‘Fuel and commodity prices will remain under pressure’

The structure is as solid as the Rock of Gibraltar and South African shipping colossus, Grindrod Limited, is charting a pre-determined course in pursuit of defined goals. The country’s major bulk ship owner and tanker operator – with such wellknown names as Island View Shipping, Unicorn Shipping, Grindrod Freight Services and Grindrod Ships Agency in its Johannesburg Securities Exchangelisted portfolio – is all too aware of the economic malaise in which the world finds itself. Indeed a time for prudent management. Grindrod chief executive, Alan Olivier, who reportedly stated in August that shipping markets were “very strong”, admits greater vigilance is called for, given the further deterioration of many economies. “Clearly, the markets are in a bit of a turmoil at the moment and it is hard to make forecasts about the future. “From Grindrod’s point of view, we have had a very good market for the past six or seven years. We have grown very well – but more importantly when ships were relatively cheap and our underlying costs relatively low.” Grindrod currently controls 37 ships with 14 on order, which will see the fleet growing to 51 ships by 2012. “The market which has come off, and will have a significant impact, is the dry cargo market, but the tanker market in which we are also substantially involved has not been severely affected at all.” As to what may lie ahead for Grindrod in 2009, he says: “Until such time as credit returns to the market and trading can resume, the market will be a bit stifled. “Contractual business is continuing to take place and that contractual business is significantly higher-priced than spot business at the moment. “The message we would like to get across is that Grindrod is extremely strong. We have a balance sheet with very little gearing on it and we have done that intentionally over the years to position ourselves for a downturn in the market which was always going to be in the offing. Now that it’s here, the question is: how long will it last? “We have a big contract base and also a very low cost base, so other people are going to suffer a lot more in the market than us.” As to the impact high freight costs have had on the container liner sector, Olivier stresses Grindrod is not in the container business and has no intention whatsoever of going that route. “You need to stick to those businesses in which you have developed know-how and expertise – in Grindrod’s case product chemical tankers, tankers and dry bulk ships.” Olivier admits to being intrigued by the further drop in the price of crude oil, around US$55 a barrel at the time of this writing (November 13), from a record high of some US$140 a barrel in July. “It’s interesting (the reduced price) because the future price is going to be determined by what is happening in the greater market as well. “Fuel and other commodity prices will certainly remain under pressure until some sort of normality returns to the world trade. “I personally do not think it will return to US$100 a barrel, but that the pressure will be downwards, not upwards.”