Asia’s Crisis Leaves Some Cargo Vessels High and Dry
The wreckage of the Asian economy is washing up on American shores.
Two days before Thanksgiving, the Pakistani freighter Delta Pride limped into Brownsville, Texas, abandoned by its bankrupt owners, its 22-member crew beset by lice and scabies and subsisting on rainwater and whatever small fish could be caught from the deck.
The people of Brownsville, in the spirit of the holidays, have rallied around the crewmen with donations of food, fuel and clothing. Nevertheless, the Pakistani mariners remain stranded half a world away from home.
International shipping experts say an increasing number of dry-bulk freighters and their crews are, well, in the same boat.
The economic crisis that has swept Asia for the last year has beaten down demand for the raw materials carried by the ships, which transport such cargoes as coal, grain and iron ore.
The Asian turmoil, plus a global oversupply of ships, has constricted freight rates to the point where marginal operators are unable to cover crew wages and bunker oil--let alone keep up with their loan payments.
The 738-foot Delta Pride had fled the Gulf Coast port of Tampico, Mexico, under cover of darkness after running up thousands of dollars in bills during an unplanned sojourn of nearly five months.
The ship’s captain, Ahmed Maqsood, 36, had been forced to surrender the freighter’s documents, including the crew members’ identification papers, to a Mexican shipping agent as collateral for credit to buy food.
Now the Delta Pride and its crew lie at anchor off the southern tip of Texas while banks, courts, insurers and diplomats debate their fate.
“Many of my crew have not been paid in two years; many have not been home in 18 to 20 months,” Maqsood said. “We have been living like prisoners at sea.”
In cases such as that of the Delta Pride, the owners either cannot afford to bring their vessels home from distant ports or don’t see a profit in doing so. In fact, the Delta Pride’s four sister ships of Pakistan’s once-preeminent Tristar Shipping Lines were similarly stranded in Panama, Bangladesh, China and South Africa.
And in Long Beach earlier this month, the decrepit bulk freighter Fotini, seized by the Coast Guard on Oct. 1, was sold for $250,000 scrap value--apparently less than the amount of claims against it for back wages, maritime supplies and medical assistance for its crew.
Group Reports More Requests for Aid
Douglas Stevenson of the Seamen’s Church Institute in New York City said his organization has been asked for humanitarian and legal aid in no fewer than 14 freighter abandonments around the world this year--more than twice as many as in any previous year this decade.
“And those are just the ones who contact us,” Stevenson said. “The true number is much higher.”
Indeed, the International Transport Workers Federation, the huge British-based maritime union, has counted 200 abandonments worldwide since 1996, including about 70 so far this year.
Abandonment, says economist Greg Mastel of the Economic Strategy Institute, is “the ultimate statement that the world doesn’t need that ship.”
In some ways, the situation is reminiscent of what happened in Texas in the 1980s, when the oil economy collapsed and took an overbuilt real estate market down with it: Facing mortgage balances far higher than their shrunken home values, many Texans simply dropped their keys in the mail slot and walked away.
Some of the pain that dry-bulk firms are feeling stems from the nature of the business. Dry-bulk shipping is a different creature than container shipping.
Container ships sail on routes and timetables plotted months ahead to meet manufacturers’ schedules for delivering cars in time for the new model year or toys for the holiday season. The vessels are standardized, and the trade is dominated by a handful of huge companies such as Denmark’s Maersk Line, Taiwan’s Evergreen Marine and South Korea’s Hanjin Shipping Co.
The dry-bulk business, by contrast, is more entrepreneurial and more improvisational. It also is more prone to boom-and-bust cycles because the relatively low cost of getting into the business makes price wars and overcapacity recurrent problems.
“It’s really the scruffy end of the shipping market,” said ITF official Mark Dickinson in London.
The ships range widely in size, configuration and age. Only about half operate under long-term charters. The rest zigzag around the globe, taking cargoes where they find them--fertilizer one trip, grain or mineral ore the next.
Maqsood, for example, took the helm of the Delta Pride 18 months ago in Rotterdam, Netherlands, where the vessel was discharging animal feed. He then picked up scrap iron in Liverpool and took it to South Korea, loaded coal in China and dropped it off in Bulgaria, and hauled bauxite from West Africa to Port Comfort, Texas.
After discharging its load, a ship may hover offshore for weeks, waiting to swoop into port for new cargo, like a taxicab cutting across traffic to grab a fare. Flexibility pays.
“We have all the world’s charts. We can go anywhere,” Maqsood said.
Before the Asian crisis hit last year, trade worldwide had been growing at an annual clip of better than 6% in the 1990s. In such a healthy environment, credit flows freely, encouraging newcomers into the shipping business, often in aging secondhand vessels such as the 26-year-old Delta Pride.
The World Trade Organization estimated in its recently released annual report that trade for 1998 would grow about 4% in volume but because of falling prices would be flat or even slightly down in value of goods shipped.
Next year, it will be a struggle to achieve any growth even in volume, the WTO said.
U.S. Demand Helps Temper the Slump
Roaring demand in the United States, stimulated by a strong dollar and the consumer confidence born of a booming stock market, pushed imports up 10% through the first nine months of this year. That has been a critical factor in staving off a global trade slump; a downturn here would make things even worse.
And things are pretty bad.
The Baltic freight index--the leading barometer of dry-bulk shipping rates--lost two-thirds of its value between 1996 and July, as rates fell to 10-year lows. Although the index has since rebounded, it remains 60% below its 1996 peak.
With revenues shrinking, the value of many older ships has fallen below their outstanding loan amounts. That is one component of the crisis gripping the world’s leading maritime lenders--the Japanese banks.
In a perverse feedback system, as prices for secondhand ships fall, lenders pull back from financing sales, further weakening prices.
Greek shipping firms, famous as “vulture investors” who scoop up secondhand freighters just when prices hit bottom, also are hanging back.
“Some of them bought in ’96, but they got in too early and just got crushed,” said James L. Winchester, shipping analyst with Lazard Freres in New York.
And, to compound the overcapacity, governments have continued helping their shipbuilders offer attractive financing terms on new vessels in order to preserve their global market share.
Last month, for example, the European Commission accused South Korea of using International Monetary Fund aid money to help its shipyards undercut European competitors’ prices.
The plethora of new ships makes it tougher for older vessels to find cargoes.
“Charter parties and insurers want newer boats,” Maqsood said. “Everybody wants security for their cargo.”
The result is a classic shakeout. Older vessels and less well-capitalized freight operators are headed for the scrap heap.
Safety violations also are on the rise, a prime example being the Panamanian-owned, Greek-operated Fotini. Besides oil leaks and hatch covers frozen with rust, the Coast Guard found polluted drinking water, stale food, overflowing toilets and cockroach infestation.
The Coast Guard in Texas also halted the Delta Pride three miles offshore, citing concerns about the vessel’s rundown appearance and its lack of documentation.
“The problem is that many of these owners are running their ships on margin,” the ITF’s Dickinson said. “When things get tough, wages are the first thing to go. You’re already scrimping on maintenance and then you try to dodge safety regulations. Regulations, so to speak, are a cost factor.”
The ostensible problems with the Delta Pride were less severe, although the crew was equally miserable. The Coast Guard stopped the freighter because, lacking documents, Maqsood couldn’t verify that he and the crew were qualified to operate the ship.
Moreover, the vessel lacked a certificate of financial responsibility--an insurance document showing that there would be coverage in the event of an oil spill, collision or other accident.
Until this year, Maqsood’s employer, family-owned Tristar, had been Pakistan’s largest independent dry-bulk freight line. The company bought its Japanese-built fleet of secondhand ships in the early 1990s with loans from Allied Bank of Pakistan.
Although the circumstances are in dispute, Tristar declared bankruptcy earlier this year, leaving Allied as its largest creditor.
Maqsood did not learn of the bankruptcy until this fall, after he had been at anchor in Tampico for several months and suppliers abruptly refused to extend more credit for food and fuel.
Maqsood was offered a 5,000-ton cargo in Jamaica, but for a ship the size of the Delta Pride--over 60,000 tons capacity--the trip wouldn’t even cover costs, so he declined.
With food and water nearly gone and his crew slipping into despair, Maqsood decided to make a break for the United States in hopes of finding mercy.
There wasn’t enough diesel fuel to start the engines and run the ship’s generators, so crewmen ingeniously used an acetylene torch to “cook” some heavy bunker oil and make it thin enough to serve the purpose.
The Delta Pride slipped out of Tampico and struggled nearly 300 miles up the coast to Brownsville. Once the crew’s plight was publicized, the community responded with enough provisions to last through December.
Aziz Uddin, Pakistani consul general in Los Angeles, said his government is asking lien-holder Allied Bank to resolve the problem.
Meanwhile, a shipping agent in New Orleans--a native Pakistani--is voluntarily seeking a buyer for the Delta Pride.
Maqsood said the ship was purchased for $3.2 million, but indications are a sale price would be nowhere near that much.
“In all probability the ship is going to be scrapped,” Uddin said.
Predictably, scrap prices have plunged along with the rest of the market, but experts say that breaking up older ships is the best way to tackle overcapacity until freight prices recover.
In fact, analyst James J. Dowling of ING Baring Furman Selz sees a glint of hope in the scrap yard.
About 10.2 million tons of dry-bulk freighters have been scrapped so far this year, compared with 7.8 million tons for 1997.
If the scrapping continues at that pace, and an expected slowdown of new ship deliveries occurs, Dowling sees a sharp turnaround for the dry-bulk shippers--perhaps as early as 2000.