1 00:00:05,840 --> 00:00:10,280 Speaker 1: Hi everyone, Welcome to Bloomberg Intelligence Talking Transport podcast. I'm 2 00:00:10,320 --> 00:00:14,040 Speaker 1: your host Lee Clasgow, Senior freight transportation logistics analysts at 3 00:00:14,040 --> 00:00:18,400 Speaker 1: Bloomberg Intelligence, Bloomberg's in house research arm. We're delighted to 4 00:00:18,400 --> 00:00:23,240 Speaker 1: have Hamish Norton with us today. He's Starbulk's president and Starbulk, 5 00:00:23,280 --> 00:00:25,000 Speaker 1: for those that don't know, is listed on the New 6 00:00:25,079 --> 00:00:28,720 Speaker 1: York Stock Exchange under ticker SBLK. It's got a market 7 00:00:28,720 --> 00:00:31,680 Speaker 1: cap of just under two billion dollars and it's in 8 00:00:31,680 --> 00:00:37,120 Speaker 1: the drybolk business. Prior to December thirty first, twenty twelve, 9 00:00:37,320 --> 00:00:40,440 Speaker 1: Hamish was a managing director and Global head of Maritime 10 00:00:40,600 --> 00:00:45,400 Speaker 1: Group at Jefferson Company. He's known for creating Nordic American 11 00:00:45,479 --> 00:00:50,159 Speaker 1: tanker shipping ticker NAT night Bridge Tankers, the first two 12 00:00:50,400 --> 00:00:55,960 Speaker 1: high yield dividend shipping companies. He advised Arlington Tankers and 13 00:00:56,000 --> 00:00:59,160 Speaker 1: the merger with General Maritime, and has been an advisor 14 00:00:59,200 --> 00:01:02,840 Speaker 1: to the US Ship Partners. He also advised New Mountain 15 00:01:02,880 --> 00:01:07,880 Speaker 1: Capital on its investment in Intermarine. In the nineteen nineties. 16 00:01:08,160 --> 00:01:11,680 Speaker 1: He advised Frontline on the acquisition of London and Overseas 17 00:01:11,720 --> 00:01:15,080 Speaker 1: Freighters and arranged the sale of Pacific base and bulk shipping. 18 00:01:16,400 --> 00:01:19,240 Speaker 1: Prior to joining Jeffreyes in two thousand and seven, Hamish 19 00:01:19,400 --> 00:01:22,440 Speaker 1: ran the shipping practice at bear Stearn since two thousand. 20 00:01:22,640 --> 00:01:25,480 Speaker 1: From nineteen eighty four to nineteen ninety nine he worked 21 00:01:25,480 --> 00:01:30,000 Speaker 1: at Lazard Frere and from nineteen ninety five onward as 22 00:01:30,000 --> 00:01:33,080 Speaker 1: a general partner and head of Shipping. He is a 23 00:01:33,120 --> 00:01:38,280 Speaker 1: director of Neptune Lines and Card Holdings. And in addition 24 00:01:38,360 --> 00:01:41,160 Speaker 1: to all of this, Hamish received an AB in physics 25 00:01:41,160 --> 00:01:44,200 Speaker 1: from Harvard and a PhD in physics from the University 26 00:01:44,200 --> 00:01:47,039 Speaker 1: of Chicago. So do you go by doctor. 27 00:01:47,240 --> 00:01:51,680 Speaker 2: No, I don't. I find that it confuses people and 28 00:01:52,720 --> 00:01:55,240 Speaker 2: I just use my name. 29 00:01:55,520 --> 00:01:59,520 Speaker 1: Okay, all right, well thanks for joining us today. Can 30 00:01:59,880 --> 00:02:01,840 Speaker 1: you who start off? Because you know people might not 31 00:02:01,880 --> 00:02:04,480 Speaker 1: be familiar with Starbulk, Can you just talk about the 32 00:02:04,480 --> 00:02:05,360 Speaker 1: company and the fleet. 33 00:02:05,520 --> 00:02:08,880 Speaker 2: Sure. So, Starbulk is in, as you said, the dry 34 00:02:08,919 --> 00:02:14,120 Speaker 2: bulk business, which means we carry commodities that are generally 35 00:02:14,240 --> 00:02:21,680 Speaker 2: dry and they're in bulk form, so iron ore for example, coal, grain, 36 00:02:23,760 --> 00:02:30,320 Speaker 2: other ores, sugar, salt, basically anything that you can pick 37 00:02:30,400 --> 00:02:34,320 Speaker 2: up with a scoop and dump into a hold and 38 00:02:34,480 --> 00:02:38,840 Speaker 2: you know, not pay very careful attention to you know, 39 00:02:38,919 --> 00:02:43,679 Speaker 2: banging it or dropping it. So we don't carry containers, 40 00:02:44,360 --> 00:02:50,680 Speaker 2: we don't carry liquids, and we carry very large quantities. 41 00:02:50,919 --> 00:02:54,560 Speaker 2: Typically one of our dry ball ships is filled with 42 00:02:54,720 --> 00:02:59,200 Speaker 2: a single commodity and the smallest ship we have is 43 00:02:59,240 --> 00:03:02,280 Speaker 2: about fifty two two thousand tons of cargo and the 44 00:03:02,280 --> 00:03:04,880 Speaker 2: biggest ship is just under two hundred and ten thousand 45 00:03:04,919 --> 00:03:11,520 Speaker 2: tons of cargo, so they carry quite large loads. And 46 00:03:11,600 --> 00:03:18,160 Speaker 2: we have one hundred and nineteen owned vessels, which is 47 00:03:18,280 --> 00:03:21,360 Speaker 2: down from a recent peak of one hundred and twenty eight, 48 00:03:21,480 --> 00:03:28,919 Speaker 2: and we have eight chartered in vessels chartered in long term. 49 00:03:28,000 --> 00:03:30,280 Speaker 1: So that's that means you're leasing them from somebody. 50 00:03:29,919 --> 00:03:34,079 Speaker 2: Else, correct, Yeah, And you know, our fleet makes this 51 00:03:34,200 --> 00:03:40,000 Speaker 2: sort of relatively evenly spread between the Supermax or Ultramax class, 52 00:03:40,000 --> 00:03:42,840 Speaker 2: which is sort of fifty two thousand to sixty four 53 00:03:42,880 --> 00:03:46,560 Speaker 2: thousand tons of cargo, and those ships have cranes so 54 00:03:46,600 --> 00:03:50,360 Speaker 2: they can load and unload themselves in ports that don't 55 00:03:50,360 --> 00:03:55,720 Speaker 2: have such facilities. We have also a number of Panamax 56 00:03:55,800 --> 00:03:59,640 Speaker 2: or Camcermax ships which are about seventy five thousand to 57 00:03:59,800 --> 00:04:03,560 Speaker 2: eight eighty five thousand tons and they do not have cranes, 58 00:04:03,640 --> 00:04:07,560 Speaker 2: so they require pored infrastructure. And then we have a 59 00:04:07,680 --> 00:04:10,840 Speaker 2: number of Cape size and Newcastle Max ships which are 60 00:04:11,320 --> 00:04:13,720 Speaker 2: one hundred eighty thousand to about two hundred and ten 61 00:04:13,800 --> 00:04:18,800 Speaker 2: thousand tons, and those ships are primarily used for iron ore, 62 00:04:19,839 --> 00:04:28,120 Speaker 2: some coal, but certainly less flexible. And you know, the 63 00:04:28,400 --> 00:04:33,080 Speaker 2: small ships basically carry anything anywhere. The medium sized ships 64 00:04:33,120 --> 00:04:38,760 Speaker 2: are a little more specialized, you know. And most grain 65 00:04:38,920 --> 00:04:42,800 Speaker 2: travels on the Panamax and Cancer Max ships. And as 66 00:04:42,839 --> 00:04:46,520 Speaker 2: I said, the capes and Newcastle maxes are mostly devoted 67 00:04:46,520 --> 00:04:48,000 Speaker 2: to iron ore, but some coal. 68 00:04:48,240 --> 00:04:50,600 Speaker 1: Right, And you mentioned grained and you know, grain's been 69 00:04:50,640 --> 00:04:52,320 Speaker 1: in the news. The grain trade's been in the news, 70 00:04:52,720 --> 00:04:54,719 Speaker 1: you know, unfortunately because the war in Ukraine and the 71 00:04:54,760 --> 00:04:58,600 Speaker 1: impact on you know, food for around around the world. 72 00:04:58,839 --> 00:05:01,719 Speaker 1: Can you talk about, you know, how has the war 73 00:05:01,760 --> 00:05:06,400 Speaker 1: in Ukraine impacted your business, the trade of commodities and 74 00:05:06,440 --> 00:05:08,080 Speaker 1: the cost of doing business. 75 00:05:08,920 --> 00:05:17,560 Speaker 2: Yeah, you know, the war basically cut the grain output 76 00:05:17,640 --> 00:05:22,480 Speaker 2: of Ukraine from about ten percent of world grain exports 77 00:05:22,560 --> 00:05:27,840 Speaker 2: to basically zero. It came back a bit with the 78 00:05:28,600 --> 00:05:33,120 Speaker 2: agreement between Ukraine, Russian and Turkey, but now it's back 79 00:05:33,240 --> 00:05:39,520 Speaker 2: basically to zero. So you know, that has caused the 80 00:05:39,560 --> 00:05:43,120 Speaker 2: total flow of grain in the world to be reduced, 81 00:05:44,600 --> 00:05:48,320 Speaker 2: you know. Offsetting that somewhat is that the ten miles 82 00:05:48,400 --> 00:05:54,799 Speaker 2: that the average grain cargo travels now is increased because 83 00:05:54,800 --> 00:06:00,360 Speaker 2: there's there's been some compensation from from South America. Uh, 84 00:06:00,839 --> 00:06:05,600 Speaker 2: but generally the distances are greater from South America than 85 00:06:05,640 --> 00:06:08,200 Speaker 2: they were from Ukraine to to Ukraine's clients. 86 00:06:08,320 --> 00:06:11,400 Speaker 1: And that's and that's good for shipping, because it's. 87 00:06:11,279 --> 00:06:14,680 Speaker 2: Good for shipping because the more ton miles, you know, 88 00:06:14,760 --> 00:06:17,560 Speaker 2: the more tons we carry, the further we carry them, 89 00:06:17,760 --> 00:06:20,920 Speaker 2: the you know, the the better utilized our ships. But 90 00:06:20,920 --> 00:06:25,120 Speaker 2: but net net, the the the the Ukraine War has 91 00:06:25,200 --> 00:06:30,400 Speaker 2: been bad for dry ball shipping all although you know, 92 00:06:30,480 --> 00:06:35,800 Speaker 2: for example, coal cargoes are up as a result, you know, 93 00:06:38,440 --> 00:06:40,800 Speaker 2: not directly due to the grain, but due to due 94 00:06:40,839 --> 00:06:46,159 Speaker 2: to the war and and people's willingness to you know 95 00:06:46,200 --> 00:06:49,840 Speaker 2: buy gas and uh and coal from Russia. Right. 96 00:06:50,720 --> 00:06:53,400 Speaker 1: And so that's interesting because in the tanker market it's 97 00:06:53,440 --> 00:06:57,520 Speaker 1: been actually you know good for time charter rates to 98 00:06:57,640 --> 00:07:01,520 Speaker 1: the rates that people pay to ship crude oil uh 99 00:07:01,560 --> 00:07:04,479 Speaker 1: on a ship, you know, because the trade lanes have 100 00:07:04,480 --> 00:07:05,400 Speaker 1: have changed so much. 101 00:07:05,760 --> 00:07:08,600 Speaker 2: Well, in the oil market, you know, I think what 102 00:07:08,680 --> 00:07:12,440 Speaker 2: you find is that oil finds a way to travel 103 00:07:14,240 --> 00:07:17,840 Speaker 2: in the grain market. You know, the Ukrainian grain is 104 00:07:17,840 --> 00:07:22,360 Speaker 2: is in fact truly shut in. So you know, it's 105 00:07:22,400 --> 00:07:24,480 Speaker 2: a it's a it's a different issue. 106 00:07:24,360 --> 00:07:28,520 Speaker 1: Right, And and I guess that's one of Ukraine's biggest 107 00:07:28,600 --> 00:07:30,840 Speaker 1: dry bulk export is is egg or grain. 108 00:07:31,120 --> 00:07:36,520 Speaker 2: Yes, yeah, exactly. You know the the you know, the 109 00:07:36,520 --> 00:07:43,440 Speaker 2: the the largest. Basically, the total amount of dry ball 110 00:07:43,560 --> 00:07:47,000 Speaker 2: that moves on the ocean is about five point four 111 00:07:47,040 --> 00:07:50,600 Speaker 2: billion tons. And you know, just to give you an idea, 112 00:07:50,880 --> 00:07:55,240 Speaker 2: a billion tons of coal is one cubic kilometer more 113 00:07:55,320 --> 00:07:55,720 Speaker 2: or less. 114 00:07:56,560 --> 00:07:59,360 Speaker 1: Okay, you're you're you're using your physics degrees there. 115 00:07:59,520 --> 00:08:02,200 Speaker 2: Well, you know, think about a cubic kilometer. It's a 116 00:08:02,240 --> 00:08:07,040 Speaker 2: pretty it's a pretty impressive thing, that is. And you know, 117 00:08:07,520 --> 00:08:15,000 Speaker 2: basically about ten percent of that is grain, about twenty 118 00:08:15,240 --> 00:08:19,880 Speaker 2: eight percent of that is iron ore, about twenty four 119 00:08:19,960 --> 00:08:24,120 Speaker 2: percent of that is coal, and then thirty eight percent 120 00:08:24,240 --> 00:08:27,520 Speaker 2: are minor bulks. And you know, minor bulks are called 121 00:08:27,560 --> 00:08:30,480 Speaker 2: minor bulks because they're just you know, a small fraction 122 00:08:30,640 --> 00:08:36,400 Speaker 2: of the total dry bulk movements. But you know, it's sugar, salt, 123 00:08:37,520 --> 00:08:42,120 Speaker 2: box site, although box site is sometimes called a major 124 00:08:42,160 --> 00:08:45,360 Speaker 2: bulk because it's getting big. It tends to travel in 125 00:08:45,400 --> 00:08:51,719 Speaker 2: cape sizes from West Africa to China. But copper concentrates, 126 00:08:51,760 --> 00:08:56,120 Speaker 2: you know, other words, basically steel products even travel in 127 00:08:57,360 --> 00:09:01,120 Speaker 2: supermax ships. You know, they are not dumped in the hold. 128 00:09:01,240 --> 00:09:04,679 Speaker 2: They're the only cargo that we typically load somewhat carefully. 129 00:09:05,800 --> 00:09:07,719 Speaker 1: Is that when the cranes come into play. 130 00:09:08,080 --> 00:09:10,920 Speaker 2: The cranes will come into play, and you have to 131 00:09:11,000 --> 00:09:15,400 Speaker 2: place the steel products, typically on wooden pallettes in a 132 00:09:15,480 --> 00:09:18,760 Speaker 2: very sort of careful way to prevent damage to the 133 00:09:19,200 --> 00:09:23,040 Speaker 2: hold of the ship and to the steel products themselves. 134 00:09:24,040 --> 00:09:26,760 Speaker 1: And so, you know, from a commodity standpoint, are there 135 00:09:26,800 --> 00:09:29,240 Speaker 1: commodities that are doing well for the well, I guess 136 00:09:29,320 --> 00:09:31,600 Speaker 1: let's take a step back. How is the dry bulk market, 137 00:09:31,640 --> 00:09:33,559 Speaker 1: because rates aren't you know, very good right now? 138 00:09:33,600 --> 00:09:36,480 Speaker 2: Well, well, you know, a few weeks ago, rates weren't 139 00:09:36,600 --> 00:09:41,079 Speaker 2: very good. But you know, rates are up quite a bit. 140 00:09:41,760 --> 00:09:44,480 Speaker 2: You know, cape size rates are up over twenty thousand 141 00:09:44,520 --> 00:09:49,640 Speaker 2: dollars a day, which is well into you know, profitability 142 00:09:49,679 --> 00:09:53,240 Speaker 2: for just about everybody. And with our relatively low brake 143 00:09:53,280 --> 00:09:59,600 Speaker 2: even it's quite profitable. You know, it's somewhat counterintuitive, but 144 00:10:00,520 --> 00:10:07,880 Speaker 2: China has been recovering from you know, the the hit 145 00:10:08,040 --> 00:10:14,080 Speaker 2: that its economy took from COVID rather slowly, and you know, 146 00:10:14,120 --> 00:10:17,520 Speaker 2: I think people have been generally surprised at the slow 147 00:10:17,600 --> 00:10:22,280 Speaker 2: recovery in China. But you know, their import volumes of 148 00:10:22,400 --> 00:10:26,760 Speaker 2: dry bulk have been as strong as anybody could have hoped. 149 00:10:27,400 --> 00:10:29,920 Speaker 2: You know, they're up about fourteen percent in the first 150 00:10:29,920 --> 00:10:34,440 Speaker 2: half of the year over over last year, and you know, 151 00:10:34,480 --> 00:10:38,360 Speaker 2: they're they're doing very well. 152 00:10:39,320 --> 00:10:42,240 Speaker 1: China is probably the biggest importer in the world of 153 00:10:42,320 --> 00:10:43,360 Speaker 1: dryball commodities. 154 00:10:43,400 --> 00:10:49,160 Speaker 2: Indeed, indeed, forty percent of dry ball cargoes that float 155 00:10:49,240 --> 00:10:52,640 Speaker 2: on the ocean end up in China, and that accounts 156 00:10:52,679 --> 00:10:55,840 Speaker 2: for fifty percent of the ton miles because the trips 157 00:10:56,000 --> 00:10:59,000 Speaker 2: tend to be longer than average if they end up 158 00:10:59,000 --> 00:10:59,480 Speaker 2: in China. 159 00:10:59,520 --> 00:11:02,720 Speaker 1: A lot of iron ore from Brazil going to China. 160 00:11:04,040 --> 00:11:08,160 Speaker 2: Iron ore from Brazil and Australia. I think it's over 161 00:11:08,240 --> 00:11:11,200 Speaker 2: eighty percent of the iron ore that travels by sea 162 00:11:11,400 --> 00:11:18,120 Speaker 2: ends up in China. Yeah, so it's a big, big consumer. 163 00:11:18,520 --> 00:11:24,040 Speaker 2: But you know, Brazilian ton miles have been rising. You know, 164 00:11:25,000 --> 00:11:30,600 Speaker 2: fuel prices are high, which is good for dry ball shipping. 165 00:11:30,920 --> 00:11:38,200 Speaker 2: Somewhat counterintuitive, I can explain that. But you know, for 166 00:11:38,320 --> 00:11:42,360 Speaker 2: whatever reason, you know, Chinese imports of iron ore and 167 00:11:42,440 --> 00:11:46,679 Speaker 2: production of steel have really been quite strong despite the 168 00:11:46,720 --> 00:11:50,360 Speaker 2: weakness in the economy, and they've been importing, you know, 169 00:11:50,440 --> 00:11:54,000 Speaker 2: a bunch of coal. So you know, we're seeing the 170 00:11:54,080 --> 00:11:58,920 Speaker 2: typical seasonal increase that you would expect in a normal year. 171 00:12:00,440 --> 00:12:02,880 Speaker 2: And you know, in fact, rates right now are higher 172 00:12:02,880 --> 00:12:05,320 Speaker 2: than they've been since December of twenty twenty two. 173 00:12:06,280 --> 00:12:09,880 Speaker 1: Okay, but from like a year of a year like 174 00:12:09,920 --> 00:12:12,280 Speaker 1: when I know, like the BDI is not the perfect 175 00:12:12,640 --> 00:12:13,880 Speaker 1: index to look at. 176 00:12:14,040 --> 00:12:19,200 Speaker 2: Well, it's it's been low, right, it's picked up, picked up, 177 00:12:19,320 --> 00:12:20,680 Speaker 2: it's picked up quite a bit. 178 00:12:22,040 --> 00:12:26,400 Speaker 1: Are rates at a place now where it's profitable to 179 00:12:26,480 --> 00:12:27,520 Speaker 1: be a dry ball carrier? 180 00:12:27,559 --> 00:12:30,720 Speaker 2: Oh? Absolutely absolutely? I mean this wasn't true a few 181 00:12:30,720 --> 00:12:31,240 Speaker 2: weeks ago. 182 00:12:31,400 --> 00:12:34,000 Speaker 1: Okay. It's a very volatile market. And that's like one 183 00:12:34,000 --> 00:12:35,679 Speaker 1: of the interesting things for people that don't know anything 184 00:12:35,679 --> 00:12:41,040 Speaker 1: about shipping. Shipping is extremely volatile. Prices are pretty much available, 185 00:12:41,800 --> 00:12:45,840 Speaker 1: and it's a very transparent, i would say kind of market, 186 00:12:46,880 --> 00:12:48,320 Speaker 1: and very efficient market. 187 00:12:48,640 --> 00:12:53,600 Speaker 2: It is, in my experience, just about the most perfect 188 00:12:53,640 --> 00:12:56,920 Speaker 2: market i've seen, which is another way of saying that 189 00:12:56,960 --> 00:12:59,520 Speaker 2: there are never any leading indicators. 190 00:12:59,120 --> 00:13:02,319 Speaker 1: Right, that's yeah, that's a good point. And so when 191 00:13:02,360 --> 00:13:05,240 Speaker 1: you're looking at rates or looking at the quality of 192 00:13:05,280 --> 00:13:09,120 Speaker 1: the rates, are some ship classes doing better than others? 193 00:13:09,160 --> 00:13:10,880 Speaker 1: And if they are, why is that? 194 00:13:11,520 --> 00:13:19,439 Speaker 2: So? Basically, cape sizes are doing better than panamax. 195 00:13:19,000 --> 00:13:22,160 Speaker 1: And just to remind everybody, Cape size or the big ships. 196 00:13:21,840 --> 00:13:24,319 Speaker 2: The one hundred eighty thousand to two hundred ten thousand 197 00:13:24,400 --> 00:13:28,880 Speaker 2: ton ships, they're doing the best. Panomaxes and campcer Maxes 198 00:13:28,920 --> 00:13:33,679 Speaker 2: are doing you know, not nearly as well, but okay. 199 00:13:33,520 --> 00:13:35,959 Speaker 1: Which are slightly smaller, yeah, like. 200 00:13:35,960 --> 00:13:39,960 Speaker 2: Half the size, so seventy five to eighty five thousand tons, 201 00:13:40,280 --> 00:13:42,679 Speaker 2: and then the fifty two to sixty four thousand tons 202 00:13:42,720 --> 00:13:48,200 Speaker 2: Supermax and Ultramax are doing okay, but again, you know, 203 00:13:48,280 --> 00:13:52,240 Speaker 2: not quite as well as the Panamax and campcer Max. 204 00:13:54,400 --> 00:13:58,360 Speaker 2: And the reason basically that the capes are doing better 205 00:13:58,920 --> 00:14:02,520 Speaker 2: is first of all, that the cargoes that seem to 206 00:14:02,559 --> 00:14:06,080 Speaker 2: be driving rates are iron ore into some extent coal, 207 00:14:06,520 --> 00:14:10,400 Speaker 2: which are commodities that tend to travel on the large ships. 208 00:14:10,880 --> 00:14:15,720 Speaker 2: But also because the large ships are a more leveraged investment. 209 00:14:16,880 --> 00:14:21,480 Speaker 2: You know, they carry much more cargo, and the fuel 210 00:14:21,800 --> 00:14:25,840 Speaker 2: cost per ton of cargo is much lower in a 211 00:14:25,920 --> 00:14:30,200 Speaker 2: cape size than it is in a smaller ship. But 212 00:14:30,520 --> 00:14:35,800 Speaker 2: you know, if if there's a you know a little 213 00:14:35,840 --> 00:14:40,320 Speaker 2: bit of you know, weakness in the iron ore market, 214 00:14:41,520 --> 00:14:46,480 Speaker 2: the capes just have no alternative, so they go begging 215 00:14:46,560 --> 00:14:51,400 Speaker 2: for cargo, whereas the camps are maxes and the supermaxes 216 00:14:51,520 --> 00:14:54,800 Speaker 2: can pick up many different cargoes. 217 00:14:55,120 --> 00:14:57,120 Speaker 1: And most of the owners don't have the luxury of 218 00:14:57,160 --> 00:14:59,520 Speaker 1: saying no thank you when rates are low because they 219 00:14:59,800 --> 00:15:01,360 Speaker 1: have to make payments ships. 220 00:15:01,440 --> 00:15:08,240 Speaker 2: Yes, I have. I have often wondered why the Union 221 00:15:08,280 --> 00:15:11,000 Speaker 2: of Greek ship owners never goes on strike, but they 222 00:15:11,040 --> 00:15:18,000 Speaker 2: never do. And you know we're price takers. 223 00:15:17,760 --> 00:15:21,520 Speaker 1: Right, Okay? And then you know you mentioned earlier, you 224 00:15:21,520 --> 00:15:24,240 Speaker 1: know the impact of higher fuel prices, and you know, 225 00:15:24,280 --> 00:15:26,720 Speaker 1: with oil rising, obviously that's going to have an impact 226 00:15:26,720 --> 00:15:29,720 Speaker 1: on bunker fuels. Can you can you talk about a 227 00:15:30,040 --> 00:15:33,880 Speaker 1: you know, how much does bunker fuel fuel go into 228 00:15:33,920 --> 00:15:37,840 Speaker 1: the cost of operating a ship. Let's stick stick with capes. 229 00:15:38,000 --> 00:15:39,480 Speaker 1: Sure like big is better, right? 230 00:15:39,960 --> 00:15:45,080 Speaker 2: Yeah? So you know, cape size going full speed will 231 00:15:45,120 --> 00:15:48,680 Speaker 2: burn about sixty tons of fuel a day. 232 00:15:48,680 --> 00:15:49,800 Speaker 1: And what's full speed. 233 00:15:50,200 --> 00:15:56,120 Speaker 2: Full speed is about fourteen fourteen and a half nots. 234 00:15:56,200 --> 00:16:01,240 Speaker 2: And you know, in the old days, with fuel very 235 00:16:01,320 --> 00:16:06,640 Speaker 2: cheap and you know, rates profitable, you know, you often 236 00:16:06,680 --> 00:16:10,560 Speaker 2: see ships going full speed. You know, I haven't seen 237 00:16:11,800 --> 00:16:15,160 Speaker 2: capes going full speed since I've been in this business, 238 00:16:18,120 --> 00:16:21,280 Speaker 2: you know, And that's because that's because fuel prices are high. 239 00:16:21,800 --> 00:16:26,560 Speaker 2: And basically what happens is that a ship burns fuel 240 00:16:28,320 --> 00:16:31,760 Speaker 2: in rough proportion to the cube of the speed of 241 00:16:31,800 --> 00:16:35,440 Speaker 2: the ship, so that a little bit of speed up 242 00:16:35,520 --> 00:16:38,520 Speaker 2: means the ship burns a lot more fuel. A little 243 00:16:38,520 --> 00:16:40,440 Speaker 2: bit of slow down means the ship burns a lot 244 00:16:40,520 --> 00:16:46,320 Speaker 2: less fuel. Everybody who owns a ship or charters a 245 00:16:46,360 --> 00:16:50,600 Speaker 2: ship is trying to maximize their profit. A time charter 246 00:16:51,000 --> 00:16:53,920 Speaker 2: pays a certain amount per ship per day, but he 247 00:16:54,000 --> 00:16:56,800 Speaker 2: has to pay for the fuel because the time charter 248 00:16:57,000 --> 00:16:58,920 Speaker 2: tells the ship where to go and how fast to 249 00:16:58,960 --> 00:17:05,280 Speaker 2: go there. So the time charter his costs are basically 250 00:17:06,080 --> 00:17:09,320 Speaker 2: the price of the ship per day plus the price 251 00:17:09,359 --> 00:17:13,400 Speaker 2: of the fuel, so he wants to minimize the sum 252 00:17:13,400 --> 00:17:17,800 Speaker 2: of those. If charter rates are high and fuel is cheap, 253 00:17:17,840 --> 00:17:23,280 Speaker 2: he goes fast. If charter rates are low. Are high, Yeah, 254 00:17:23,840 --> 00:17:26,840 Speaker 2: charter rates are low and fuel is expensive. He goes 255 00:17:26,880 --> 00:17:32,399 Speaker 2: slowly to pay more for the ship and less for 256 00:17:32,440 --> 00:17:41,680 Speaker 2: the fuel. Basically, since everybody is maximizing their own profit. 257 00:17:42,680 --> 00:17:47,400 Speaker 2: If fuel prices are high, ships will go more slowly 258 00:17:48,640 --> 00:17:54,320 Speaker 2: unless charter rates go up. Well, to a first approximation, 259 00:17:55,240 --> 00:18:01,320 Speaker 2: fuel prices rise and charter rates don't go up, you 260 00:18:01,359 --> 00:18:03,760 Speaker 2: can't carry as much cargo in the fleet as you 261 00:18:03,920 --> 00:18:11,119 Speaker 2: could yesterday. That is not practical in most cases. To 262 00:18:11,160 --> 00:18:14,280 Speaker 2: a first approximation, the demand for shipping services is not 263 00:18:14,440 --> 00:18:17,720 Speaker 2: very sensitive to a change in the cost of shipping 264 00:18:17,760 --> 00:18:20,200 Speaker 2: because the cost of shipping is so small compared to 265 00:18:20,280 --> 00:18:24,520 Speaker 2: the value of the commodity. So in fact, charter rates 266 00:18:24,560 --> 00:18:27,720 Speaker 2: tend to go up in direct proportion to the price 267 00:18:27,720 --> 00:18:32,479 Speaker 2: of fuel, which is very counterintuitive. We don't have to 268 00:18:32,520 --> 00:18:35,879 Speaker 2: negotiate to get this to happen. The dynamics of the 269 00:18:35,920 --> 00:18:39,320 Speaker 2: market make it happen automatically. And this is very different 270 00:18:39,359 --> 00:18:43,360 Speaker 2: from container shipping, where a container line, if it has 271 00:18:43,400 --> 00:18:47,280 Speaker 2: a higher fuel cost, has to negotiate with its customers 272 00:18:47,400 --> 00:18:52,719 Speaker 2: to get rate increases, and of course tanker companies the 273 00:18:52,720 --> 00:18:56,600 Speaker 2: fuel cost is also the cost of the commodity they're shipping. 274 00:18:56,680 --> 00:18:59,480 Speaker 2: There's a lot of nonlinear interactions there. 275 00:19:00,200 --> 00:19:02,200 Speaker 1: And then when you got and when when a dry 276 00:19:02,240 --> 00:19:05,320 Speaker 1: bulk ship is going slower, it also takes capacity out 277 00:19:05,359 --> 00:19:07,520 Speaker 1: of the market and that that helps push rates up. 278 00:19:07,560 --> 00:19:14,520 Speaker 2: Correct correct, Yes, So indeed, you know that stabilizes the 279 00:19:14,600 --> 00:19:17,439 Speaker 2: dry bulk market quite a bit. If if you know, 280 00:19:17,600 --> 00:19:22,120 Speaker 2: if if fuel prices are what if charter rates are low, 281 00:19:22,359 --> 00:19:29,480 Speaker 2: the fleet slows down and that tends to take capacity out, 282 00:19:29,840 --> 00:19:32,840 Speaker 2: So it's self regulating to some degree. 283 00:19:32,880 --> 00:19:35,640 Speaker 1: Yeah, and you mentioned full steam ahead is like fourteen 284 00:19:35,720 --> 00:19:39,199 Speaker 1: fourteen and a half knots in most ship owners or 285 00:19:40,160 --> 00:19:43,359 Speaker 1: time trotters are slow steaming right now, what is what 286 00:19:43,359 --> 00:19:44,080 Speaker 1: what are they doing? 287 00:19:44,160 --> 00:19:51,280 Speaker 2: Now? Roughly they're going about eleven knots you know, and 288 00:19:52,400 --> 00:19:56,800 Speaker 2: recently they were going even slower. But you know, eleven 289 00:19:56,840 --> 00:20:03,320 Speaker 2: knots is you know, roughly twenty five percent below full speed. 290 00:20:04,040 --> 00:20:09,240 Speaker 2: So the fuel consumption per day is you know, under 291 00:20:09,880 --> 00:20:13,240 Speaker 2: half typically of what it would be at full speed. 292 00:20:13,560 --> 00:20:15,679 Speaker 1: And then just so like you know, our listeners can 293 00:20:15,680 --> 00:20:18,000 Speaker 1: get a better understanding and you can probably use your 294 00:20:18,080 --> 00:20:20,640 Speaker 1: pull out your physics degree for this. So if if 295 00:20:20,680 --> 00:20:24,760 Speaker 1: a cape size is going you know I don't know 296 00:20:24,800 --> 00:20:26,639 Speaker 1: what the math would be, but let's call it like 297 00:20:28,280 --> 00:20:32,840 Speaker 1: one not slower or two not slower from Brazil to China, 298 00:20:33,040 --> 00:20:35,560 Speaker 1: Like how many days does that add? Well? 299 00:20:35,760 --> 00:20:39,760 Speaker 2: Okay, so it's a it's a complicated calculation because you 300 00:20:39,840 --> 00:20:41,679 Speaker 2: have to take into account there there are a lot 301 00:20:41,720 --> 00:20:44,480 Speaker 2: of port days right to load the ship and discharge 302 00:20:44,520 --> 00:20:50,879 Speaker 2: the ship. But you know, every knot roughly takes six 303 00:20:50,960 --> 00:20:57,600 Speaker 2: percent out of the fleet capacity, you know, so it's 304 00:20:57,640 --> 00:20:58,240 Speaker 2: a big deal. 305 00:20:59,320 --> 00:21:00,639 Speaker 1: Okay, it's big deal. 306 00:21:00,920 --> 00:21:06,080 Speaker 2: So you know, on three three knots it's taken out, 307 00:21:06,160 --> 00:21:08,800 Speaker 2: you know, eighteen to twenty percent of the fleet capacity. 308 00:21:09,400 --> 00:21:11,120 Speaker 1: And that's a global drybulk fleet. 309 00:21:10,960 --> 00:21:12,160 Speaker 2: Global drive ball fleet. 310 00:21:12,440 --> 00:21:17,840 Speaker 1: Super interesting. All right, So you know we're talking about fuel. 311 00:21:18,040 --> 00:21:22,199 Speaker 1: You can't not talk about fuel, especially to tie it 312 00:21:22,240 --> 00:21:26,359 Speaker 1: to emissions. You know, we know the industry has gone 313 00:21:26,440 --> 00:21:32,600 Speaker 1: through some emissions changes with IMO, with latest IMO initiatives, 314 00:21:33,280 --> 00:21:37,399 Speaker 1: there are some coming in twenty thirty, twenty fifty. You know, 315 00:21:37,400 --> 00:21:40,560 Speaker 1: we want to get to zero emissions. It seems like 316 00:21:40,600 --> 00:21:46,399 Speaker 1: a pretty tall hurdle for the industry, an expensive hurdle. 317 00:21:47,400 --> 00:21:49,879 Speaker 1: What is Could you just maybe talk about what the 318 00:21:49,920 --> 00:21:53,840 Speaker 1: new regulations are, talk about what Starbuck is doing and 319 00:21:53,920 --> 00:21:57,920 Speaker 1: maybe talk about how is that different than maybe the 320 00:21:57,960 --> 00:21:59,159 Speaker 1: industry if it is different. 321 00:22:00,160 --> 00:22:04,560 Speaker 2: Yeah, well, so basically there are there are several new 322 00:22:04,760 --> 00:22:07,919 Speaker 2: regulations that we have to deal with, and I'm sure 323 00:22:07,960 --> 00:22:14,159 Speaker 2: there will be many more regulations coming. But you know, 324 00:22:14,200 --> 00:22:18,480 Speaker 2: the first regulation is something that the shipping industry and 325 00:22:18,560 --> 00:22:25,680 Speaker 2: the IMO called ee XI, which is a fuel efficiency 326 00:22:25,800 --> 00:22:32,560 Speaker 2: rating that is calculated for each ship. And in order 327 00:22:32,720 --> 00:22:41,199 Speaker 2: to basically get into twenty twenty three, we had to 328 00:22:41,440 --> 00:22:49,520 Speaker 2: pass an EXI rating. And you know, the simplest way 329 00:22:50,560 --> 00:22:55,840 Speaker 2: to increase your efficiency for the purposes of EXI was 330 00:22:55,880 --> 00:23:03,720 Speaker 2: something called engine power limitation, and you could basically artificially 331 00:23:05,080 --> 00:23:08,320 Speaker 2: limit the power that your engine was able to produce, 332 00:23:10,320 --> 00:23:15,840 Speaker 2: and that reduced your top speed, but not by that 333 00:23:16,000 --> 00:23:22,520 Speaker 2: much because the top speed, if you recall, is proportional 334 00:23:22,520 --> 00:23:27,960 Speaker 2: to the cube root of the engine power, so it's 335 00:23:28,480 --> 00:23:34,000 Speaker 2: a little bit of a reduction in engine power only 336 00:23:34,240 --> 00:23:38,280 Speaker 2: results in a small reduction in top speed. And so 337 00:23:38,560 --> 00:23:43,960 Speaker 2: basically getting most ships through the EXI test was not 338 00:23:44,400 --> 00:23:48,720 Speaker 2: incredibly difficult. What is more difficult is something called the 339 00:23:48,720 --> 00:23:55,080 Speaker 2: Carbon intensity Indicator, and this is an actual measure of 340 00:23:55,200 --> 00:24:03,880 Speaker 2: the fuel burn per unit of cargo transportation work, and 341 00:24:05,160 --> 00:24:09,200 Speaker 2: you know, that's basically tons of cargo that the ship 342 00:24:09,240 --> 00:24:13,080 Speaker 2: can carry times the distance the ship is moving. And 343 00:24:15,200 --> 00:24:19,160 Speaker 2: ships are rated A through E based upon their actual 344 00:24:19,880 --> 00:24:27,880 Speaker 2: carbon emissions per unit of transportation work. And if you're 345 00:24:28,080 --> 00:24:31,600 Speaker 2: E rated, you have to present a plan to get 346 00:24:31,600 --> 00:24:34,199 Speaker 2: better in the next year. If you're de rated for 347 00:24:34,280 --> 00:24:39,679 Speaker 2: two years, you have to present a plan. You know, 348 00:24:40,080 --> 00:24:46,840 Speaker 2: financial penalties are not formal yet and would depend on 349 00:24:46,960 --> 00:24:52,359 Speaker 2: flag state regulations, and so you know, I think A 350 00:24:52,520 --> 00:24:56,560 Speaker 2: through E categories are at least initially mostly going to 351 00:24:56,560 --> 00:25:01,320 Speaker 2: affect the prices that charters will be willing to pay 352 00:25:02,119 --> 00:25:02,920 Speaker 2: for these ships. 353 00:25:03,240 --> 00:25:05,320 Speaker 1: So if you're an A, it might be more expensive, 354 00:25:06,359 --> 00:25:08,479 Speaker 1: and you might use that ship because it lowers your 355 00:25:08,480 --> 00:25:13,400 Speaker 1: emissions and exactly beat your own ESG goals and targets. 356 00:25:13,440 --> 00:25:17,600 Speaker 2: Now, the CII regulations are a little bit controversial because 357 00:25:18,720 --> 00:25:22,639 Speaker 2: if you're stuck in port, you are burning two tons 358 00:25:22,640 --> 00:25:24,960 Speaker 2: a day of fuel to keep the lights on, but 359 00:25:25,040 --> 00:25:29,399 Speaker 2: you're not doing any transportation work, and you're being stuck 360 00:25:29,440 --> 00:25:31,840 Speaker 2: in port is not under the ship owners or the 361 00:25:31,920 --> 00:25:37,199 Speaker 2: charterers control typically, and it can happen, you know, for 362 00:25:37,440 --> 00:25:41,239 Speaker 2: long periods, and nobody can do anything about it. So 363 00:25:42,280 --> 00:25:46,880 Speaker 2: it's that's an issue that probably should should get addressed 364 00:25:46,880 --> 00:25:51,639 Speaker 2: and I think is being thought about. Then there's the 365 00:25:51,760 --> 00:25:56,240 Speaker 2: European Union Emissions Trading Scheme, which is going to apply 366 00:25:56,280 --> 00:25:59,639 Speaker 2: to shipping as of January one, twenty twenty four, and 367 00:26:00,160 --> 00:26:06,800 Speaker 2: that is basically a carbon tax. You know, ship owners 368 00:26:07,480 --> 00:26:15,800 Speaker 2: who visit the EU have to basically obtain allowances for 369 00:26:15,960 --> 00:26:17,800 Speaker 2: half of the carbon they emit on the way to 370 00:26:17,840 --> 00:26:20,919 Speaker 2: the EU and half of the carbon they emit going 371 00:26:21,280 --> 00:26:25,160 Speaker 2: on the voyage like out of the EU. And the 372 00:26:25,240 --> 00:26:29,679 Speaker 2: price of these carbon allowances today is about eighty euros 373 00:26:29,720 --> 00:26:37,159 Speaker 2: per ton of carbon emitted. But it's a market price. 374 00:26:38,080 --> 00:26:39,600 Speaker 2: It can go up, it can go down. 375 00:26:39,800 --> 00:26:44,159 Speaker 1: And what would that cost? You know, I guess it 376 00:26:44,280 --> 00:26:45,439 Speaker 1: b rated ship if. 377 00:26:45,280 --> 00:26:47,719 Speaker 2: You will, like what would well, you know, it depends 378 00:26:47,800 --> 00:26:51,400 Speaker 2: how long the travel was to the EU and how 379 00:26:51,480 --> 00:26:53,919 Speaker 2: long the travel was from the EU. But you know, 380 00:26:54,520 --> 00:26:59,600 Speaker 2: you could easily imagine you know, a thousand tons of 381 00:26:59,600 --> 00:27:03,879 Speaker 2: fuel each way, which is three thousand tons of carbon 382 00:27:03,920 --> 00:27:08,320 Speaker 2: dioxide each way, so six thousand tons of CO two 383 00:27:08,560 --> 00:27:13,760 Speaker 2: emitted you pay on half of that, so three thousand 384 00:27:13,840 --> 00:27:19,919 Speaker 2: tons times you know, one hundred, one hundred dollars hundred 385 00:27:19,920 --> 00:27:25,200 Speaker 2: dollars a ton roughly, so you know, three hundred thousand 386 00:27:25,800 --> 00:27:29,119 Speaker 2: dollars money. It's a lot of money. It's going to 387 00:27:29,119 --> 00:27:32,639 Speaker 2: make people think. It's going to make people say, what 388 00:27:32,680 --> 00:27:34,880 Speaker 2: do I do to make my ship more efficient? 389 00:27:36,320 --> 00:27:40,000 Speaker 1: What's Starbuck doing to make What we. 390 00:27:39,920 --> 00:27:49,440 Speaker 2: Are doing, first of all, is we have adopted we're 391 00:27:49,480 --> 00:27:54,640 Speaker 2: putting on the ship sensors to sense basically everything that 392 00:27:55,080 --> 00:27:59,800 Speaker 2: is relevant to fuel consumption. So you know, electric power, 393 00:28:01,119 --> 00:28:08,959 Speaker 2: engine power, fuel flow, ship speed, speed over ground, and 394 00:28:09,040 --> 00:28:12,600 Speaker 2: speed through water. And so we've got basically real time 395 00:28:12,720 --> 00:28:16,040 Speaker 2: data that shows the performance of the ship that goes 396 00:28:16,119 --> 00:28:23,159 Speaker 2: back to the office. We get precision modeling of the 397 00:28:23,200 --> 00:28:26,359 Speaker 2: performance of the ship done, so we know how the 398 00:28:26,400 --> 00:28:30,040 Speaker 2: ship is currently performing. We know how the ship is 399 00:28:30,080 --> 00:28:34,320 Speaker 2: supposed to perform when it's fresh out of dry dock. 400 00:28:36,680 --> 00:28:45,720 Speaker 2: And you know, the largest single impact on ship performance 401 00:28:45,800 --> 00:28:51,760 Speaker 2: is hull fouling basically algae and barnacles increasing hull friction. 402 00:28:51,880 --> 00:28:56,400 Speaker 2: So so we monitor that. But when when we understand 403 00:28:56,440 --> 00:28:59,640 Speaker 2: the performance of the ship as it is today, we 404 00:28:59,680 --> 00:29:03,920 Speaker 2: can optimize the speeds and the roots for the weather. 405 00:29:05,920 --> 00:29:12,640 Speaker 2: So you know, we basically use a weather forecast that 406 00:29:12,760 --> 00:29:17,640 Speaker 2: includes you know wind wave spectrum, you know wave direction, 407 00:29:19,040 --> 00:29:24,240 Speaker 2: and we we optimize the speed and the route to 408 00:29:24,560 --> 00:29:28,840 Speaker 2: give us the best sort of combination of fuel consumption 409 00:29:29,200 --> 00:29:33,920 Speaker 2: and let's say opportunity cost based on the charter rate. 410 00:29:35,560 --> 00:29:40,959 Speaker 2: Then on most ships we're adding so called energy saving devices, 411 00:29:41,840 --> 00:29:46,520 Speaker 2: which are basically ducts that are welded to the hull 412 00:29:46,760 --> 00:29:49,800 Speaker 2: just in front of the propeller to give the water 413 00:29:50,080 --> 00:29:53,560 Speaker 2: sort of an inverse twist. Propeller gives it a twist 414 00:29:53,560 --> 00:29:57,040 Speaker 2: the other way and the water ideally comes out straight 415 00:29:58,040 --> 00:30:02,600 Speaker 2: and so no energy is involved and making the water spin. 416 00:30:02,880 --> 00:30:06,960 Speaker 2: It's it actually is good for about five percent fuel consumption. 417 00:30:07,120 --> 00:30:10,880 Speaker 1: Oh wow, savings. And then like so you're doing all 418 00:30:10,880 --> 00:30:13,000 Speaker 1: these things that you can. It seems like you know 419 00:30:13,080 --> 00:30:16,640 Speaker 1: baseball analogy like singles and doubles. Yeah, to change things. 420 00:30:17,000 --> 00:30:20,120 Speaker 1: But you know the IMO, you know the powers of 421 00:30:20,080 --> 00:30:23,760 Speaker 1: the core that they have bold golds and targets. So 422 00:30:24,760 --> 00:30:27,560 Speaker 1: you know, are you buying ships that are dual fuel? 423 00:30:27,880 --> 00:30:30,080 Speaker 1: What kind of what is the other fuel that you're 424 00:30:30,120 --> 00:30:32,440 Speaker 1: looking at? What do you think the fuel the future 425 00:30:32,520 --> 00:30:34,640 Speaker 1: is for shipping or are we just going back to sales, 426 00:30:34,760 --> 00:30:36,000 Speaker 1: Like what is it going to be. 427 00:30:37,000 --> 00:30:40,600 Speaker 2: That's that's the sixty four thousand dollars question. In fact, 428 00:30:40,600 --> 00:30:44,960 Speaker 2: it's a lot more than sixty sixty four thousand dollars inflation. Yeah, 429 00:30:45,040 --> 00:30:52,840 Speaker 2: it's it's really hard. And you know, this is preventing 430 00:30:53,160 --> 00:30:57,000 Speaker 2: ship owners from ordering ships. It's certainly preventing us from 431 00:30:57,080 --> 00:31:01,440 Speaker 2: ordering ships. It's present preventing a lot of from ordering ships. 432 00:31:03,720 --> 00:31:05,240 Speaker 2: We don't know. 433 00:31:04,920 --> 00:31:07,320 Speaker 1: Which is good for supply. 434 00:31:07,400 --> 00:31:09,840 Speaker 2: Good for supplies, It is good for rates? Yes, which 435 00:31:09,840 --> 00:31:13,680 Speaker 2: is good for rates? So the fleet is aging. It's 436 00:31:13,720 --> 00:31:17,360 Speaker 2: not a particularly old fleet, because there were a lot 437 00:31:17,360 --> 00:31:20,680 Speaker 2: of ships built, you know, in two thousand and seven 438 00:31:20,880 --> 00:31:27,000 Speaker 2: through twenty twelve, but it is getting older. And you know, 439 00:31:27,960 --> 00:31:35,680 Speaker 2: the obvious fuels are LENG, methanol, and ammonia, and they 440 00:31:35,680 --> 00:31:43,960 Speaker 2: all have their issues. LNG is a fossil fuel. It 441 00:31:44,200 --> 00:31:48,960 Speaker 2: seems to be less and less able to solve let's say, 442 00:31:49,160 --> 00:31:58,560 Speaker 2: the political problem that a ship owner has with climate change. 443 00:31:59,600 --> 00:32:04,200 Speaker 2: And you know, I think it's becoming less popular with 444 00:32:04,360 --> 00:32:08,000 Speaker 2: ship owners as the second fuel after fuel oil. Then 445 00:32:08,000 --> 00:32:15,080 Speaker 2: there's methanol. Methanol is easy to use, it's easy to 446 00:32:15,280 --> 00:32:22,400 Speaker 2: design a ship to use. It doesn't require immense amounts 447 00:32:22,440 --> 00:32:28,360 Speaker 2: of crew training. But it is very difficult to make 448 00:32:28,520 --> 00:32:34,520 Speaker 2: truly green methanol. Most of the green methanol that is 449 00:32:35,280 --> 00:32:37,680 Speaker 2: you know, available today and will be available in the 450 00:32:37,720 --> 00:32:43,480 Speaker 2: future is essentially a biofuel, you know, made typically from 451 00:32:43,760 --> 00:32:50,640 Speaker 2: from wood pulp and and you know sawmill leavings, And 452 00:32:51,480 --> 00:32:56,520 Speaker 2: you know, it's not as clear that that is completely 453 00:32:56,560 --> 00:33:00,239 Speaker 2: renewable and green and free of carbon emissions right as 454 00:33:01,000 --> 00:33:03,680 Speaker 2: it would be if you got the carbon you need 455 00:33:03,720 --> 00:33:07,280 Speaker 2: to make methanol from direct air capture of carbon, but 456 00:33:07,560 --> 00:33:10,960 Speaker 2: direct air capture is very challenging and is not being 457 00:33:11,000 --> 00:33:14,880 Speaker 2: done at scale now, and you know it's it's unclear 458 00:33:14,920 --> 00:33:18,880 Speaker 2: when it will be done at scale. So the chemical 459 00:33:18,920 --> 00:33:23,160 Speaker 2: engineering around methanol suggests to us that it's likely to 460 00:33:23,200 --> 00:33:27,880 Speaker 2: be more expensive than ammonia for quite a while, if 461 00:33:27,960 --> 00:33:34,280 Speaker 2: not forever. And then there's ammonia, which is intended to 462 00:33:34,320 --> 00:33:39,480 Speaker 2: be used as a carrier of hydrogen. You make hydrogen 463 00:33:40,080 --> 00:33:46,640 Speaker 2: with renewable electricity electrolyzing water into hydrogen and oxygen, and 464 00:33:47,000 --> 00:33:49,800 Speaker 2: you take that hydrogen and you combine it with a 465 00:33:49,880 --> 00:33:56,320 Speaker 2: nitrogen from the atmosphere and you get ammonia. Easy in 466 00:33:56,680 --> 00:34:01,760 Speaker 2: principle to make this renewable fuel, But the problem with ammonia. 467 00:34:01,800 --> 00:34:03,120 Speaker 2: Is it's incredibly toxic. 468 00:34:03,440 --> 00:34:03,640 Speaker 1: Yeah. 469 00:34:04,760 --> 00:34:09,920 Speaker 2: And you know, if there were an ammonia leak in 470 00:34:09,960 --> 00:34:14,320 Speaker 2: the engine room, the crew would be at risk of 471 00:34:15,360 --> 00:34:20,920 Speaker 2: being seriously injured or killed. So you can't have a 472 00:34:21,000 --> 00:34:24,320 Speaker 2: leak in the engine room. You have to make sure 473 00:34:24,360 --> 00:34:29,279 Speaker 2: the crew is protected. You know, it's going to be 474 00:34:29,400 --> 00:34:32,800 Speaker 2: challenging to get acceptance of ammonia. 475 00:34:33,040 --> 00:34:35,600 Speaker 1: So when you when you look at these three fuels, 476 00:34:35,640 --> 00:34:39,160 Speaker 1: and you know, you obviously talk to your peers, go 477 00:34:39,239 --> 00:34:42,680 Speaker 1: to a lot of conferences. Do is methanol? It seemed 478 00:34:42,680 --> 00:34:44,759 Speaker 1: like the horse that's in the lead, right at least 479 00:34:44,800 --> 00:34:45,520 Speaker 1: for right now. 480 00:34:46,520 --> 00:34:50,319 Speaker 2: I think methanol is in the lead right now for 481 00:34:50,680 --> 00:34:56,720 Speaker 2: companies that want their ships to be burning green fuel immediately, Yes, 482 00:34:57,080 --> 00:34:58,560 Speaker 2: because you can get methanol. 483 00:35:01,520 --> 00:35:04,640 Speaker 1: And so we hear Marisk is you know, yes, making 484 00:35:04,680 --> 00:35:05,880 Speaker 1: those on the line. 485 00:35:05,680 --> 00:35:09,759 Speaker 2: Or indeed yeah, although I hear rumors that marisk is 486 00:35:09,800 --> 00:35:15,279 Speaker 2: now also thinking seriously about ammonia. And then you know, 487 00:35:15,680 --> 00:35:19,480 Speaker 2: there is the possibility of nuclear power, which I think 488 00:35:19,520 --> 00:35:22,640 Speaker 2: people are taking more and more seriously simply because of 489 00:35:22,680 --> 00:35:25,760 Speaker 2: the difficulty of the other alternatives. 490 00:35:26,480 --> 00:35:26,840 Speaker 1: Wow. 491 00:35:27,040 --> 00:35:33,000 Speaker 2: And you know, just you know, as a as an 492 00:35:33,160 --> 00:35:39,360 Speaker 2: interesting intellectual exercise. If you got electricity from a nuclear 493 00:35:39,400 --> 00:35:42,040 Speaker 2: reactor on board a ship and used it to power 494 00:35:42,080 --> 00:35:45,880 Speaker 2: an electric motor that drives the propeller. That's about ninety 495 00:35:45,920 --> 00:35:50,799 Speaker 2: five percent efficient, because electric motors are very good. If 496 00:35:50,840 --> 00:35:54,480 Speaker 2: you took that electricity from the reactor and you made hydrogen, 497 00:35:54,680 --> 00:35:57,680 Speaker 2: which is about sixty percent efficient, and you use the 498 00:35:57,760 --> 00:36:00,720 Speaker 2: hydrogen to make ammonia, which is about eighty percent efficient, 499 00:36:01,200 --> 00:36:03,360 Speaker 2: and you burn the ammonia in an engine, which is 500 00:36:03,400 --> 00:36:07,480 Speaker 2: about thirty five percent efficient, you have wasted eighty percent 501 00:36:07,600 --> 00:36:12,719 Speaker 2: of the power coming out of that reactor. Yeah, so 502 00:36:13,120 --> 00:36:17,480 Speaker 2: you know, there are strong arguments in terms of efficiency 503 00:36:17,920 --> 00:36:20,560 Speaker 2: that it would be better to put that reactor on 504 00:36:20,680 --> 00:36:25,759 Speaker 2: the ship. We'll see. I suspect it's not in my lifetime, 505 00:36:25,880 --> 00:36:30,719 Speaker 2: but maybe I'm maybe will be you know, lucky, and 506 00:36:30,840 --> 00:36:35,240 Speaker 2: the political issues will be solved. 507 00:36:34,000 --> 00:36:37,320 Speaker 1: All right. Well, so, so you know, we're talking a 508 00:36:37,320 --> 00:36:41,560 Speaker 1: little bit about environmental stuff. You know, the weather's been 509 00:36:41,560 --> 00:36:46,480 Speaker 1: pretty crazy Panama Canal, real low water levels seems to 510 00:36:46,520 --> 00:36:50,480 Speaker 1: still be an issue. How has that changed how Starbulck 511 00:36:50,600 --> 00:36:52,400 Speaker 1: is operating their fleet. 512 00:36:52,840 --> 00:36:57,480 Speaker 2: You know, it hasn't changed that much because basically dry 513 00:36:57,560 --> 00:37:03,239 Speaker 2: bulk doesn't use the Panama Canal all that much. The 514 00:37:03,680 --> 00:37:07,279 Speaker 2: major use of the Panama Canal is for grain in 515 00:37:07,400 --> 00:37:14,120 Speaker 2: dry bulk. And you know, basically waiting time at the 516 00:37:14,160 --> 00:37:20,319 Speaker 2: Panama Canal has been a roughly half percent effect on 517 00:37:20,719 --> 00:37:24,960 Speaker 2: the on the size of the fleet. Effectively, you know, 518 00:37:24,960 --> 00:37:27,160 Speaker 2: about half a percent of the fleet is tied up 519 00:37:27,200 --> 00:37:31,840 Speaker 2: waiting at the Panama Canal. Now in the fourth quarter, 520 00:37:32,080 --> 00:37:39,960 Speaker 2: that might go up because soybean crop, the soybean crop 521 00:37:40,120 --> 00:37:43,240 Speaker 2: in the United States is likely to start to travel 522 00:37:45,000 --> 00:37:48,520 Speaker 2: in a bigger way, and so that half percent might 523 00:37:48,719 --> 00:37:50,479 Speaker 2: you know, double right. 524 00:37:50,600 --> 00:37:55,239 Speaker 1: I think Clarkson's you know, they're the latest estimates at 525 00:37:55,320 --> 00:37:57,759 Speaker 1: least the last time I looked was for supply to 526 00:37:58,000 --> 00:38:03,000 Speaker 1: outpaced demand next year. Supply growth outpaced demand next year. 527 00:38:03,840 --> 00:38:05,880 Speaker 1: Is that what you guys are expecting? And you know, 528 00:38:05,960 --> 00:38:08,239 Speaker 1: is that going to put pressure on rates? Or is 529 00:38:08,320 --> 00:38:11,040 Speaker 1: it really the order book is so low as a 530 00:38:11,080 --> 00:38:12,800 Speaker 1: percentage of fleet doesn't really matter. 531 00:38:13,400 --> 00:38:16,839 Speaker 2: Well, okay, so the order book is now about eight 532 00:38:16,920 --> 00:38:18,239 Speaker 2: percent of the fleet. 533 00:38:18,400 --> 00:38:20,560 Speaker 1: What is it normally in the last twenty years? 534 00:38:20,640 --> 00:38:24,040 Speaker 2: Well, so in two thousand and seven the order book 535 00:38:24,080 --> 00:38:28,720 Speaker 2: was seventy percent of the fleet. Okay, And in fact, 536 00:38:28,760 --> 00:38:34,799 Speaker 2: in two thousand and seven, the earliest new building you 537 00:38:34,800 --> 00:38:38,239 Speaker 2: could order was at a shipyard that did not at 538 00:38:38,239 --> 00:38:42,560 Speaker 2: that point exist. The shipyard had to get built and 539 00:38:42,600 --> 00:38:44,800 Speaker 2: then they could build your new building that you ordered, 540 00:38:45,360 --> 00:38:48,200 Speaker 2: and that was quicker than ordering at an existing shipyard 541 00:38:48,200 --> 00:38:49,959 Speaker 2: that had a years long order book. 542 00:38:51,040 --> 00:38:53,799 Speaker 1: One's Bloomberg terminal subscriber. You should you should look at 543 00:38:53,880 --> 00:38:58,840 Speaker 1: rates during that time, the ridiculous peaks in the ridiculous 544 00:38:58,880 --> 00:39:02,080 Speaker 1: troughs of of rates. But anyway, I'm sorry, go on. 545 00:39:02,200 --> 00:39:05,760 Speaker 2: Indeed, rates hit about two hundred and fifty thousand dollars 546 00:39:05,840 --> 00:39:10,600 Speaker 2: a day for cape size. But you know, so those 547 00:39:10,680 --> 00:39:16,120 Speaker 2: ships that were ordered at Greenfield Shipyards so called Greenfield, 548 00:39:16,920 --> 00:39:21,279 Speaker 2: were many of them, most of them delivered, and they 549 00:39:21,600 --> 00:39:28,000 Speaker 2: consume truly enormous amounts of fuel. And luckily star Bulk 550 00:39:28,160 --> 00:39:32,520 Speaker 2: does not own any of those ships. And frankly, one 551 00:39:32,600 --> 00:39:36,080 Speaker 2: of the things that gives us great confidence in the 552 00:39:36,160 --> 00:39:41,399 Speaker 2: dry ball market over the next decade is that if 553 00:39:41,480 --> 00:39:48,640 Speaker 2: decarbonization continues, which presumably it will, you know, these ships 554 00:39:48,680 --> 00:39:52,040 Speaker 2: that were built at Greenfield Shipyards between two thousand and 555 00:39:52,080 --> 00:39:54,759 Speaker 2: eight and twenty twelve, they are going to be the 556 00:39:54,800 --> 00:39:58,040 Speaker 2: first ships that get regulated out of the market, and 557 00:39:58,080 --> 00:40:01,840 Speaker 2: it's about thirty percent of the fleet. You regulate out 558 00:40:02,080 --> 00:40:05,800 Speaker 2: that sort of chunk of the market. You know, the 559 00:40:06,200 --> 00:40:10,120 Speaker 2: market should be very good for the remaining ships for 560 00:40:10,160 --> 00:40:17,360 Speaker 2: a long time now. So eight percent of the market 561 00:40:17,800 --> 00:40:22,880 Speaker 2: is the order book. The low, which was like a 562 00:40:22,960 --> 00:40:25,440 Speaker 2: year and a half ago, was six percent, which was 563 00:40:25,520 --> 00:40:28,759 Speaker 2: the all time low. You know, I think a more 564 00:40:28,800 --> 00:40:31,320 Speaker 2: typical number is on the order of twenty percent. 565 00:40:32,360 --> 00:40:34,560 Speaker 1: So it's a really rational order book right now. So 566 00:40:35,320 --> 00:40:37,840 Speaker 1: supply out growing demand really not going to have a 567 00:40:37,880 --> 00:40:38,719 Speaker 1: huge impact on that. 568 00:40:38,840 --> 00:40:43,719 Speaker 2: Yeah, and they're talking about a very minor Yes, it's 569 00:40:43,800 --> 00:40:49,640 Speaker 2: within I think their experimental error. It might go one way, 570 00:40:49,680 --> 00:40:53,000 Speaker 2: it might go the other way, but it's pretty much 571 00:40:53,040 --> 00:40:55,080 Speaker 2: the same. And of course it depends a lot on 572 00:40:55,200 --> 00:41:04,239 Speaker 2: scrapping rates, which nobody can anticipate. You know, frankly, what 573 00:41:04,360 --> 00:41:08,480 Speaker 2: this depends on, probably more than anything else, is what 574 00:41:08,600 --> 00:41:13,759 Speaker 2: do charterers do with E rated ships. You know, if 575 00:41:13,960 --> 00:41:17,440 Speaker 2: if owning an E rated ship is a real problem, 576 00:41:17,880 --> 00:41:22,800 Speaker 2: you're going to see a bunch of scrapping. If charterers 577 00:41:22,840 --> 00:41:28,440 Speaker 2: say E rated don't care that much, you know, maybe 578 00:41:28,480 --> 00:41:33,880 Speaker 2: scrapping will be much less, we'll see. Yeah, And you know, 579 00:41:33,920 --> 00:41:38,400 Speaker 2: the more enforcement basically of decarbonization rules the better. 580 00:41:38,440 --> 00:41:43,000 Speaker 1: Right, No, absolutely, And you know, also just you know, 581 00:41:43,480 --> 00:41:47,279 Speaker 1: just a couple more questions here from me. So you know, 582 00:41:47,320 --> 00:41:49,920 Speaker 1: we talked about the order book. Has higher interest rates 583 00:41:49,920 --> 00:41:52,440 Speaker 1: impacted the order book? It's it impacted how you guys 584 00:41:52,520 --> 00:41:55,440 Speaker 1: do business? How much has it impacted the cost of 585 00:41:55,480 --> 00:41:56,320 Speaker 1: owning a ship? 586 00:41:57,840 --> 00:42:02,040 Speaker 2: These ships are leveraged, These ships are are leveraged. You know, 587 00:42:02,239 --> 00:42:09,200 Speaker 2: we have relatively low leverage. We are, you know, under 588 00:42:09,600 --> 00:42:17,480 Speaker 2: under a third debt to asset value at least net debt. 589 00:42:19,800 --> 00:42:24,080 Speaker 2: Others are more leveraged. Certainly, you know, the cost of 590 00:42:25,520 --> 00:42:31,520 Speaker 2: borrowing has gone way up. Our cost of borrowing is 591 00:42:31,760 --> 00:42:36,000 Speaker 2: you know, a little over one and a half or 592 00:42:36,200 --> 00:42:40,320 Speaker 2: one hundred and fifty basis points over sofur. That's pretty 593 00:42:40,360 --> 00:42:43,640 Speaker 2: low as shipping companies go. You know, I would say 594 00:42:43,640 --> 00:42:47,320 Speaker 2: most shipping companies are paying a much higher spread to 595 00:42:47,400 --> 00:42:50,759 Speaker 2: sofa And of course Sofa is you know, five ish 596 00:42:50,840 --> 00:42:56,880 Speaker 2: percent instead of you know, being basically zero. So yeah, 597 00:42:56,920 --> 00:43:02,000 Speaker 2: I mean it's increased people's break even a lot. And 598 00:43:02,560 --> 00:43:10,239 Speaker 2: also banks are less and less willing to finance small shipowners, 599 00:43:11,880 --> 00:43:15,680 Speaker 2: and so small shipowners have either been excluded from the 600 00:43:15,719 --> 00:43:19,960 Speaker 2: debt market or have been forced to go to basically 601 00:43:20,040 --> 00:43:25,839 Speaker 2: specialist ship lenders who are charging much higher spreads over 602 00:43:25,920 --> 00:43:31,040 Speaker 2: sofa than banks. And what that is doing is it's 603 00:43:31,120 --> 00:43:36,399 Speaker 2: making the ownership of all kinds of ships much more 604 00:43:36,400 --> 00:43:41,080 Speaker 2: attractive for large companies than for smaller companies, which is 605 00:43:41,120 --> 00:43:44,040 Speaker 2: a change from what the market looked like a few 606 00:43:44,080 --> 00:43:44,920 Speaker 2: years ago. 607 00:43:45,600 --> 00:43:49,800 Speaker 1: Right. And so, you know, you've been involved in shipping 608 00:43:49,840 --> 00:43:52,160 Speaker 1: for a long time, whether it's on Wall Street or 609 00:43:52,239 --> 00:43:56,759 Speaker 1: as an operator. What has been the biggest change maybe 610 00:43:56,920 --> 00:44:03,120 Speaker 1: the last twenty twenty five years in shipping from your perspective, 611 00:44:03,360 --> 00:44:08,080 Speaker 1: And that can be really anything, whether it's how they're financed, 612 00:44:08,200 --> 00:44:11,120 Speaker 1: or how their operator, who's working on the ships, who 613 00:44:11,160 --> 00:44:13,760 Speaker 1: owns the ship's profitability. 614 00:44:14,000 --> 00:44:20,040 Speaker 2: Yeah, you know, I think it has become a much 615 00:44:20,160 --> 00:44:26,799 Speaker 2: more sort of corporate business than it was, you know, 616 00:44:29,160 --> 00:44:33,879 Speaker 2: twenty thirty years ago. For example, it was very rare 617 00:44:34,800 --> 00:44:41,800 Speaker 2: for a family owned shipping company to have a holding company. 618 00:44:41,880 --> 00:44:46,480 Speaker 2: So what typical family shipping business would do is they 619 00:44:46,520 --> 00:44:50,800 Speaker 2: would have one special purpose company that owned one ship 620 00:44:51,400 --> 00:44:58,520 Speaker 2: that had bearer shares, so literally the person who held 621 00:44:58,520 --> 00:45:03,160 Speaker 2: the certificate was the own owner, and you would finance 622 00:45:03,280 --> 00:45:08,680 Speaker 2: that ship on its own with a bank that understood 623 00:45:08,800 --> 00:45:13,400 Speaker 2: that the family owned this large fleet, but there was 624 00:45:13,520 --> 00:45:21,040 Speaker 2: no corporate guarantee of the loan. So okay, so bearer 625 00:45:21,120 --> 00:45:23,200 Speaker 2: shares are not a thing anymore. 626 00:45:25,520 --> 00:45:26,480 Speaker 1: It's probably a good thing. 627 00:45:26,880 --> 00:45:31,759 Speaker 2: Presumably that's a good thing. And it is much more 628 00:45:31,800 --> 00:45:36,400 Speaker 2: typical that the banks will get a corporate guarantee, an 629 00:45:36,480 --> 00:45:41,520 Speaker 2: unsecured corporate guarantee of the loan, as well as as 630 00:45:41,560 --> 00:45:46,799 Speaker 2: security in the particular ship or ships. And you know, 631 00:45:47,239 --> 00:45:56,720 Speaker 2: you will typically have a much more sophisticated organization among 632 00:45:56,840 --> 00:46:02,359 Speaker 2: the larger shipping companies, you know, with with many more 633 00:46:02,680 --> 00:46:10,040 Speaker 2: specialists in different areas, you know. So so yeah, it's 634 00:46:10,120 --> 00:46:12,560 Speaker 2: it's what you would expect that the business is becoming 635 00:46:12,600 --> 00:46:13,760 Speaker 2: more professionalized. 636 00:46:13,960 --> 00:46:17,719 Speaker 1: Yeah, all right, great. You know, I could probably talk 637 00:46:17,760 --> 00:46:20,200 Speaker 1: for hours about this. I think the conversation that we've 638 00:46:20,200 --> 00:46:24,200 Speaker 1: had so far has been fantastic, you know, I think 639 00:46:24,239 --> 00:46:27,279 Speaker 1: we're gonna wrap things up here, Hamish, and I just 640 00:46:27,320 --> 00:46:30,359 Speaker 1: want to thank you very much for your time. Also, 641 00:46:30,480 --> 00:46:33,399 Speaker 1: I want to thank everyone for tuning in today. If 642 00:46:33,400 --> 00:46:36,280 Speaker 1: you like the episode, please subscribe and leave a review. 643 00:46:36,880 --> 00:46:39,480 Speaker 1: We've lined up a number of great guests for the podcast. 644 00:46:39,600 --> 00:46:43,680 Speaker 1: Check back to hear from conversations with C suite executives 645 00:46:43,760 --> 00:46:49,520 Speaker 1: from companies like Canadian National, CSX Werner, ARC, Bex, g XO, 646 00:46:50,440 --> 00:46:54,520 Speaker 1: PAM Transportation, and Scorpio Tankers, just to name a few. Also, 647 00:46:54,560 --> 00:46:57,279 Speaker 1: if you have any ideas for future episodes, please hit 648 00:46:57,320 --> 00:47:01,399 Speaker 1: me up on the terminal or on Twitter at Logistics Late. 649 00:47:01,920 --> 00:47:03,439 Speaker 1: Thanks again, and have a great death.