SIW1061imagelEverybody wants to buy a cheap ship. And why not? It’s the shipping mantra; buy low sell high. A great philosophy but, like searching for lost impressionist paintings at car boot sales, a difficult day job best done when nobody else is looking. The classic was 1986 when modern Panamaxes were available for $6m.  They were cheap because cash was so short there were few takers.

It’s a Trade-off

So, is now a good time to be buying or not? The starting point is to get comfortable with the market fundamentals. During the 4+ years since Lehman Brothers, sea trade has not done badly, growing from 8.3bn.t in 2008 to 9.5bn.t in 2012. This increase of 14% (or 3.5% per annum) is in line with the 20 year growth trend of 3.8% per annum. The latest Clarkson Research forecast is 4.5%, so there’s nothing wrong with demand.

A Fleeting Moment

But, the downside, as everybody knows, is that while trade grew by 14%, the world fleet grew by 35%. Roughly speaking, that means the industry is carrying 20% of spare capacity. This calculation of surplus can be fine-tuned by allowing for changes in tonne-miles and slow steaming. But, the former is a murky concept, since the globe does not get any bigger, and most ships are designed to go at 85% MCR, so the minute rates go up the fleet will no doubt speed up. One way or another, the market needs to lose a lot of surplus before returning to normal.

Big Growth Cargoes

But, cargo growth has been very unbalanced (see graph). Three commodities dominate the top of the table; LNG, steam coal and iron ore. LNG, an out-rider, has grown 50% since 2008. Steam coal and iron ore are both up more than 30%. The massive iron ore trade has grown 32% since 2008 but the Capesize fleet has grown 190% over the same period. At the smaller end of the dry bulk market, Agri-bulks, a classic Handymax cargo, grew 22% while the Handymax fleet grew 70%. High growth commodities have been well catered for by new tonnage.

The Small Growth Commodities

The most disappointing low growth trade is crude oil. As in the 1980s, rocketing oil prices depressed demand and encouraged local production. Crude oil import trade has declined by 2.2% since 2008 as a result. Luckily, tanker fleet growth rates have been modest; the Aframax fleet is 20% bigger than in 2008 and the VLCC fleet 24% bigger. Too many ships, but it “could be worse”.

Balancing the Books

So there you have it. Any red-blooded male today wants to prove his worth and buy a cheap ship. The numbers are discouraging, but world economic recovery, heavy scrapping and brisk trade growth might clear the surplus. So, if you take delivery of your ship in 2015, you might not have too long to wait – it’s just capital warehousing. That’s fine, just as long as nobody else does the same. Have a nice day.

About these ads