Chairman's Commentary

In reflecting on the past twelve months I have not dwelt on the market gyrations – the highs and the lows but rather on what we have achieved at NYMAR.

We are proud of our accomplishments as in the past twelve months we have established a proverbial beachhead in the so-called cluster wars!

New York will always be a force to be reckoned with for our presence and status, as the capital markets leader will be of greater importance as we work and wend our way through the current fiscal crisis.

NYMAR has hosted events and sponsored conferences, opened the stock exchange and overall broadened our global footprint. We have also developed strategic alliances with the New York Economic Development Corporation, Weissman Center for International Business at Baruch College, the Journal of Commerce, and Marine Money.

More importantly this newsletter so ably edited by Ranjeeta McGroarty has had an excellent reception and garnered much praise. The letter itself goes out to almost 3,000 people and this combined with our mid – month e-blast is a valuable way for NYMAR to enhance the image of New York and our maritime capabilities.

NYMAR is just five years old now. Two very eminent attorneys, Bob Gruendel and Bill Honan chaired the organization through years 1-4. Bob is still very active as he heads DLA Piper's maritime team. Bill is at the helm of Holland and Knight. As of the end of the year Bill is retiring from the board of NYMAR. I cannot thank him enough for his service and his leadership in the formative years of NYMAR. That we have propelled NYMAR to a high profile organization is due in no small part to the ground work laid by Bob and subsequently Bill. NYMAR should be grateful to these friends for their time and commitment to the organization and their vision that enabled us to become what we now are.

I take this opportunity to wish our readers a healthy and happy holiday season and at the very least a modicum of prosperity in 2009.

NYMAR editor, Ranjeeta D McGroarty catches up with Paul Leand, brand new dad and Chief Executive of New York based merchant bank, AMA Capital Partners.

Dahlman Rose Indices

Dahlman Rose & Co index data is calculated by Standard and Poor's and disseminated on a real-time basis by the Chicago Mercantile Exchange, representing publicly available indices that track the movements of U.S. listed Marine Transport companies.

Monthly News

Bulk stocks see gains

Shipping companies shares were slightly up on last Friday’s trading bringing a sigh of relief at least for the time being. The question is- does this mean that the markets are seeing an upward trend. George Economou led DryShips which was significantly down came up about 136%, with about 10 stocks in total gaining approximately 44% on last Friday’s trading. Other companies gaining ground are Excel Maritime with 98%, Genco Shipping & Trading saw a 44% gain, Navios with 51%, Freeseas with 82%, TBS International with 60% and Eagle Bulk seeing a 67% gain.

Analysts have said rumour’s indicate that Chinese Iron & Steel Association (CISA) is trying fast forward the 2009 benchmark iron-ore pricing date from 1 April to 1 January. If CISA was to secure an early drop in contracted iron-ore prices and reinstate steel-production margins earlier than initially projected, the dry-bulk market could see a restoration as iron-ore shipments to lucrative steel mills recommence.

Also, the Baltic Dry Index (BDI), which moves alongside dry bulk stocks saw a revival for two days in a row after 13 days of decline that had plummeted the index to a 22 year low.

Analysts send mixed signals on dry bulk

Shipping equities saw drastic moves up and down for a number of names highlighting the extreme volatility of recent weeks. While a Norwegian equity analyst is taking a strong bearish outlook on public dry-bulk companies, New York analysts remain bullish saying that the positives outweigh the negatives in the long-term.

Companies are doing everything to save some cash from selling vessels to cutting or reducing dividends. Several companies will have to cut or halt its dividends like Excel Maritime Carriers, Golden Ocean Group while companies like OceanFreight are reported to be reducing dividends. Norwegian analysts said that although some public companies have some liquidity from the highs of the past few years and charter cover, many companies will perhaps see Chapter XI bankruptcies. Greece’s Diana Shipping may be the only owner left standing as it has far less debt than its rivals in the sector. Asset values have declined significantly combined with bank debt and capital expenditures.

Although the dry bulk sector may be at eye of the storm, a Lazard analyst in New York stated in general it remains bullish but maintains caution in the near term. ”We remain bullish on the dry bulk names, but this week’s run may be eye of the storm. Even after this week’s strong run-up in share prices, we believe that DSX, EGLE, GNK, and NM are attractively valued,” analysts at Lazard stated in a report last week.

Specialists say that they have seen hints of fundamental improvement in the dry bulk sector, however some of the negatives such as loan covenant defaults have yet to officially manifest themselves. “Thus we believe that this week’s surge in the dry bulk names, while well founded if one has a long-term view, may be but the eye of the storm, and we expect severe volatility to be the norm until we see a concerted fundamental upturn. Reiterate BUY on DSX, EGLE, GNK, and NM, but we note that near-term caution is warranted,” stated Lazard in last week’s report.

Aegean’s share buyback program

Marine fuel logistics company, Aegean Marine Petroleum (NYSE: ANW) just announced that its board of directors has approved a share repurchase program for up to a total of $25m of the company’s shares. The company said the board will review the program after 12 months and share repurchases will be made from time to time for cash at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined by management based upon market conditions and other factors.

Nikolas Tavlarios, President, commented, “The adoption of a share repurchase program demonstrates the board and management’s confidence in Aegean and its strong fundamentals. Our solid financial position bodes well for the company to further execute its growth strategy and invest in accretive share repurchases while managing the fluctuation in fuel prices.” The company also hopes to build shareholder value over the near and long term by maintaining its commitment to growth while repurchasing its shares at attractive prices.

The program does not require the company to purchase any specific number or amount of shares and may be suspended or reinstated at any time in the company’s discretion and without notice. Purchases will be subject to restrictions under Aegean’s senior secured revolving credit facilities.

Long-term U.S LNG prospects

US LNG imports are declining more quickly than predicted, and in the short- term questions have been raised on the viability of existing facilities. Experts say that U.S imports of liquefied natural gas are unlikely to grow significantly over the next two to three years, but by 2016, imports could balloon exponentially as domestic supplies fail to meet growing demand, a new industry report forecasts. According to the American Gas Foundation report, LNG imports are expected to grow to 12.8 billion cubic feet a day from current 1.1 billion cubic feet a day.

New climate-change regulations and government-spurred growth of renewable energy is expected to drive demand growth for natural gas, particularly gas-fired power generation. Besides, plans to institute laws to curb greenhouse gas emissions, Democrats are cozying up to proposals tendered by the natural gas industry as the comforting partner for renewable energy growth.

The study forecasts moderately fixed demand from the residential, commercial and industrial sectors but expects power-generation consumption to nearly double to 32 billion cubic feet a day by 2016 from 18 billion cubic feet a day in 2008. It forecasts total demand at around 66 billion cubic feet a day.

However, reinforcing the case against new terminal schemes will be tough in today’s market. “Over the next two to three years, we’re not expecting LNG to burst onto the scene,” said specialists at an LNG consulting firm. In the past decade, almost five dozen LNG terminals have been proposed in North America, but only seven have come online. In order to meet growing demand for natural gas, the U.S will need more LNG import terminals.  Those projects have suffered from a price disconnect from competing markets. While U.S natural gas prices are largely determined by production costs and available domestic supply, natural gas prices in Europe have traded at sometimes double their U.S. contract counterparts.

“Until worldwide LNG supplies increase more substantially and U.S demand requirements increase as projected, the study shows relatively little LNG headed toward this country,” the American Gas Foundation report said. Cheniere Energy (LNG), which invested in U.S LNG terminals, has been hit hard by the unexpected low demand for LNG imports.

NY and NJ Port Authority Notes

The Port Authority of New York and New Jersey received no bids for $300m of taxable notes it had up for sale. The bistate agency, said the lack of buyers will have no influence on current Port Authority capital projects as the sale was held way before its fund requirements emerged. With no bidders for the three-year securities, which have the top short-term ratings from leading rating firms, reiterates that just a handful of buyers are left in the $2.7 trillion municipal-bond market. Established large buyers appear to have disappeared, with some having closed their books for the year, and others looking for the cream of the crop in highly rated bonds.

Since the Port Authority has been unsuccessful in raising just $300m, others might face the same problem finding investors. In incongruity, the tax-exempt part of the market this year has provided far greater profits than those available on taxable securities, sending yield differentials between munis and U.S Treasurys to all-time highs. The authority said that its credit ratings and financial health remain strong and that it plans to return to the market in the coming year, when it is confident that markets will recover.

The agency, which manages bridges, tunnels, airports and transit in New York City and northern New Jersey, has an Aa3 rating by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings on its longer-term bonds. Investors are not interested in anything less than double-A or triple-A.

Meanwhile, the agency is cutting down on operating expenses and staff recruitment in its 2009 budget. Recent preliminary figures show the port authority will have $6.7bn on its hands to spend next year.

Oil demand falling

The International Energy Agency (IEA) recently said it expects global oil demand to fall this year for the first time since 1983 following a world economic slowdown. “Global oil demand is now expected to contract this year for the first time since 1983, shrinking by 0.2 million barrels per day (bpd), with the total daily demand this year revised down by 350,000 bpd to 85.8 million bpd,” the IEA said in its latest oil market report.

Next year, demand will grow again to a downward revised number of 86.3 million bpd, the IEA said, based on its forecasts on International Monetary Fund projections for a upswing in the global economy in 2009. In its previous report, the IEA, which seeks to coordinate energy policies in leading industrialised countries, had predicted oil demand for this year and next at 86.2 million and 86.5 million bpd, respectively. Growth in world daily oil supply, meanwhile, slowed to 165,000 bpd in recent months to bring the output total to 86.5 million bpd, it added.

OPEC had cut its production by 760,000 bpd to 31.3 million bpd in the past couple of months as demand fell. “December supplies will likely be reduced further when OPEC ministers meet,” the IEA noted. OPEC has already cut output by a total of two million bpd under accords reached earlier this year as it seeks to support oil prices. The IEA said it expected OPEC output to fall further to 30.7 million bpd next year in an effort to balance the market better. David Fyfe, chief IEA analyst said, “It’s a pretty weak market, the fundamentals are weakening. We would just caution that there may be some resilience in emerging countries... OPEC might be overshooting with production cuts.”

LA Port cuts spending

The slumping economy has forced the Port of Los Angeles to cut its spending budget by more than $20.5m amid a projected 20 to 30 percent decline in shipments during the first quarter of 2009. Nearly 80 percent of the port’s income comes from cargo container fees secured from its seven terminals, which are seeing significant drops in imports and exports as 2008 comes to a close. Reduction in shipments is also partly due to a recent announcement that Maersk Line will cut one of its services to Los Angeles as part of a new vessel sharing agreement with CMA-CGM.

Port officials in recent months have gotten rid of several unfilled positions and reduced some costs, including travel expenses, to keep the books balanced. Last June, a harbor commission had signed off on a $1.15bn budget for 2008, a 15% increase from the previous one.

Geraldine Knatz, executive director of the Port of Los Angeles said that given the gloomy economic forecast, “Our most prudent course of action is to hunker down and plan for possible significant reductions in revenues in the coming year.” The port would have handled 5% fewer shipments in 2008 than in 2007 compared to container volumes increases by 289 percent from 1997 to 2007.

“I don’t see any real improvements until 2010, but by 2011 the economy should be moving at a pace that makes everybody feel better,” stated Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. However, the current trend of slashing costs is reflected at ports across the country, following a projected 7.1% drop in shipments compared to last year.

Order cancellations

A lot of shipowners are seeing defaults from charterers thereby canceling orders but also looking to preserve cash. Recently, Harry Vafias run Stealth Gas, stopped its order for two suezmax tanker newbuildings, and two options, at Jiangsu Rongsheng Heavy Industries for 2011 and 2012. Reports indicate that all deposits have been returned to Nasdaq listed Stealth Gas. Companies like DryShips also cancelled a $400m four-ship panamax newbuilding order but lost a $55m deposit. Analysts believe that if that order were not cancelled it would have raised serious questions as to the capability of DryShips to fund the deal given the tough market.

However, charter cancellations could also lead to companies losing ground. Michel Degermann head of shipping at Natexis Banques Populaires told NYMAR, “There will be for sure more bankruptcies, especially because of long term charter cancellations.” He also believes that in 2009 there will be quite a few restructurings. However, he said, “Investment banks will not see much fees as the restructurings or M&A in shipping will be linked primary to work-outs directly managed by the conventional lenders.”

It is expected that the market will continue to be volatile and challenging but order cancellations and scrapping could have a positive impact over time. The resulting global orderbook decline is perhaps an essential correction from a status of impractical and detrimental over-ordering. Besides, order cancellations are good news for those with contracts that are funded.

Aker Philadelphia Lays Keel

Aker Philadelphia Shipyard has just laid the keel for the eighth MT-46 Veteran Class product tanker which on completion will join its seven other sister ships and be sold to American Shipping Company (AMSC). The vessel will subsequently be on bareboat charter to Overseas Shipholding Group (OSG). The yard currently has three other product tankers under construction in the series of twelve all to be chartered to OSG. OSG has been a major supporter of the yard’s historical newbuilding program.

The yard that recently celebrated its ten-year anniversary has now successfully delivered nine ships and has four others under construction. AMSC owns and leases world-class quality vessels for operation between ports in the United States. When the current series of twelve tankers is completed in 2011, AMSC will own the most modern product tanker fleet in the U.S and it will be the first company in the U.S to own shuttle tankers for use in the U.S Gulf of Mexico.

DHT extends charters

DHT Maritime (NYSE:DHT) recently announced that it has reached an agreement with affiliate Overseas Shipholding Group (OSG) to extend charters for the seven vessels upon expiry of current time charter with OSG. The contracted fixed charter hire revenues for DHT will increase by a minimum $70m to about $400m as a result of the extensions. The declared extensions increase DHT’s fixed charter coverage from an average of 3.7 years to 4.6 years for the total fleet of 9 vessels. The extensions provide additional certainty and stability to the company’s cash flow in a period of most uncertain economic environment.

For two of the vessels, Overseas Ania and Overseas Rebecca, with current initial charter periods ending in October 2010, OSG has declared the options for a period of 18 months at the base rate. For the five vessels, Overseas Cathy, Overseas Sophie, Overseas Ann, Overseas Chris, and Overseas Regal, with current initial charter periods ending between April 2011 and April 2012, OSG has declared the options for a period of 12 months. The base rate for the extension periods will be either the base rate stipulated in the charter parties or, if the one year time charter rate is lower, a base rate which is no more than $5,000 per day below the base rate stipulated in the charter parties.

The profit sharing arrangement, whereby DHT earns an additional amount equal to 40% of the excess of vessels’ actual net daily earnings, will remain in place for all vessels. Tankers Management Limited, the technical manager since IPO in October 2005, will perform technical management on market terms for the seven vessels from January 2009.

Economic storm may provide some silver lining

The survivors of the recession in the global transportation sector will be in a strong position to exploit the potential of a more rational logistics market, stated Transport Trackers, an economic analysis house. Speaking at a recent conference, Charles de Trenck from Transport Trackers, foresaw a hard recession in 2009 and into 2010, but believes that prospects for the logistics sector would bounce back significantly after that. Mainly, that would be due to the rationalisation of the sector caused by the downturn.

“In this downturn we are going to lose a lot of capacity,” he said, adding that the companies that had bought expensive assets would be the casualties. Companies with low-priced assets would find themselves not only surviving but emerging in 2010 and 2011 into a market with less capacity and rising demand.

He also said that deflation seen in some parts of the world might mask the true demand for logistics, ‘people forget to track deflation, as this could soften the blow of declining trade by value’. He also said that reliance on letters of credit had fallen in recent years to a minority of trade volumes. In terms of container traffic, demand in the West would be critical to prospects but for bulk trades such as coal and iron ore, demand in China is very important.

Financial Performance Charts

Shipping Company Performance Chart (NYSE)
(source: NYSE)

Shipping Company Performance Chart (NASDAQ OMX)
(source: NASDAQ OMX)

We are sorry to inform our readers that the NASDAQ charts were not received in time as NYMAR went to press.

Taste of NYC | Upcoming Events and Entertainment

NYC Websites

• www.nycvisit.com
• www.zagats.com
• http://www.ny.com/nightlife/
• http://www.ny.com/museums/
• http://www.allny.com/antiques/auctioneers.htm
• http://www.nytix.com
• http://www.majorleagueevents.com
• http://goingcoastal.wordpress.com

• Bryant Park - The Pond at Bryant Park | The Pond (The ice skating rink features free admission in addition to rental skates, skating shows, special events, and activities) through Jan 25, 2009 (www.bryantpark.org)
• The National Arts Club - The Myth of Red Creative Salon Series |The Gift (contact Ivana Demrovsky Tel: 212.645. 8006 x10) Dec 19, 9pm (www.workhousepr.com )
• Guggenheim Museum - Catherine Opie  | American Photographer, through Jan 7, 2009; Artists including Liam Gillick, Angela Bulloch, Maurizio Cattelan | theanyspacewhatever, through Jan 7, 2009; Free Holiday Concert, Dec 21 & 22 @ 6pm in the museum’s Frank Lloyd Wright–designed rotunda (www.guggenheim.org)
• MOMA - Van Gogh and the Colors of the Night, through Jan 5, 2009; Joan Miró: Painting and Anti-Painting 1927–1937, through Jan 12, 2009; Pipilotti Rist: Pour Your Body Out (7354 Cubic Meters) through Feb 2, 2009 (www.moma.org)
• Metropolitan Museum - The Philippe de Montebello Years | Curators Celebrate Three Decades of Acquisitions, through Feb 1, 2009; Raqib Shaw at the Met, through March 1, 2009 (www.metmuseum.org)
• Christies - New York, Rockefeller Center - Viewing and Auction | Icons of Glamour and Style: The Constantiner Collection [Lot 1, Sale 2252] Dec 16 & 17; Christie's Interiors [Lot1, Sale 2064], Dec 18,19, & [Lot 301, Sale 2138] Jan 13, 2009 (www.christies.com)
• NYMAR Restaurant of the Month - Vai | www.vairestaurant.com (Trained in France, Chef Vincent Chirico, has made an ordinary eating experience into extraordinary in this inviting cozy space)
• 11th Annual New Year's Eve Party Ride - Meet at Washington Square Park, under the arch on Dec 31, at 10:30pm | Will be riding up to Belvedere Castle in the middle of Central Park (at 79th St.) for the best (and free!) New Year’s Eve dance party and fireworks in town! (www.times-up.org)

New York State Travel & Tourism

To speak with a travel counselor, call during regular business hours (Eastern Standward Time) at 800/CALL-NYS (U.S., territories, possessions and Canada) or 518/474-4116 (all other areas). http://www.iloveny.com/home.aspx

New York City Travel & Tourism (NY City & Company)
212-484-1222

NYC 311 - City of New York directory assistance covering events, attractions and other citywide information

• Dial 311 in Manhattan (NYC), Staten Island, Bronx, Queens and Long Island.
• Dial 212-639-9675 outside of Manhattan (NYC), Staten Island, Bronx, Queens and Long Island. This is a toll call.