November 9, 2017

Chief executive Paul Pathy says seawaymax ships are still the investment priority for Fednav but the company will ‘do just fine’ wherever the ships trade.
November 9, 2017 17:00 GMT by Michael Angell

Fednav serves as a prime example of change in the Canadian shipping industry.

The Montreal-based company operates 45 oceangoing ships capable of transiting the St Lawrence Seaway and Great Lakes, more than the combined amount of its next closest competitors, Canada’s Canfornav and Poland's Polsteam.

Yet Fednav chief executive Paul Pathy says the Great Lakes only accounts for about one-quarter of its current business, down from the “classic Fednav days” when it was more than half.

“We have a niche market here [in the Great Lakes], but it’s not necessarily our identity anymore,” Pathy says. “We are an international operator.”

Fednav, which handles about 25 million metric tonnes of cargo per year, is returning to growth after last year’s severe downturn.

Pathy’s rough gauge of Fednav’s health, the Baltic Exchange’s supramax time charter index, sits at a two-year high of around $12,500 per day, up from depths of under $3,000 per day last year.

But Pathy says the long-term recovery may still be uneven. Shipping rate futures for the fourth quarter put rates at $9,500 per day. Charterers may be waiting out the market now after the surge in rates earlier this year, he says.

Pathy says the futures show “the market is still very sceptical about a long-term recovery”.

"People are a bit reluctant to throw themselves back in,” he says.

Despite that fourth-quarter outlook, Fednav placed its bet this year on a recovering market. Fednav remains exposed to spot markets. It started the year with slightly less than one-third of its fleet on long-term charter.

It also levered up its fleet of 75 owned and long-term chartered ships with an additional 42 ships on short-term charter. That brought Fednav’s operated fleet to its highest ever, Pathy says.

“We’re trying to hustle in this lifting market and do a bit outside of our core fleet,” he says.

Fednav’s other major focus remains renewing its owned laker fleet. Along with 12 laker newbuildings delivered over the past two years, Fednav has another 10 on order at Oshima Shipbuilding in Japan. That yard accounts for a little under half of Fednav’s total fleet.

“They are the best of their type in the world in terms of design, cargo lift and fuel efficiency,” Pathy says. “You can’t go wrong with these ships.”

Pathy estimates the six-year newbuilding programme will cost Fednav $550m. There will be some modest fleet growth as the retirement of older ships does not align with newbuilding deliveries.

But Fednav’s goal is not size so much as it is to ensure the company does not lose market share in the Great Lakes and St Lawrence Seaway markets.

Even if Fednav’s existing ships still have five to seven years of useful life, Pathy says it makes sense to order now since newbuilding prices are so attractive.

“If you have to order for 2022, 2023 delivery, why not take them two years earlier and lock them in at a much better price?” Pathy says. “The chances that newbuild prices are much higher in 2020 is pretty significant.”

Fednav plans to retire one of its oldest vessels, the 28,418-dwt Arctic (built 1978), by 2020. The icebreaking bulker has been on contract to Glencore to carry cargo from its Arctic mining operations.

Pathy says a newbuilding will depend on whether Glencore decides to extend the mine's operations.

He is optimistic that the regional economies in the Great Lakes market will again grow, providing more demand for shipping. But even if the Great Lakes market fails to deliver that growth, Pathy says global markets will keep its ships busy.

“I want to build lakers because I want to be the premiere operator in the Great Lakes,” Pathy says. “But if needs be, we are going to do just fine anywhere else the ships go.”

“Our [Great Lakes] competitors are nowhere even close and they are not investing in their fleets as we have."


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