Life after death in the Sales & Purchase markets

Overview

Following the ultimate Sales & Purchase peak in 2007 where vessels valued at USD 40 billion were traded, the last 4 months of 2008 and most of 2009 were comparable sinkholes. Now the secondhand markets are on the rise again and on course to hit a total sales value of USD 20 billion for the full year comprising the three main segments, dry bulkers, tankers and container ships. This represent a rise in sales value equal to almost 60% y-o-y, up from USD 12.7 billion in 2009. With only 10% more ships traded – the secondhand value of the fleets have considerably surged.    

Following the ultimate Sales & Purchase peak in 2007 where vessels valued at USD 40 billion were traded, the last 4 months of 2008 and most of 2009 were comparable sinkholes. Now the secondhand markets are on the rise again and on course to hit a total sales value of USD 20 billion for the full year comprising the three main segments, dry bulkers, tankers and container ships. This represent a rise in sales value equal to almost 60% y-o-y, up from USD 12.7 billion in 2009. With only 10% more ships traded – the secondhand value of the fleets have considerably surged.

Secondhand activity in 2010 has so far been strong. 772 vessels have been traded during the first 10 months of 2010. 394 dry bulkers, 226 tankers (of which 140 were product tankers) and 146 container ships. This follows a year where bulkers were completely dominant in the market, as can be seen in the graph below.

Source : BIMCO, Clarksons

 

Note that the ratios as share of S&P in terms of number of vessels deviate in the direction of higher sales value tankers and lower sales value containerships are traded. This translates into tankers taking a smaller share when the comparison is done in numbers and containerships take a larger share.

Source : BIMCO, Clarksons

 

The fact that average traded vessel in the containership segments has a relatively lower sales price than particularly tankers is of course due to the fact that traded tankers are much bigger and thus have a higher traded sales value.  While the average containership was 20,000 DWT in size (1,434 TEU) in 2009 and 31,000 DWT (2,265 TEU) in 2010, the average tanker in 2010 was 108,000 DWT as the VLCC’s have dominated the market more than normally.

The containership market
The secondhand market for container ships have rebounded the most, but remains baby brother to the secondhand markets of tankers and dry bulk. It is particular the return of bigger ships to the market +3,500 TEU that makes the return noticeable as the value of these ships account for 48% of the total container ship sales value but only 27% in numbers.

2010 will set a new all-time high of Sales & Purchase (S&P) activity in the container­ship segments; Panamax and Post-Panamax. 40 ships of 171,000 TEU have been traded during the first 10 months and that is about to top the 2007-record of 30 ships of 161,000 TEU. This compares to only 5 vessels in both 2008 and 2009 respectively - meaning literally no activity as the 2008-ships were sold pre-crisis and the2009-ships were sold during great turbulence.   

Source : BIMCO, Clarksons

This great turbulence is illustrated by the reported figures surrounding the sales. In 2008, 3 1996-built 6,400 TEU ships were sold en bloc for USD 300 million. In 2009, 2 1993-built 3,500 TEU ships were sold en bloc for USD 15 million.

The tanker market:
In 2008 VLCC’s accounted for just 20% of the crude tanker S&P activity, in 2010 – VLCC’s represent 45%. The buyers have basically shifted their interest towards the supertankers away from the workhorses in the Aframax segment which ran almost 60% of the show in2008 but only one third in 2010. This is evident from the graph below where the average size of a traded tanker is now 108,000 DWT.

Source : BIMCO, Clarksons

Year-to-end-Q3, 44 VLCC’s have been traded in the S&P market this figure is on course to become largest year even for S&P activity, second only to the extraordinary active year of 2004. That year however was also characterized by extraordinary earnings as modern super tankers made USD 93,000 per day on average that year. Big earnings are not the reason for large activity in 2010, as this year has current average earnings just above USD 40,000 but bound to go lower as markets are under serious pressure for the fifth months running. Reasons this year in mainly to be found in the enlarged number of single hull vessels sold for either conversion into ore carriers or purchased for trading in the few regions of the world that still allow these vessels to trade.

Recent examples of this is the 5 VLCC’s sold en bloc from Vela to Brazilian mining giant Vale for conversion into very large ore carriers at a total value of USD 116.5 million and a single skin 1990-built VLCC that has been sold for USD 14 million to Far Eastern interests.

Secondhand values going up:
2010 has seen an extraordinary jump in secondhand prices, most significant in the containership segment. Taking away the size-issue by viewing this from a USD per DWT perspective reveals that containerships have hiked 69% taking the secondhand prices back the level of 2002. None of the tramp shipping segments have experienced a similar joyride. Not even dry bulkers that saw rates drop by 94% in a few months saw that abyss reflected in the secondhand prices. Bulker prices have now climbed back at 2005 and early 2006 levels.

Following the greatest dip ever, the rebound from 2009 to 2010 has been strong but also quite diverse. Secondhand prices for dry bulk vessels have “only” gone up by 33% while the tanker market has only seen a minor improvement of 4% on last year’s secondhand prices. Once again the tankers emerge to be the segment which hasn’t been rescued fully by either China or slow steaming. But some of it may also stem from the fact that tanker values did not drop as severe as the other two ship types did during 2009. In that year, tankers “only” lost 44% in terms of USD per DWT, while dry bulkers and containerships dropped by a massive 60% and 77% respectively.

Source : BIMCO, Clarksons

While the previous graph on “average sales prices per vessel” illustrated the issue of different sizes, the average sales prices in USD per DWT illustrates the issue the containership are the most expensive when you measure price per DWT across the segments.

Where will it go from here?
Secondhand values have emerged from the abyss but are not foreseen to continue being on the rise. For one thing, the delivery of incredibly many newbuildings from yards in 2011 and 2012 into all ship segments is bound to put a lid on sales prices.

Besides type, size, age, yard and particular specifications that are important determinant, secondhand prices are mostly determined by earnings potential, inflow of newbuildings, money availability and the balance between willing buyers and sellers. With most shipping markets being in a tight balance between supply and demand resulting in a limited outlook for the industry as such, future earnings could be uncertain and quite volatile and thus put a dampening effect on secondhand prices in coming years.

But at the end of the day – cash continues to be king and there is cash around. Despite many bad headlines in the media, the financing of the fleet, newbuildings and secondhand tonnage, seems to be going quite smoothly either from self-financing or from some of the newer sources of ship finance that have entered into the market over the course of the last couple of years.

S & P is back - alive and kicking. Even though the coming years appear to be difficult, there may well be buyers that see opportunities in such a market. Expected excess tonnage and lower freight rates may bring around a need for some owners so sell ships to service loans, as banks could be in for some credit-tightening in near future. Even though banks have stayed put and supported the industry this time around – there comes a point in time where the banks need to review their shipping arrangements too.

BIMCO - Shipping Analyst: Peter Sand PS@BIMCO.ORG 

in Copenhagen, DK

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