Archives for posts with tag: secondhand

The shipping markets have in the main been pretty icy since the onset of the global economic downturn back in 2008, but 2016 has seen a particular blast of cold air rattle through the shipping industry, with few sectors escaping the frosty grasp of the downturn. Asset investment equally appears to have been frozen close to stasis. So, can we measure how cold things have really been?

Lack Of Heat

Generally, our ClarkSea Index provides a helpful way to take the temperature of industry earnings, measuring the performance of the key ‘volume’ market sectors (tankers, bulkers, boxships and gas carriers). Since the start of Q4 2008 it has averaged $11,948/day, compared to $23,666/day between the start of 2000 and the end of Q3 2008. However, earnings aren’t the only thing that can provide ‘heat’ in shipping. Investor appetite for vessel acquisition has often added ‘heat’ to the market in the form of investment in newbuild or secondhand tonnage, even when, as in 2013, earnings remained challenged. To examine this, we once again revisit the quarterly ‘Shipping Heat Index’, which reflects not only vessel earnings but also investment activity, to see how iced up 2016 has really been.

Fresh Heat?

This year, we’ve tweaked the index a little, to include historical newbuild and secondhand asset investment in terms of value, rather than just the pure number of units. This helps us better put the level of ‘Shipping Heat’ in context. In these terms, shipping appears to be as cold (if not more so) as back in early 2009. This year the ‘Heat Index’ has averaged 36, standing at 34 in Q4 2016, which compares to a four-quarter average of 43 between Q4 2008 and Q3 2009.

Feeling The Chill

Partly, of course, this reflects the earnings environment. The ClarkSea Index has averaged $9,329/day in the year to date and is on track for the lowest annual average in 30 years. In August 2016, the index hit $7,073/day, with the major shipping markets all under severe pressure.

All Iced Up

The investment side has seen the temperature drop even further. Newbuilding contracts have numbered just 419 in the first eleven months of 2016, heading for the lowest annual total in over 30 years, and newbuild investment value has totalled just $30.9bn. Weak volume sector markets, as well as a frozen stiff offshore sector, have by far outweighed positivity in some of the niche sectors (50% of the value of newbuild investment this year has been in cruise ships). S&P volumes have been fairly steady, but the reported aggregate value is down at $11.2bn. All this has led to the ‘Shipping Heat Index’ dropping down below its 2009 low-point.

Baby It’s Cold Outside

So, in today’s challenging markets the heat is once again absent from shipping. And, in fact, on taking the temperature, things are just as icy as they were back in 2008-09 when the cold winds of recession blew in. This year has shown that after years out in the cold, it’s pretty hard for things not to get frozen up. Let’s hope for some warmer conditions in 2017.

SIW1250

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SIW1092Sale and purchase is a classic element of the shipping industry. A significant volume of secondhand sale transactions are concluded each year, with over 11,000 ships reported sold since start 2004. But some sectors have more liquid markets than others. Liquidity is the degree to which an asset can be bought or sold in the market, and liquid assets can be more easily converted into cash, so owners (and financiers) need a feel for how easy it is to enter or exit a sector.

What’s Been Selling?

This year there have so far been around 1,000 ships reported sold secondhand, and an annual average of 1,287 since start 2004. The pie chart shows that bulkcarriers accounted for 38% of sales across the period, tankers 25%, and containerships 10%. Within these figures, products and chemical tanker sales account for 17% of the total and MPP and General Cargo ships 11%, but the largest tankers, VLCCs and Suezmaxes, account for only 3% combined.

A Relative Concept

However, to compare liquidity across sectors fairly, activity needs to be put in the context of the relative size of each fleet. The bars on the graph rank the fleet segments by average sales per annum (since start 2004) per 100 ships in the fleet (start 2013). The Handysize bulker fleet leads the way with over 6 sales per 100 ships, with car carriers (PCCs) at the bottom with just over half a sale per 100 ships. The global average across the fleet (>2000 Dwt/GT) is 3 sales per 100 ships, but in reality the ratio changes over time as market and financing conditions alter. In the investment boom years 2004-07 the ratio stood at close to 5 sales per 100 ships.

What’s Most Liquid?

In terms of ship types, bulkcarriers dominate the top of the ranking with Handysizes, Panamaxes and Handymaxes taking the top three positions. The tanker markets also look fairly liquid in these terms. In general the smaller sizes in the bulk fleets are relatively more liquid, with Handy bulkers more liquid than Capesizes, and Aframaxes and Suezmaxes a little more liquid than VLCCs.

At the lower end of the ranking are the more specialised types and a range of liner sectors. The bottom eight sectors on the graph registered between them just 1.6 sales per 100 ships. These typically meet requirements served by a spe-cific range of owners, reducing potential marketability. They are significantly less liquid than those at the top of the ranking. PCCs are 10 times less liquid than Handysize bulkers, LNG carriers 6 times less liquid and containerships 3,000+ TEU are 5 times less liquid.

Time For A Liquid Lunch?

So, some shipping markets are more liquid than others; bulkers more so than tankers, smaller units more than larger ships, and more specialised sectors often far less liquid. Investors need to keep an eye on this. But if your entry or exit strategy isn’t clear, you can always get a sale and purchase broker to help you over lunch, liquid or otherwise. Have a nice day.