Diana shipping’s financial performance analysis in recent five years
Discuss About The Seasonal Demand Fluctuations On Service.
Diana shipping is one of the largest global shipping transportation service provider that specializes in ownership of dry bulk vessels that has aided the firm to become where it is now since the day of its introduction. The brand is aimed to expand and manage their fleet in such a manner, which will enable it to have enhanced shareholder value (Dianashippinginc.com 2017). For the accomplishment of their objective they try to maintain high quality fleet, strategic enhancement of the fleet, maintain appropriate balance between the long term and short term charters with strong balance sheet (Dianashippinginc.com 2018). However, during last five years it has been observed that the brand has failed to maintain a positive balance sheet due to various reasons (Hellenicshippingnews.com 2018). This report is aimed to discuss the reason for this performance of the brand while analyzing the performance of the organization for the last five years. Utilizing the performance of the brand for the last five years, this report will provide recommendations to gauge the situation and aid it to have better growth prospect in the coming years.
Diana shipping is one of the largest Greece based dry bulk shipping organization that has been going through the dwindling situation during the last five years due to various internal and external reasons. According to the latest data, the firm is facing net loss of 24.5 million USD compared to the net loss of 78.3 million USD during the same period in 2016 (Lowry 2018). In addition to this, it has been observed that the firm’s time charter revenue has increased by 61.89% from third quarter 2016 to third quarter of 2017 and Average weighted average age of the fleet is of 8.69 years. (Press 2018). Report from World Maritime News suggests that the Diana shipping’s net loss is as high as 74.8 million USD during the third quarter of 2017 and the loss figure has shelved in half from the 2016 data during same quarter through the enhanced fleet capability and increased time charter revenue (World Maritime News, 2018). According to the statistics the organization possess 50 dry bulk vessels and the combined carrying capacity of the fleet is as high as 5.8 Million DWT (Dianashippinginc.com 2018).
From the figure 1, it can be seen that the time charter revenue of the firm has increased from 114,259 USD to 161,897 USD during the 2016 to 2017, however, if the 2014 figure can be considered, then it is still low (Dianashippinginc.com 2018). Impairment loss is as high as 442,274 and the operating has sky rocketed to 483,987 USD from the 88,321 USD during the 2016 (Lowry 2018). This shows the poor performance of the Diana shipping during the 2016 as compared to the 2014 data and a much worse situation of 2017.
Possible reasons for Diana Shipping's net loss in 2017
From figure 2, it can be seen that the cash flow of the organization during 2017 has increased to some extent, however, the figure is almost half of the 2014 value, when the brand has faced high market demand (Dianashippinginc.com 2018). Investment activates has also enhanced and the net financing activities has also raised show acing the moderate to poor performance of the firm over the years.
Considering the financial performance of the last five years it can be said the performance of the firm will be poor during 2018 too. Various fluctuation will be persistent because the external and internal factors will be continuing to disturb its revenue generation. As the oil price is on the rise again, the is all set to face higher operational cost and in addition to this, under high oil price demand of the shipping service will fall because rise in the price of the oil will reduce the consumption level (Tradingeconomics.com 2018). However, as the firm has invested largely in the environmental equipment installation on its vessels, it will aid the firm to reduce their operational cost and cost incurred due to environmental regulations, will fall eventually in the coming years.
During the 2017 there has been various internal and external factors that has affected the financial performance of the Diana shipping. External factors like piracy, recent development in the Ukraine, Middle East and other geo political issues in the different geographic locations such as terrorism, Brexit, international hostilities like war like tension such between North Korea and United States has affected the performance of the Diana shipping (Snow 2018). There are various internal factors like rise in the operation cost and falling impairment loss has caused the firm to face the dwindling situation like as it is going through since the last five years (Yang et al. 2018). When it comes to the economic performance analysis of the Diana Shipping, then it is necessary to analyze these factors with close look. Thus, the details regarding the factors that has been affecting the performance of the Diana shipping is as follows:
It is a well-known fact that acts of piracy has affected the see trading around the world to a great extent and when it comes to the place of operation of the Diana shipping, then it can be stated that its trade route is highly affected by the piracy. Though there has been fall in the case of piracies since 2013; however, Somalia, Gulf of Aden, Gulf of Guinea, and Sulu Sea is still vulnerable places where the risk factor of transporting consignments is still higher than the acceptable limit (Park, Pa and Shin 2016). Due to lack of coverage of the losses germinated through the forfeiture of piracy, coupled with the lack of international laws to reduce the case of piracy in the selected regions has been affecting the performance of the business since the last five years (Poulsen, Hermann and Smink 2017).
Acts of piracy on ocean-going vessels
Vessel market is historically affected by the seasonal fluctuations that comes through the variation in the demand, shift in the rates of the charter hire and the cost of operation. Shift in these variable can be seen in the case of the quarter to quarter volatility. Contrary to this, dry bulk carrier is generally stronger during the fall and in the months of winter due to anticipated rise in the consumption of the coal due to the rise in the consumption of higher electricity (Patel et al. 2014). Moreover, drastic climatic condition during this period causes the shift in the schedule of the vessel’s transportation leading to shift in the supplies of the certain commodities. As the result it can be seen that during the June 30 to September 30 revenue of the Diana shipping remains low and when it comes to the December 31 to march 31 the revenue generation remains higher.
Though the Diana shipping does not bear the cost of fuel, however it is one of the key instrument that aids the organization to determine the charter rates that makes it significant for the shipping industry (Pigou 2016). Though the fuel it is not the largest part that reduce the profitability of the firm, however, it is crucial for determining the profitability of the firm to a large extent. If there is rise in the price of the fuel beyond the expectation of the firm, it will lead to fall in the profitability of the organization. For instance, it can be seen that the sanctions by the US government on the Iranian oil export and various other international sanctions on the oil exporting nations has caused fall in the supply of the crude oil leading to rise in the price of the same (Baffes et al. 2015). Considering the figure below, it can be seen that over the last five years, there has been enormous number of fluctuation in the price of the crude oil. During the 2014 to 2015, there has been drastic fall in the oil price during the rise in the production and since 2016 the price started to rise again that has caused the future estimation of the Diana shipping regarding its charter price to be wrong (Polat and Gunther 2016). Considering the trend of the fall in the price of the oil, it has charged reduced charter cost that has lead them to fall in the price.
Considering the present trend of the oil price it can be seen that if the firm charges higher price for their service according to the trend in the price of the crude oil, then it will cause them further fall in their revenue because the market has already facing reduced demand and with the lower price the demand is saturated that will deteriorate further with the rise in the service (Tuzova and Qayum 2016). Thus the price fluctuation of the crude oil is one of the main issue that has caused the Diana shipping to face higher loss year by year.
Diana shipping has to operate according to the international protocol of the shipping transportation, which has caused them installation of the costly equipment as well as operational charges that has led to fall in the revenue. Considering the International Convention for the Prevention of Pollution from Ships of 1973, International Convention on Civil Liability for Bunker Oil Pollution Damage, environmental protection law from the U.S. Environmental Protection Agency and the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 has forced the Diana shipping to face strict environmental as well as the operational norms that has forced them to install costly equipment’s and enhanced the cost of operation (Hill and Kulkarni 2017). Diana shipping is subject to international safety regulations and requirement that has been imposed by the classification of the societies and if they fails to comply with the same, then they are liable to have higher liability (Dawson et al. 2014). Thus it has caused them higher insurance cost for the better coverage and effectively caused them higher cost to avert the certain detentions.
Over the last five years, deteriorating fleet performance of the Diana shipping is another major reason for the fall in the revenue. As it can be seen from the figure below, the average time charter for the Diana shipping has been reducing year on year and in addition to this, fleet size utilization has also reduced substantially leading to fall in the revenue for the firm. Vessel age has also been enhanced substantially that has caused fall in the revenue for the firm (Png 2017).
During the post-recession period and Brexit like situation the firm has been facing reduced demand from the international market. Governments of the respective governments has imposed strict import barriers that has caused them to forcible reduction in the imports (Bentley 2017). This further reduced the demand for the shipping service and caused the Diana shipping to face lower market demand of their service. In addition to this, it has also been seen that export of the various nations has also been reduced under the dwindling market situation around the world. This fall in the demand of the shipping service curtailed through the tighter import and export controls has caused the Diana shipping to face lower revenue (Van 2017).
Fluctuation in the price of fuel
Considering the case of the Diana shipping, following recommendations can be made:
- Analyzing the financial performance of the Diana shipping it has been found that the firm is facing loss due to various external and internal causes and among them impairment loss is one of the main reasons. Thus the firm need to focus while impairment calculation that the carried value of the assets does not exceed the recoverable value.
- Another major factor for the fall in the revenue of the firm is loss in the market share due to high competition and the fall in the demand for their service. In this situation, it would be ideal for the firm to go for promotion and offering to entice the market demand.
- Diana shipping need to diversify its business because operating only in the dry bulk shipping service is not the only option to enhance the business and revenue of the firm. It can move towards the other shipping segment where the market demand is still high
Well, from the above analysis it has been found that the Diana shipping is going through a hard time during the last five years due to operational loss in the consecutive years. The figure of loss has been rising at galloping rate thus the firm is in dubious situation. Various internal factors like higher operating cost, acquisition of the new fleet and fall in the utilization rate of the fleet has caused the revenue of the Diana Shipping to dip down for the firm. Additionally, external factors like oil price fluctuation, fall in the demand and market competition has reduced the revenue of the firm. To conclude it can be stated that, to gauge the present situation, the report has mentioned various recommendations that need to be followed by the firm. It will aid the firm to overcome its loss and face higher growth in future.
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