SHIPPING RECOVERY

On a lighter note, I have identified the 2 shipping trust - PST & FSLT - as good proxies for the eventual shipping recovery. As shipping recovers, their asset values will rise hence sorting out their debt mess at the moment. Only vested in FSLT and the latest announcement, while not completely unexpected, gave me a good beating haha !

I was burnt pretty badly by FSL Trust being one of the early adopters. The recent event was unfortunate and goes to show that long term charters are not iron-clad and unsinkable (sorry, can\'t resist the puns). At the current price of 50c or so, FSL Trust is more reasonably priced and technically, the decline in price has slowed. I will wait and see if it bottoms out. If it does, I might add to my position. As for Courage Marine\'s information: \"About 70% of group revenues are from spot voyage contracts, which is like hiring out a cab..\"This appeared in an article here in Next Insight on 12 November 2009. The Next Insight team is superb! www.nextinsight.biz/content/view/1691/79/

GM89, this article published in Nov09 explains the business as well as the 70-30 spot rate/COA mix of the business. www.nextinsight.biz/content/view/1691/79/ With the Baltic dry index climbing still, the outlook for courage marine is brightening.

I just wish to point out the inherent risk in spot charters - low utilization rates in a shipping crunch. CM\'s fleet utilization rate for 2009 averaged at 70%. This was due to the over-supply of vessels hence land-based companies tend to prefer modern vessels. Being an optimist (as always), I would look at it as an opportunity for CM to grow its earnings by an additional 40% without the need to raise further funds for vessel acquisition. Naturally, it depends on how you might look at it since companies specializing in COA maintains near 100% utilization rates. I think it should be noted that few (if not zero) land-based companies have defaulted from a COA contract locally last year. Those that did (outside Singapore), were eventually brought to court and sued. Even in the FSLT case, the COA contract between the shipping liner and Rosneft still remains valid and FSLT will be plying the trade route directly. On another note, this is completely unprecedented in the shipping trust industry ie an alternative financing company acting as a ship liner plying a COA contract. With regards to FSLT, I am taking a super long term view. The charters and its operations isn\'t killing the Trust. It is the declining asset value (tied to the shipping cycle) which is slowly strangling away its life. Naturally, improving vessel valuation has improved its financial position this year. After observing this phenomena, I came to the conclusion that it is best to invest in a business trust when its underlying asset value is at its bottom. I guess in the event of a property crash, a lot of smaller REITs will undergo what the shipping trust industry is currently suffering from. Ironic isn\'t it - you cannot expect stability when your underlying assets\' valuation are extremely volatile ! My 2 cents

Harlequin wrote:

GM89, this article published in Nov09 explains the business as well as the 70-30 spot rate/COA mix of the business. www.nextinsight.biz/content/view/1691/79/ With the Baltic dry index climbing still, the outlook for courage marine is brightening.

Thanks for the article links ! I don\'t expect any major BDI improvement for the next few years unless the economy is growing to such an extent that demand can sufficiently cater the growing supply of newbuild ships that are being slowly churned out from the Chinese and Korean shipping yards over the next 2 years. Don\'t expect a massive downturn either. Personally, I feel the BDI movement has more or less stabilized. I am very interested and fascinated by the shipping industry. But like all cyclical counters, timing is the key

Courage Marine\'s website has a section on their focus on spot rates, and also their strategy to increase COA for some stability. couragemarine.listedcompany.com/strategy.html The exact wording from the website: \"Going forward, our Group will target, as a business strategy, to derive approximately 28% of our total revenue from COAs, thereby reducing our Group\'s exposure to the spot market.\" (But dont know when the text was written.hahaha...cos in 2009 article by NextInsight the 70-30% mix was already achieved. )