Shipping Crisis Will Last "Two to Three Years"

The Norwegian-born Cypriot shipping tycoon has an estimated net worth of $ 11.3 billion

John Fredriksen has told Reuters "the good days we had are over for quite some time" and is predicting the current shipping crisis will last "another two or three years".

And the shipping tycoon believes that during that time, many shipping companies, as well as shipyards, will be put out of business.

"It's going to be pretty desperate," said Fredriksen, "most of the companies are just not going to make it."

The Norwegian-born businessman says the ones to survive the crisis will be the few low-debt companies backed by long-term owners with liquidity and an established name.

Like many believe, Fredriksen says the root of the crisis is over-supply, caused by capacity from the "binge of ordering new vessels" at the end of the last decade, becoming operational at the same time global demand declined.

As a result, shipowners had to deal with charter rates and asset values going down, and at the same time fuel costs going up.

At the shipyard, it's meant the cost of new builds has come down significantly.

Morgan Stanley said a new Aframax carrier is currently selling for around $51 million, down from $75 million in 2008, with Iran Marine Industrial Company (IMIC) managing director Mehdi Etesam also saying last month that the 113,000 tonne capacity Aframax vessel they are delivering to the Venezuelan state oil company Petróleos de Venezuela, S.A. (PDVSA) in September, "will cost about USD 52 million".

Fredriksen says new build Aframax prices have probably hit bottom, but it was still too early to buy very large crude carriers (VLCCs).

New build medium range (MR) product tankers are about $34 million, down from $52 million in 2007.

But it's not bad new for everyone.

"It's more of an opportunity than a problem," said Fredriksen, and has backed up the statement by already buying a dozen new fuel efficient tankers, ten MR product tankers and two Aframax oil tankers, and is looking to do $12 billion worth of deals in total.

"We've already committed around $400 million. However I've typically done deals owning 30 to 50 percent of the projects or companies, so if I can do $4 billion owning only 30 percent, then we can effectively do $12 billion worth of deals."