Martin Fruergaard has not even spearheaded Pacific Basin for a year, and yet, he is fully reaping the benefits of the carrier’s business model. WPO has interviewed the CEO about his expectations in a global industry confronted with new geopolitical risks.
Photo: Cyprus Shipping Deputy Ministry / PR
Pacific Basin posted its annual report on the same day Russia invaded Ukraine, and, probably, the time of publication coincided with when Vladimir Putin ordered his troops to initiate the invasion of the country.
At opening business hours in Hong Kong Feb. 24, no one could foresee what would occur only a few hours later in Europe, when troops stationed on the borders of Ukraine began an invasion and a war against the country.
There are obviously risks of disruptors, commodity prices could come out of control, and we already see an inflationary pressure
MARTIN FRUERGAARD, CEO PACIFIC BASIN
The invasion has disrupted the global shipping community as things that started to be more predictable and stable on the back of the Covid-19 pandemic are now uncertain again.
Also within the dry bulk industry, in which Pacific Basin is a major global player and, compared with some of its closest competitors, has a rather unique business model that others have left behind over the last couple of years.
Ukraine and the Black Sea have been key to the bulk industry as companies have sourced a variety of important commodities and grains from the region. Until today.
In spite of the abrupt and very severe geopolitical changes, Pacific Basin CEO Martin Fruergaard is confident that the carrier he was appointed to head less than a year ago, in July 2021, is able to benefit from the extraordinary upturn which the dry bulk market has experienced for at least a year now.
War prompts uncertainty
”I believe the growth we have experienced can continue also in the long term. 2021 was special because we came out of Covid-19 and now we have growth on top of that. There are obviously risks of disruptors, commodity prices could come out of control, and we already see an inflationary pressure. The war in Ukraine in itself triggers sanctions and means uncertainty,” Martin Fruergaard tells WPO in an interview.
The reasons for his optimism are the following:
– Market fundamentals remain favorable, meaning that the global bulk fleet is low, and so is the orderbook, which is expected to grow by only 2.2 percent this year. The demand curve has gone up through 2021. Dry bulk /mile increased with four percent.
– Consumer demand for commodities like grains will not change even though a major provider, Ukraine, is inaccessible. Corn and wheat will be sourced from other regions in the world, like South America, which in itself may benefit the bulk sector. Also, the harvest season around the Black Sea is not until July and August, and the conflict could have changed by then.
– Climate regulation will curb speeds from Jan. 1, 2023, when the International Maritime Organization’s next CO2 regulation comes into force. To live up to the so-called CII index, a number of vessels will have to slow down and thereby push up fleet demand.
Doubled revenue in 2021
Last year, the booming dry bulk market doubled Pacific Basin’s revenue, which came to nearly USD 3bn against approximately USD 1.5bn the year before. The underlying profit landed at a staggering USD 698.3m against a loss of USD 19.4m the previous year.
Everybody wanted to be asset light, I am happy we are not
MARTIN FRUERGAARD
The strong market has also made ship values rise, which led Pacific Basin to reverse a previous write-down of USD 152m.
In that respect, Fruergaard is ”happy that Pacific Basin is not an asset-light carrier,” as he points out. Whereas close competitors like other dry bulk companies have gone all-in offloading their owned vessels to hire ships instead, Pacific Basin has stuck to its business model to own a high number of its ships.
”We have had a different business model. Everybody wanted to be asset light, I am happy we are not and that we are able to reap the fruits now,” he adds.
What about Russia?
Pacific Basin is among the world’s largest dry bulk carriers, with an operated fleet of around 250 ships, of which the carrier itself owns 122. 79 of these are of the handysize variety, while 42 vessels are supramax and one is capesize.
Like many other carriers, Pacific Basin has Ukrainians and Russians among its crews totaling 4,600, although far from what some shipping companies have mentioned.
