A gloomy dry-bulk shipping market and poor commodities environment had impacted heavily on shipping and freight services group Grindrod in the financial year ended December 31.
The outlook for both these markets did not suggest much reprieve in the new financial year either.
Grindrod CEO Alan Olivier on Thursday announced a net loss of R1.37-billion on the back of massive $100-million impairment in the company’s shipping business, as declining dry-bulk shipping rates impacted heavily on ship-carrying values.
Impairments were also necessary in the rail and mineral logistics businesses.
Headline earnings were down 23% to R558.8-million, compared with the same period last year.
“Clearly, 2015 was a very difficult year for us,” noted Olivier.
He said global dry-bulk seaborne trade had declined by 0.1% in 2015 – the first decline since the global financial crisis. It was expected that growth would resume in 2016, but at a slow 1.9%.
This decline had seen freight rates in this market “reach the absolute bottom” in recent weeks, with a supply glut in the market.
Where did this leave Grindrod’s Shipping business?
There were no new orders for dry-cargo ships, said Olivier. (However, this created pressure for ship yards, which might look to the reasonably buoyant tanker market to secure new work. This could, in turn, dampen the tanker market.)
A number of ship yards, especially in China, had already closed their doors, which meant that future ship-building capacity would not be the same as in the past, he added.
Banks were also unwilling to fund dry-bulk ships.
The scrapping rate of dry-bulk ships could also double from that of last year.
However, despite these negatives, there remained an oversupply of dry-bulk ships, owing to reduced demand for the shipment of commodities.
“This means it will still take a while for the market to regain its balance,” stated Olivier.
He did not expect Grindrod’s dry-bulk shipping unit to be profitable in 2016.
“We will focus on managing our costs and our cash flow.”
The tanker side of the Shipping business, however, was expected to remain profitable in 2016.
The fall-off in commodities had also impacted Grindrod’s Freight Services business in the 2015 financial year, with coal throughput at its Matola terminal, for example, declining by 14%, to 3.5-million tons. The capacity at this terminal is between seven and eight-million tons. Coal throughput at Richards Bay dropped by 33%.
Grindrod had been forced to reduce its rates to ensure that commodity exporters and producers keep on producing and exporting, said Olivier.
“We are working with producers to make sure we support their businesses.”
The fall in commodity demand and prices had also seen delays in rail infrastructure spend and the suspension of a number of large mining projects, which had dimmed Grindrod’s rail earnings.
“The pipeline of projects we expected to win is not happening,” said Olivier.
Grindrod would look to diversify the geography in which Freight Services operate, as well as the commodities the business handled, in an effort to smooth out some of the price volatility seen in the coal market, for example.
Grindrod would also scrap some of its capital projects, in light of a weak commodities market.
The Richards Bay coal terminal expansion would continue, as would the Maputo port and Matola coal terminal dredge, in order to improve costs efficiencies. However, Grindrod was withdrawing from the Saldanha crude-oil tank storage facility project, while the North-west Zambian rail link project required an improvement in the copper market.
Grindrod’s Financial Services business was “the highlight” of the group’s results, with R165-million in attributable income, said Olivier.