Pioneer Marine Cancels Five More Handysize Bulkers

On Wednesday, Singapore-based bulk operator Pioneer Marine announced that it has canceled newbuilding contracts for five ECO-design 40,000 dwt bulkers, following a mutual agreement with Yangzhou Guoyu Shipyard.

The cancelation announcement is Pioneer’s second in half a year; in November the firm reported three newbuild contract terminations and the delayed delivery of five ships (now canceled).

“The unprecedented downturn in drybulk freight rates has prompted us to cancel another five of our newbuilding contracts at Guoyu Shipyard . . . through mutual consent in a negotiated settlement with the shipyard," said Pioneer's CEO, Pankaj Khanna. "The cancelation frees up $30 million in cash immediately, to add to our existing cash balance of $57 million  . . . [plus] $24 million in pre-paid installments for the last two newbuildings. To put it simply we have $111 million of cash with two newbuildings to be delivered in the next ten months."

Khanna suggested that Pioneer’s improved cash balance from cancelations creates a buffer for the company to shield it from protracted low freight rates. With only 15 vessels afloat and two newbuilds for deferred delivery in late 2016 / early 2017, Pioneer has the flexibility to make asset purchases or pursue M&A options, he said. 

In July 2014, Pioneer described its operations as "positioned for growth," noting an order for 14 ships of the Green Dolphin class from the Yanzhou Guoyu and Taizhou Sanfu shipyards. Yanzhou Guoyu has reportedly suffered trouble from labor unrest due to alleged unpaid wages in the months since Pioneer’s delays and cancelations.

In February, Pioneer announced a fourth quarter loss, driven in part by a $75 million impairment against the value of its fleet. Khanna cited increased global capacity due to faster sailings (thanks to lower bunker prices) and a trickle-down effect on smaller bulkers from dropping rates for other vessel classes. He said that the firm was working with vendors to cut costs, and had secured covenant waivers from its banks to prevent against covenant breaches on its debt – a challenging problem for many of Pioneer’s competitors. 

Pioneer Marine was established in 2013, leveraging an experienced management team and a focus on handysize, geared bulkers in global operations. Detailed information on handysize rates is scarce, suggests the Baltic Exchange’s Bulk Report, but generally, over the past several months the spot day rates for smaller bulkers have outperformed rates for larger ships; as of Wednesday the BDI’s supramax spot rates were listed at more than double the capesize rates.