SIW1105Tankers and bulkers; love them or hate them, you can’t really escape them in shipping. They are the bed-rock of independent shipowners’ business. Of course there are plenty of specialist vessels, but it’s the two big bulk fleets which inevitably catch the attention of speculative investors. And investment discussions always end up with the same question – should we order a bulker or a tanker?

Playing Investment Tag

Although designed to carry totally different cargoes, these two titans of bulk transport seem to be subject to some deep economic force which draws them together. For example the total tonnage of tankers ordered between 1963 and 2013 was 1,139m dwt, whilst the tonnage of bulk carriers ordered was 1,145m dwt, a difference of 0.5%. Extraordinarily close over a fifty year period. But in the long run what goes around comes around and the year to year pattern of investment was very different.

Tankers First…

A good way to analyse the different ordering trends of tankers and bulkers is to compare the contracts placed each year as a % of the fleet at year end. The chart shows this back to the 1960s. The big boom of the 1970s was clearly led by tankers whose investment built up during the 1960s to peak at 49% of the fleet ordered in 1973. In the same year bulker ordering was 17% of the fleet. This spike was followed five years later in 1978 by a collapse of orders to only 1% of the fleet – 3m dwt of tankers and 1.4m dwt of bulkers.

Bulkers Next…

Then in the 2000s the investment momentum for both segments built up, with orders ratcheting rapidly up from about 9% of the fleet at the beginning of the decade to a peak for tankers of 25% in 2006. Then bulkers surged ahead, with orders hitting a peak of 43% of the fleet in 2007. Not quite beating the tanker record in 1973, but a pretty close second. Meanwhile tanker investors were more restrained with investment of 12% in 2007, similar to bulkers in 1973. And once again, 5 years later in 2012 orders slumped to only 3% of the fleet. All of which helps to put the order recovery in 2013 into perspective. It was a very busy year with orders for 35m dwt of tankers, and 80m dwt of bulkers. This was almost three times the tonnage ordered in the previous year. And the percentage of the fleet ordered surged up to 11% for bulkers and 7% for tankers.

The Bottom Line

So there you have it. There are similarities between the 1970s boom and bust investment cycle and the investment trend over the last five years. In the post-70s downturn bulkers did better than the over-ordered tankers, who suffered a heroic collapse of demand due to a high oil price (sound familiar?). Today bulkers are again leading the recovery, driven by hot cash and a punt on surfing the Asian economic wave. But the lesson is clear enough. Tanker and bulker investment ended up in the same place, but investment cycles along the way are not closely correlated. So ex-pect a bumpy ride. Have a nice day.

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