In recent years, the largest proportion of newbuilding orders by Greek owners has been in the dry bulk and tanker sectors. In every recent year bar 2007, at least 40% of Greek owners’ investment in new tonnage has gone into tankers. Investment in bulk carriers has tended to be at least 20% of the total, and in 2007, the peak year of the dry boom, this was as high as 65% of the total. As well as the trading earnings obtainable in these sectors, Greek owners have been attracted by the liquidity of the secondary markets for these assets. This has sometimes enabled astute Greek owners to earn substantial margins, by selling on their vessels at the right moment.
Graph of the Week
However, the supply-demand outlook in the bulk sectors is now relatively poor: over-supply has developed as a result of post-boom deliveries. This is now limiting earnings in the freight markets and starting to push asset values down. Limited prospect of upside in values in the short term makes asset play opportunities rarer.
As the Graph of the Month shows, Greek owners have reacted to this. Just 6% of Greek investment in 2011 so far has been in tankers, whilst only 10% has been bulker investment. Given that trade growth for tankers and bulkers is expected to be slower this year than last, and that their fleets are expected to grow by 6.4% and 12.5% respectively, this is unsurprising.
Aligning with Liners
Fortunately for Greek owners, there are other opportunities available. Greek investment in containerships has expanded sharply to 23% of the total in 2011 so far. Eight Greek owners have made their first forays into the containership business in 2011.
Historically, the container S&P market has been relatively illiquid since most tonnage is owned either by operators (lines) or by German KG owners viewing ships as long-term investments. However, the containership fleet is now 2.5 times its size in 1996 and accordingly the ownership base has also diversified – the number of owners has grown 13% since 2008, even before Greeks begin to gain fleet share. All this increases the likelihood that Greeks will be able to create asset play opportunities here too, as well as earning through chartering.
Going Back to Gas
Although Greek owners had a brief foray into gas contracting in 2004-05, investment levels in LNG in particular have increased much more markedly in 2011 to 34% of Greek investment (17 vessels). This has been spurred on by the generally bright perception of the prospects for LNG demand, which grew by 21% in 2010, plus the effect of the Japanese earthquake, which has made the country more heavily dependent on imports of the fuel for electricity generation. Meanwhile, offshore is also attracting interest. 2011 has seen the first Greek drillship orders on record (4 vessels), with one owner investing $1.8 billion.
Responsive Reactions
Trends in 2011 have shown a major shift in Greek investment. Poor fundamentals in the bulk markets have made traditional asset play there riskier – at least until values stabilise. In the interim, Greek owners have responded to changing trends and are looking for opportunities in sectors which are relatively new to them.