Tuesday, July 26, 2011

TBSI: a dry parcel liner service beleaguered by losses and financial problems

TBSI (NASDAQ: TBSI) has recently been under pressure with operating losses of US$ 16,7 the first quarter this year and senior lender pressure to increase capital by US$ 10 mio coming. When TBSI went public through Jefferies under John Sind`ers in 2005, its chequered history of its 2000 Chapter 11 reorganization surfaced. The company operates a parcel liner service with a large number of tween deckers and heavy presence in Latin American ports, an unusual trade largely superseded by container vessels.

TBS focuses on multipurpose tweendeckers and smaller dry bulk carriers varying from 17,300 dwt to 45,500 dwt that are able to navigate and efficiently service many ports with restrictions on the size of vessels. It has attempted to create niche markets  focusing on trade routes, ports and cargo that cannot be efficiently served by container and large dry bulk vessel operators. It offers regularly-scheduled sailings along with local teams of commercial agents and port captains who meet regularly with customers to tailor solutions to their logistics needs.

TBS CEO Joseph Royce has a ship brokerage background. He then served as President of COTCO, a dry cargo pool of over 45 vessels before founding TBS in 1993.

Having this parcel liner service means fixed costs and bunker exposure that most dry cargo operators do not carry. Whilst break bulk is a higher cost service than inter-model container feeder competitors, TBS tries to focus on cargo with special handling needs and personalized service. The company also has some handysized bulk carriers in their fleet. They appear to have some of their tonnage (approximately 25%) on time charter, which adds to earnings stability.

Clearly. they have suffering lately from lower freight rates and higher bunker expenses albeit their cargo volume increased slightly over last year. Another problem is the heavy off-hire and repair expenses for the ageing 1980's built tween decker fleet with a need to drydock 17 vessels, requiring about 546 days out of service. Tween deckers today are largely vintage tonnage no longer built. TBS has ordered a new series of Dwt 34.000 tween-deckers for fleet renewal.

Although TBS debt to book value ratio is not high, they have been having serious problems paying their debt and in protracted loan default/ restructuring discussions. Lenders have demanded a US$ 10 mio increase of capital to which Mr. Royce has paid in US$ 7,58 mio of his own funds. They are also planning a rights offering to increase capital. Their financial expense has soared to US$ 8,7 mio in 2011  from US$ 5,5 mio last year aggravating losses.

A major New York investment house is forecasting that the dry cargo sector with its substantial order book overhang will be the slowest to recover. On the other hand, smaller handy size units have been outperforming the larger Capesize and Panamax units in current market conditions.

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