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Limited ordering in the dry bulk market bodes well for future of market

A key difference between the current bear market that is the dry bulk market and past downward cycles, most notably in 2012, is the fact that this time around, ship owners have refrained from placing newbuilding orders. According to the latest weekly report from shipbroker Intermodal, “in today’s dry bulk market, both freight rates and asset prices are creating mixed feelings to seasoned ship owners, who tend to instinctively invest when asset values are low. Although for a traditional ship-owner, buying a ship and supporting the investment for a period of time is part of being a ship owner, these days the billion dollar question is “For how long would they have to do so?”, wondered the shipbroker.

According to Mr. Timos Papadimitriou, SnP broker, “so far, 2015 is more bearish than 2012 which, for the most of us, was perceived as the previous low. When comparing the two, a big difference is that this year there is limited, if any, ordering in the Dry Bulk sector, which means that the industry has probably learned from past mistakes”.

Papadimitriou noted that “if we look at the Panamax/Kamsarmax sector, in 2012 the average BPI was at 963 points compared to the up to date average of 738 point in 2015. In dollar terms for the segment, the average TCA for 2012 was $7,700/day vs $5,900/day this year. SnP data for such ships built post 2000 in Korean and Japanese yards is not aligning with the respective freight trend though. In 2012 there were a total of 23 sales compared to an almost double of 44 transactions reported in the first nine months of 2015”.

He added that “another significant difference is that this year the majority of the buyers are traditional and experienced ship-owners, who see this downward spiral of the rates and prices as the right opportunity to invest. Back in 2012 a lot of equity funds, and in general non-traditional financial vehicles were entering and investing in either newbuilding or second hand assets. Right after the bottom of 2012 we saw an increase on second hand transactions during 2013, which has been the highest up until this year. 2013 also had the highest BPI average and the highest TCA. In the end, the 2013 optimism proved short lived as in 2014 the market started to drop again leading to a small decline in sales for that year. Now what’s interesting in 2015, is that with the lowest BPI and TCA of the 4 year period, it looks like that by the end of it the number of transaction will surpass that of 2013”.

Intermodal’s broker noted that “some might say that asset prices will drop further and that potential buyers should wait a bit longer. But let’s be honest; at the price levels we are seeing today, ships are already being priced low. Now if one is worried that by investing now they could miss on a potential additional discount of a 2-3% that might take place down the line, it’s their right to do so. The reality of the situation however, remains the same. When the market is low, investing makes sense. And it seems that people with the most experience out there are doing exactly that”, Papadimitriou concluded.

source: http://www.hellenicshippingnews.com