Among the key issues for any ship owner is choosing the right time to acquire or sell ships. Many could argue that the continuous fall of ship prices, with dry bulk carriers retreating in value since June of 2010, i.e. for two and a half years, has led to some vessels deemed as attractive, or even "bargains". But if one adds the factor of current freight rate environment to the equation, then things don't look so bright.
According to the latest weekly report from shipbroker Intermodal, the main question should be if current pricing is low enough to be considered as a bargain, or even if the market has reached its lows or not. Making a comparison with similar periods of the recent shipping history, the shipbroker reaches the conclusion that, in fact, ship values still have a lot of room for further reductions. According to Intermodal's analyst, Mr. Panos Tsilingiris, "currently, the indicative value of a 5-year old Panamax is high $ 17 million. Such levels were last seen 10 years ago in January 2003. At first sight, this looks like a strong hint to buy, but is it? Back then, the respective one year TC rate was at mid-11,000 $/day. By contrast today's 1-year TC rates for a Panamax struggles to stay in the 7,000s $/day range, while operating expenses are substantially higher. If the present depressed chartering market persists, which is implied by the bleak FFAs outlook and the recent 2-year period TC which is in the region of 6,500-7,500 $/day, then prices could go further south. The recent 10-year history does not suffice; we need to go further back" said Mr. Tsilingiris.
He added that "in the post 90's era, three market troughs stand out: 1Q1999, 4Q2001, and today. Both previous lows in 5-year old Panamax asset values were $ 13.5-14m. Interestingly enough, in inflation adjusted terms (assuming inflation of 2.5% p.a.), today's shy $ 18m price is again in the region of $ 13.5-14m in late 2001 dollar terms. However, during the most recent of the previous lows, that is, during 4Q2001, the respective 1-year TC rates were rgn 7,000 $/day, which is similar to today's levels. Therefore in nominal terms, this fuels the concern that there may still be ample room for further correction in today's asset prices. Inevitably, I resort to going further back to 1976, as some of my seasoned ship-owning clients suggest. There are both similarities and disparities between the dry bulk shipping recession of the mid/late 1970s, the mid-1980s depression (which were separated by a short-lived dry freight expansion until March 1981), and the on-going one. However, we can consider the on-going one to be a so far purely oversupply-driven one, while during the 1980s there were also weak shipping demand issues to deal with" Tsilingiris said.
He noted that "in the 1980’s, the trough occurred in March 1986 when a 5-yo Panamax could be purchased for approximately $ 5.5m when freight rates were in the $ 4,000s. In today's terms (assuming a conservative 3.5% annual inflation rate), this global nominal minimum corresponds to a figure which is (again!) in the 13.5-14musd range. By 1989 respective asset prices had rebounded back to above $ 20m, making this as one of the most profitable asset plays. 15 years later this record would be shattered by buying in the low prices of 2002 and selling in 2007 or 2008 at the peak of the super-cycle.Both the 1980s crisis and the on-going one share some common incentives for placing newbuilding orders: record low newbuilding prices, yards overcapacity, and promising fuel-efficient designs (oil had also peaked in 1980). In the 1980s, any hope for market rebound was killed by the excessive ordering during of 1982-1984 which was initially triggered by Sanko Steamship (which ironically filed again for bankruptcy in 2012) and subsequently followed by Norwegian and Greek owners. A clear lesson to be learnt from the 1980’s crisis is that counter-cyclical massive ordering shouldn’t occur again" he said.
Concluding his argument, Intermodal's analyst stated that "currently 5-year old Panamax bulkers stand at about 20-25% higher than the $ 13.5-14m range, which is the nominal low discussed above. Is it worth taking the upside risk (esp. for modern tonnage) vs. trying to identify the exact bottom?" he wondered rightfully.