that took place not too long ago. This is actually the first time in quite a while where there is a disconnect between freight rates and the level of commodity prices. Steel prices, for example, have rebounded significantly from their lows in 2009 and continue their upward trajectory with prices forecast to increase 66% in 2011 alone (a spurt of price inflation not seen in the last seven decades). Freight rates however are on a downward spiral and do not follow the trend of commodity prices, simply because of one reason: there are far too many ships in the water for demand to absorb.

Unfortunately, owners with overage tonnage will pay the price as they will be forced to scrap their old ladies in an environment that will not allow for further trading opportunities, thereby making way to the horde of new ships hitting the water in the next couple of years. The best time to scrap has to be now because as we move into the year, scrap buyers of excess USD 500.00 per ton will not be available.

My personal opinion is that the market will have to remain depressed for a considerable amount of time in order for demolitions to seriously have a reversal affect and bring the market back in equilibrium.

I thank above all our seafarers and our shore based team for their commitment and efforts to ENTRUST in 2010 and I am confident that regardless of the short-term difficulties, the long-term potential of shipping continues to be bright.

2011.01.31
PRESIDENT Elias N. Tsakos