Archives for posts with tag: secondhand market

Whilst there hasn’t been much to shout about for many shipping sectors in 2014, total investment in secondhand sales has been fairly firm. In the first nine months of the year, recorded investment in sale and purchase transactions has almost exceeded last year’s total already, with a reported $19bn having changed hands. This week we take a closer look at the nature of recent secondhand investment activity.

In The Past

Investment in secondhand transactions peaked in 2007 when a reported $47bn changed hands across 1,860 recorded transactions. The subsequent global economic crash meant more restricted access to finance, and market uncertainty influenced a wider spread between buyers’ and sellers’ price ideas; by 2009 investment in secondhand transactions had fallen to just $15bn. Whilst 2010 and 2011 saw increased secondhand investment, markets remained under pressure, and in 2012 total reported investment fell again to $14bn. In 2013, however, there was a growing sense of optimism that market conditions would eventually improve and activity firmed towards the end of the year. As a result a reported $20bn was invested in secondhand sales through the course of 2013, and already in 2014 over $19bn has been reported invested in secondhand purchases. Our secondhand price index started to firm in Q4 2013, but at start October it stood just 3% up year-on-year, so the rise in the level of investment evidently reflects other factors.

Mixing It Up

Between 2005 and 2009 around three-quarters of reported secondhand investment was in the bulker and tanker sectors. However, since start 2010 this figure has dropped to two-thirds. One trend has been a greater proportion of transactions in the gas sector, with the majority of activity in the LPG sector where recent record earnings have grabbed the attention of investors. The increased level of activity in often higher value specialised sectors has helped support increased investment levels, and the average reported transaction value rose by 27% in 2013 and by a further 32% in 2014 to date.

In With The New

Sales since start 2013 have also often been for younger units, with the average age of sale the lowest for a long time last year at 12.3 years; it stands at 10.3 years this year so far. Resale activity has also increased; sellers have been keen to reduce exposure to large orderbooks in some sectors, whilst limited availability of early slot space at yards has driven resale activity in others.

Bigger And Bolder

Units reported sold on the sale and purchase market in 2014 have also been generally bigger. The average unit reported sold has been 43% larger in dwt terms than the average across 2005-13. This has also supported investment levels.

So there you have it. Should secondhand activity continue at a similar pace, 2014 may just see the largest volume of investment since the crash. Whilst prices have firmed a little year-on-year, other factors have been the more important drivers, with secondhand activity looking broader, younger and bigger. Have a nice day.


In the classic movie The Seven-Year Itch, hero Richard Sherman is left sweltering in his Manhattan flat as wife and kids head for the beach. A daunting prospect, until Marilyn Monroe turns up in the flat below. That’s where the fantasy starts as Richard exercises his “seven-year itch” in an amusingly unlikely relationship with the charismatic Monroe.

Shipping’s Seven-Year Fantasy

2014 has been a hot summer in Europe and shipping investors have been getting the seven-year itch themselves. Although the Lehman Brothers collapse in September 2008 triggered the meltdown in rates, the seeds of the crash were sown exactly seven years ago on 10th August 2007. On that date the European banks became so suspicious of each other that the interbank market seized up. To celebrate, seven years later shipping investors are busy indulging their seven year itch with the residents of the flat below – not Monroe, but the equally attractive Asian shipyard representatives. 174m dwt of orders in 2013 and 66m in 1H 2014 show what a good time they’ve been having.

Cashing In At The Top

But how did the investors’ last big fling in August 2007 (273m dwt of orders were placed in full year 2007) turn out? Surely this was a bit of a disaster? Actually things did not turn out quite as badly as seemed likely when the market crashed. For example, a Suezmax resale costing $105m in August 2007 would have made around $57m trading since then, after OPEX (see chart). If this cash was used to pay down the vessel, the balance in August 2014 is $48m, compared with a market value of around $41m. Of course this does not take account of waiting, slow steaming and mishaps. But even allowing for these, it’s not the disastrous story veterans of the 1980s expected.

Off To A Good Start

Getting an investment off to a good start is vital and that’s what helped the 2007 investments shown in the chart. The accumulated cash flow of six August 2007 resale purchases shows that 50% of the cash was generated in the first year; 25-30% over the next 18 months; and very little in the last 4 years. For example the Cape generated only $6m between Dec 2010 and August 2014.

But the good news is that thanks to financial easing and near zero interest rates, residual values have remained firm. In 1985 a Panamax bulker delivered at a cost of $25m had a market value of around $8m. Today a Panamax bulk carrier ordered a couple of years ago at a cost of $29m has a resale value of $31m – it’s actually made money. So although the cashflow has been reminiscent of the 1980s, asset values this time round are a very different story.

7 Years On – Is the Cycle Over?

So there you have it. What looked like a disastrous shipping recession has turned out to be surprisingly benevolent, at least compared with the traumas of the 1980s. With shipyard credit available on a grand scale and not much in the secondhand market it’s a no-brainer – head east and you’ll find Marilyn standing over a subway ventilator. But don’t forget this is only a summer fantasy – the wife and kids will be back soon. Have a nice day.