Chairman's Commentary

Just after we went to press last month, Flight 1549 landed in the Hudson river and the passengers and crew all miraculously survived.

Neglected somewhat- but only because there were so many heroes that afternoon was the work of Brittany Catanzaro and other crew members from New York Waterways. Ms. Catanzaro is 20 years old. The youngest ferry captain that we know of.

New York Waterways is a 23 year old company that has carried over 65 million passengers in and around the New York area. With 22 different routes and services it is fast becoming a commuter icon of our city.

As the company stepped up on September 11th shuttling people of Manhattan so on January 15th, the crew reacted with alacrity to rescue the stranded passengers from the doomed flight. The 100% survival rate can be attributed in no small degree to the efforts of this fine crew and their young but clearly heroic Captain.

The Marine Society of New York will be honoring these fine people in April at their annual dinner but at NYMAR we wanted to express our appreciation and recognition that companies like New York Waterways are an integral and essential part of the fabric of our city. The selfless acts of heroism shown by New York Waterways personnel are a tribute to the company and it’s people.

NYMAR goes beyond the capital markets and it is the actions of a few that make us proud to be New Yorkers and humbled to count these people as part of the New York maritime cluster.

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

The Biscaglia Story

Chemical and product tanker operator, Industrial Shipping Enterprises Corp. (ISE), just announced that its vessel, the MV Biscaglia, which was hijacked by Somali pirates as it transited the Gulf of Aden en route to the Mediterranean on November 29th 2008, has been released.

Initially, when James Christodoulou, President and CEO of Industrial Shipping Enterprises Corp, heard of the hijacking, he turned to his companys’ longtime outside counsel at Seward & Kissel, Lawrence Rutkowski for assistance. Mr Rutkowski brought in Seward & Kissel litigation partner Bruce Paulsen to handle insurance issues and communicate with stakeholders of the Biscaglia’s cargo and their underwriters.

A phone on the ship allowed the lead Somali negotiators, known as Abbas and Hussein to contact Mr Christodoulou directly. Mr Rutkowski said that using force to retake the Biscaglia was quickly ruled out because of the likelihood that it would result in the deaths of crew members. Instead it was decided that a ransom would be negotiated.“It’s fairly well-known by now that this has become a business for Somali pirates,” Mr Rutkowski said.

One of the final conditions for the release of the Biscaglia was that the plane arriving with the ransom not have military personnel aboard. “One of the more interesting things I’ve done in my career as a lawyer was sit in my living room reviewing a contract for the delivery of a ransom,” Mr Bruce Paulsen said. “It was actually a very straightforward contract, but it was the subject matter that was just jaw-dropping.”

Mr Paulsen informed that ISE contracted with a local company to arrange the airdrop by a small plane over the Biscaglia. The cash was placed in a tube with a parachute on it and dropped into the Indian Ocean, which Mr Paulsen said the Somalis picked up in seconds using the skiffs they had first used to hijack the Biscaglia nearly two months earlier.

The vessel has now cleared Somali waters, and is currently en route to a safe port. Upon arrival, the 28 member crew will disembark the ship and will be transported home to be reunited with their families. “This is a wonderful day for the crew and their families as this ordeal comes to an end with the entire crew in good health and spirits,” said Mr Christodoulou.

TWIC, A New Safety Initiative

Today, 15 US Coast Guard Captain of the Ports Zones now have a layer of security in place that did not exist months ago, significantly enhancing security at ports across the nation. Transportation Workers Identification Credential (TWIC) is here and as of April 15th, to board a vessel – or even access to a vessel in a US port, a TWIC card will be required or be escorted by a person with such a card. TWIC is an identification credential, which is tamper-resistant and contains the worker’s biometric (fingerprint template) to allow for a positive link between the card and the individual. Nationwide, an estimated 1 million workers in the maritime transportation industry will be required to obtain these cards. More than 700,000 workers at US ports have enrolled to date and thousands more are processed each week. This includes all Coast Guard credentialed merchant mariners and many longshoremen, truck drivers, and port facility employees.

At these ports US Coast Guard personnel ensure workers in secure areas have received a thorough background check and do not pose a threat. All of the nation’s ports will meet these same standards by April 14, 2009.

Out of the 700,000 approximately 3.5 percent have been issued initial disqualification letters. “Of the workers who appeal initial disqualification, we average approximately a 26 day turnaround on providing a ruling, which is well under the 60 day timeframe that we are legally required to respond,” stated the Transportation Security Administration (TSA). The TWIC program is progressing steadily and today has more than 150 fixed enrollment centers and over 370 mobile sites nationwide.

The Transportation Security Administration (TSA) website at http://www.tsa.gov/what_we_do/layers/twic/index.shtm explains the program. Appointments can be scheduled for enrollment via this site and can take about six weeks to obtain and activate a TWIC. The program is being instituted by the Transportation Security Administration, and enforced by the Coast Guard.

ISH Explores Alternatives

After rejecting an uninvited takeover attempt by New York’s Liberty Shipping Group, Mobile based International Shipholding Corp (NYSE: ISH) said that it is looking at other strategic alternatives with undisclosed parties. This came a day later in an SEC filing by ISH following Liberty’s withdrawal of the unwanted $308m takeover offer. ISH does not reveal the number of companies concerned or whether the discussions entail a sale or purchase but have said each of those companies signed confidentiality agreements.

Liberty chief executive Philip Shapiro said the confidentiality agreement proposed by ISC is ‘draconian’, as it confines Liberty’s ability to go directly to shareholders and to exercise the company’s voting rights, among other terms. “And perhaps most outrageous is the special committee’s demand that we agree to restrict our ability to freely compete with ISC for a period of one year,” Mr Shapiro commented. Liberty has reported owning 9.1% of ISC and spent about $12.7m since summer 2008 to increase its holding.

Besides, reports indicate that the agreement included factors such as restricting Liberty from buying additional ISH shares and delaying its purchase proposal. However, ISH claimed that requirements of the agreement were intended to protect ISH shareholders.

ISH also said that Liberty did not provide a ‘substantive valuation’ confirming that its $25.75 per share offer was ‘bona fide’ or confirm that it had adequate debt financing for the potential deal.

Founded in New Orleans over 60 years ago by the Johnsen family, ISH moved to Mobile after Hurricane Katrina. The family holds about 27 percent of the listed company which control a fleet that includes US-flag pure car and truck carriers (PCTCs), rail ferries, US-flag ro-ros, a coal carrier and a molten sulphur carrier. Liberty operates a fleet of six US-flag bulkers and a 6,100 car PCTC.

In November last year, Liberty sued ISH claiming the company was deliberately delaying the buyout offer and contended that ISH may not have been honest in filings with SEC. Those lawsuits requesting the company to accurately modify those allegedly false statements continue to be in force.

Few More Days for US Shipping

US Warship Apprehends Pirates

US Navy recently arrested a second vessel of pirate suspects in 24 hours in the Gulf of Aden, according to reports. The guided-missile cruiser USS Vella Gulf (CG 72) intercepted and apprehended nine suspected pirates after responding to a distress call from a nearby merchant vessel.

At approximately 4 a.m. local time, the Indian-flagged Motor Vessel Premdivya sent a distress call to all ships in the area reporting that she had been fired upon by a small skiff, and suspected pirates were attempting to board. Upon reaching the suspect skiff, the helicopter crew from Helicopter Anti-submarine Squadron Light (HSL) 42, embarked aboard Vella Gulf, fired two warning shots, after which the gunmen broke off an attempt to flee.

Once the suspected pirates brought the skiff to a complete stop, teams from both warships, the Vella Gulf and the guided-missile destroyer USS Mahan (DDG 72), boarded and found weapons including AK47s and rocket-propelled grenades.

The suspected pirates were processed on board Vella Gulf and are being held until they are transferred to a temporary holding facility aboard the supply ship USNS Lewis and Clark (T-AKE-1). This is the second apprehension of suspected pirates for Vella Gulf in less than 24 hours and there are currently 16 suspected pirates apprehended by the US Navy. Vella Gulf is the flagship for CTF 151, which is a multinational task force that conducts counter-piracy operations in and around the Gulf of Aden, Arabian Sea, Indian Ocean and the Red Sea and was established to create a lawful maritime order and develop security in the maritime environment.

Increased Output in US Natural Gas

The boom in natural gas production in the USA is leading to a rise in the development of new gas processing facilities in the country. According to the Oil & Gas Journal’s latest Worldwide Construction Update, a total of 920 M cu ft/day of new gas processing capacity is anticipated to come onstream in 2009. New US shale gas production and a wave of global LNG supplies coming online in 2011-12 could radically change global trade patterns, according to top executives in the sector.

Anadarko Petroleum Corp’s 250 M cu ft/day Chapita gas processing facility in the Uinta basin, eastern Utah, USA, is currently growing its capacity to 500 M cu ft/day. The new capacity is slated to come online in 1Q 2009. Williams is constructing a 450 M cu ft/day gas processing plant in Rio Blanco County, CO, USA that is slated to come onstream in 3Q 2009. MarkWest Energy Partners LP is ramping up the capacity of its existing Boldman and Cobb processing plants from 75 M cu ft/day to 95 M cu ft/day. The $60m expansion project, which is slated for completion in early-2009, will see an increase in natural gas liquids output from 70,000 gallons/day to more than 180,000 gallons/day.

Analysts Say Dry Bulk Show Signs of Life

Lazard analysts believe that contrary to popular belief, bulk cargo is moving and in waiting for debt capital to return, and distressed buyers of dry bulk assets may be missing an opportunity. “We continue to believe that NAV (net asset value) as a share valuation in shipping is not as relevant as cashflow valuation. The dry bulk ship asset sale and purchase market is illiquid today and it is nearly impossible to value dry bulk ships, but most believe that dry bulk ship valuations have at least hypothetically collapsed,” stated Lazard analyst Urs Dur.

Yet the recent modest recovery in dry bulk spot rates with chartering activity growing year on year supports the viability of the cashflows of holders of long-term contracts stated Lazard. “We reiterate our BUY ratings on GNK, DSX, EGLE, and NM,” said Lazard. However, asset values are still deflated, so if buyers have the ability to do all-cash acquisitions of distressed assets, they should do so and avoid being caught waiting for the debt markets to recover.

In terms of dry bulk, Chinese steel prices keep rising while iron ore inventories rose only slightly during Chinese New Year, therefore Lazard remains relatively bullish for the dry bulk names.

Star Bulk Suspends Dividend

Nasdaq listed Greek dry bulk carrier Star Bulk Carriers Corp said it was suspending its cash dividends and share buyback, as part of its agreements with lenders to waive certain loan covenants. Star Bulk said the lenders will waive the security-cover requirement, minimum asset coverage ratio and loan-to-value ratio covenants for debts totaling $305m. The company obtained a covenant waiver through Jan. 31, 2010 for its $120m facility.

Similarly, it obtained waivers through Feb. 28, 2010, for its $150m and $35m facilities. The company said it has time-chartered its Capesize vessel, Star Beta, for 13 to 15 months at a gross daily rate of $32,500. Star Bulk said its fleet’s contracted operating days coverage is now 93 percent in 2009. Recently, Star Bulk’s peers DryShips, Diana Shipping, Eagle Bulk Shipping and Genco Shipping & Trading Ltd had suspended their dividend payouts to preserve cash.

OSG’s Management Changes

New York tanker owner, Overseas Shipholding Group (OSG) announced several executive management changes at OSG and its US-flag spin-off, OSG America. At OSG, Captain Robert Johnston, senior vice president and head of shipping operations has been appointed head of the US Flag Strategic Business Unit. Captain Ian Blackley, managing director and chief operating officer of OSG Ship Management (UK) Ltd., has been appointed head of international shipping operations.

At OSG America Myles Itkin, previously chief financial officer (CFO) of OSG America was appointed president and chief executive officer, replacing Jonathan Whitworth who resigned from the company. Henry Flinter, vice president, corporate finance of OSG Ship Management, Inc., has been promoted to CFO of OSG America, filling the position vacated by Mr Itkin. Mr Flinter was also appointed to the board of directors of OSG America LLC. Morten Arntzen, president and chief executive officer of OSG, commented, “Today’s management changes enhance our operational leadership in all aspects of our business and demonstrate the breadth and depth of our global management team.”

OSG America is a master limited partnership in which OSG has a 77.1% interest.

Teekay Q3 Profit Beats Expectations

New York listed Teekay Corporation (NYSE: TK) recently reported net income of $181.4m for the nine months ended September 30, 2008, or $2.48 per share, compared to $178.4m, or $2.38 per share, for the same period of the prior year. The results for the nine months ended September 30, 2008 and 2007 include a number of specific items, which had the net effect of decreasing net income by $50.7m (or $0.69 per share) and increasing net income by $4.1m (or $0.06 per share), respectively. Net revenues for the nine months ended September 30, 2008 increased to $1.8bn from $1.4bn for the same period of the prior year, and income from vessel operations increased to $439m from $352.8m.

The Vancouver based company reported a net income of $103.1m, or $1.41 per share, for the quarter ended September 30, 2008, compared to a net loss of $74.2m, or $0.99 per share, for the same period of the prior year. The results for the quarters ended September 30, 2008 and the prior year include a number of specific items which had the net effect of increasing net income by $8.9m (or $0.12 per share) and decreasing net income by $97.1m (or $1.30 per share), respectively. Net revenues for the third quarter of 2008 increased to $672.5m from $462.7m for the same period of the prior year, and income from vessel operations increased to $217.5m from $98.2m.

Security Requirements After Port Calls

The US Coast Guard recently imposed new conditions of entry on vessels calling on the United States after port calls in certain countries that it has determined do not maintain effective maritime security or anti-terrorism measures. Those include Cuba, Venezuela, Cameroon, Equatorial Guinea, Guinea-Bissau, Indonesia, Iran, Liberia, Mauritania, and Syria.

These conditions will have a particular impact on vessels engaged in authorized transportation of licensed medicine, medical supplies, food, and agricultural commodities to countries subject to US trade embargoes or responses to vessel casualties in the waters of such countries.

All vessels arriving to the US that visited the countries listed above during their last five port calls must implement measures per the ship’s security plan equivalent to Security Level 2. Based on the findings of the Coast Guard boarding or examination, the vessels subject to the conditions of entry may be required to ensure that each access point to the ship is guarded by armed security guards and that they have total visibility of the exterior (both landside and waterside) of the vessel while in US ports.

MarAd Administrator Joins ABS

Former head of the US Maritime Administration (MarAd), Sean T. Connaughton, will become the American Bureau of Shipping’s (ABS) corporate vice president for government affairs, effective Feb. 17. Mr Connaughton served as head of the US Maritime Administration from 2006 until his resignation last month at the end of President Bush’s administration. “Having someone with Sean’s intimate knowledge of government operations, diplomatic and legislative skills and experience, and close contacts with the maritime administrations of other nations from his time as the U.S. Maritime Administrator, will greatly strengthen our ability to work with governments as partners and clients,” said ABS Chairman and CEO Robert D. Somerville.

In this newly created position, Mr Connaughton will act as the society’s primary liaison with national governments at senior levels, establishing and maintaining close working relationships with the principal executive and legislative bodies that influence maritime policy as it relates to safety and classification issues.

Connaughton is a graduate of the United States Merchant Marine Academy and has served the US Coast Guard as both a commissioned officer and as a civil servant in the Office of Marine Safety, Security, and Environmental Protection. After gaining a Master’s degree, he joined the American Petroleum Institute, representing companies involved in the energy and marine transportation industries, during which time he also gained a law degree from George Mason University.

Financial Performance Charts

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

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

Transportation Index Charts
(source: NASDAQ Market Intelligence Desk)

Taste of NYC | Upcoming Events and Entertainment

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• Bryant Park - Mercedes-Benz Fashion Week | Bryant Park Tents Fall 2009 Collections, through Feb 20 (www.bryantpark.org)
• Guggenheim Museum - The Hugo Boss Prize 2008 | Emily Jacir, through April 15; The Third Mind | American Artists Contemplate Asia, 1860 to 1989, through April 19 (www.guggenheim.org)
• MOMA - George Lois | The Esquire Covers, through March 30; A shimmer of possibility | Photographs by Paul Graham, through May 18 (www.moma.org)
• Metropolitan Museum - Pierre Bonnard | The Late Interiors, through April 19; Beyond Babylon | Art, Trade, and Diplomacy in the Second Millennium B.C, through March 15 (www.metmuseum.org)
• Sotheby’s - New York, Auction | Carpets from the Barbara Zidell Sedlin Family Collection [N08532] March 3; American Paintings [N08522], March 4; The Classic Cellar from a Great American Collector [N08521] March 14 (www.sothebys.com)
• NYMAR Restaurant of the Month - Per Se | Roundly lauded for its fabulous Central Park views, this Columbus Circle treasure serves French-influenced American cuisine that matches, stride-for-stride, the magic of Napa's French Laundry. (www.perseny.com)
• 2nd Hot Chocolate Society Oscar Party - Watch The Oscars on 4 Screens, 4-Hours premium open bar, Hot Chocolate & Lots of Delicious Food, Whole Foods Market Gift Bag, Fabulous Prizes! Sunday, Feb 22, 7pm- 11pm (http://2009hcsop.eventbrite.com)

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