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A Sale & Purchase Market in Shipping that Was … or, It Wasn’t It, in 2017

2017 was a fairly good year for the drybulk market. As compared to 2016, truth being told, 2017 was an exceptional year. All segments of the drybulk market have moved from severely depressed levels (with a meaningful part of the world fleet idle then) to profitable levels; at some point in early 2016, it seems that all types of drybulk vessels, irrespective of size and segment, were earning $4,000 per diem, if they managed to find employment at all. By comparison, in November 2017, capesize vessels most noticeably were etching earnings close to $30,000 pd.

And, looking forward, the prospects for 2018 seem at least fair for the drybulk market, while tankers and containerships hold hope. Shipping is far from showing a full recovery from the crisis, but at present the market seems optimistic, especially when one considers the abysmal days of the market bottom in March 2016.

Drybulk freight indices in 2017, provided by the Baltic Exchange

2017 has been a fairly decent market for the sale and purchase (S&P) of shipping assets. Vessels were bought and sold, but mainly they were bought, at a livelier pace than in 2015 or 2016; overall, S&P activity has been higher by 34% in 2017 for the drybulk market than the previous two years, a welcome development for S&P brokers. And, most of the vessels were bought in expectations of a recovering market instead of getting sold as in the past in a bloodbath of a market at auctions and other forced sale scenarios.

With increasing volume for S&P in an improving freight market, one would be forgiven to assume that shipping assets prices were on a roll in 2017. It’s true that vessels’ values for dry bulk have improved, driven by an improving freight market and good prospects for the immediate and near future; however, asset pricing was nowhere close to match the freight market’s buoyancy. Freight rates increased by a multifold factor, while asset prices dragged along. As per the attached graph, prices of asset classes tracked by the Baltic Exchange under their Baltic Exchange S&P Assessment Index (BSPA) for five-year old vessels, both tankers and bulkers, have been steady. [Karatzas Marine Advisors is an active member of The Baltic Exchange]. For tankers, prices have shown in 2017 as much liveliness as if trading in a sea of tranquility – exhibiting almost prefect flat lines. For bulkers, there has been a relatively mild improvement in the spring of 2017, but flat lines that resemble tanker prices followed. Still, year-over-year, there is a 25% increase for capesize vessels and milder improvements for other types of dry bulk vessels. Again, these are data for five-year old vessels, and older vessels performed better and newer vessels performed a bit worse than five-year old vessels; and again, these are asset price increases in 2017 alone, not from the bottom of the market in 2016 – where price improvements have been more significant. But again, and without wishing to burst anyone’s bubble, the Standard & Poor’s (S&P 500) index in the USA achieved almost a 20% performance in 2017, and this with all the benefits of a liquid investment.

Shipping asset prices in 2017 and the Baltic Sale & Purchase Assessment Index (BSPA), provided by The Baltic Exchange

Asset prices in 2017 have been un-inspiring for all types of vessels, including drybulk, tankers and containerships. We have written in a different post about the sale & purchase market and asset playing as a business idea that seems that it lost its luster. Hopefully there are much better days in shipping and we are in the early stages of a lengthy and strong recovery; and, likely those who bought ships in 2017 and 2016 will get to enjoy much stronger markets and asset prices.

Our skepticism on the subdued state of the sale & purchase market and its impact on the asset play theme is that they may be early signs that the shipping industry is facing structural changes while we all celebrate the strength of the freight market recovery. It would appear that with the lack of plentiful and cheap debt financing, flipping shipping assets is not as appealing any more. More of one’s money has to be committed to the “bet”, which is makes it costlier to buy ships and play and game. And, more importantly, lack of availability of cheap money for other buyers makes it harder for other people (and potential buyers) of one’s assets to get optimistic and bid up asset prices and pay you a strong price to buy your assets. Or, it may be that shipping is finding its calling that it is actually for transporting goods and being part of the logistics chain and not a speculative instrument for buying and selling ships and stretching one’s fleet like an accordion and being highly opportunistic with the market and business relations.

Even more concerning that the lack of shipping finance prospect affecting asset prices is that the freight market recovery may not considered to be real and sustainable by the “smart money”. Even shipowners with access to cash, few reference names have made substantial purchases in 2017, a few individual acquisitions notwithstanding. Shipowners who in previous down-cycles were loading up on cheap tonnage, it seems this time around have gone on a buyer’s strike. It’s interesting seeing who’s doing the buying and who is doing the preaching, and who’s buying with their own money and who is buying with other people’s money. As another of Yogi Berra’s pith quotations has it, “you can observe a lot by just watching”. And who has been doing the buying in the S&P market in 2017 is not strongly convincing.

There have been reports elsewhere that Greeks and Americans have been the highest buyers of ships in 2017, and the geography of these two countries may indicate trends in the market, at least in the short term and at least for 2017. Access to shipping expertise and access to capital have always been two competitive advantages to have in shipping. Hopefully the trend will continue as our firm has intimate access to both of these markets.

We only hope that 2018 will be a better and more active year for S&P that 2017 has been, and we wish that much more money stands to be made in the new year. Having been very active in 2017 ourselves, we only hope that any S&P activity and asset appreciation is based on fundamentals and not on speculation, and any signs of concern mentioned above remain just that!

Happy New Year!

The hope of the new day and the dangerous of the treacherous seas… Bass Harbor Light, in Mount Desert Island, Maine, USA. Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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Dry Bulk Vessel Prices Lagging the Freight Market

The turnaround of the dry bulk freight market in the last eighteen months has been impressive and a welcome reminder that the shipping industry is an extremely volatile business. The overall Baltic Dry Index (BDI) has quintupled from March 2016 till now, while more spectacularly, the Baltic Capesize Index (BCI_2014) has decupled in the same period.

Still, in absolute terms, daily freight rates are just moving above operating break-even levels, and for vessels with recent or high mortgages, present earnings do not suffice to fully cover the financing cost component of the ownership. Such was the depth (and desperation) of the market that multifold increases in freight rates and barely managing to keep our heads above water!

The improvement of the freight market can be attributed to several factors such as delays in newbuilding deliveries in the short term (and precipitous drop in additional newbuilding ordering in the longer term), an accelerated scrapping pace for older and less-than-older bulkers (bringing the tonnage supply and demand balance to a relatively favorable equilibrium), a Chinese economy that keeps impressing with its strong demand for raw materials, miners that keep expanding supply (legacy projects, mostly), new trading routes and patterns expanding ton-mile, and yes, anti-globalization political rhetoric that seems to favor shipping by inserting inefficiencies in the world trade.

None of factors above single-handedly has driven the market higher, but all have contributed to a better shipping. As a word of caution, almost all of the above factors are reversible or cancellable on short order, and any thought of popping campaign bottles is premature. And still, there are several additional risk factors that still lurking in the background.

In past times, such a strong improvement in freight rates would had set dry bulk prices on fire. Vessels are valued on earnings, and quite often, on expected earnings (which explains, inter alia, how the shipping market finds itself flooded with newbuildings so often); a freight market that has been galloping ahead in the last few months would had triggered major asset appreciation and incited even loftier hopes for higher prices.

Given that capesize tonnage is the most volatile among the dry bulk sectors, we chose in the following chart to show the Baltic Capesize Index (BCI_2014) and the price of a 5yr-old capesize vessel since January 2015 (data by Karatzas Marine Advisors & Co. (KMA), and the Baltic Exchange to which KMA maintains membership). Back in January 2015, capesize prices were overvalued comparatively to the freight market and the index, as expectations and hopes were strong for shipowners to accept lower bids. A further dip where BCI dropped from 500 points to 250 points by early 2016, and capesize asset prices were dropping fast, from almost $38 mil to $25 mil. Since March 2016, the BCI_2014 index has decupled to above 3,000 points at present, but capesize asset prices have only moved up to currently $34 mil for a 5yr old capesize vessel. Quite a disconnect, a 35% increase in asset prices when the freight market is up by a multiple of ten (1,100%).

Capesize freight rates (LHS) vs capesize vessel prices (RHS) since January 2015: under-appreciating. Source: Karatzas Marine Advisors & Co.

Taking a broader look for other asset classes (panamax dry bulk, ultramax/supramax, and handysize tonnage) in the following graph, a similar trend of improving prices can be seen among all asset classes, in the range of 30-50%. There have been cases when dry bulk vessels were bought at the dark depths of the market in spring 2016 and a year later were flipped by as much as 130% actual profit, but those were few selected transactions, for older tonnage (and different economics and risk), and probably a few of those transactions were opportunistic with an element of luck. The corollaries to the story is that money can still be made in shipping for asset play (“buy low, sell high”) if timing is right, and that when shipowners were pounding the table to raise money to buy cheap ships were correct (but again, many of those owners were pounding the table to buy cheap ships at the peak of the market in 2013/2014). However, the real lesson is that there is a disconnect at present between freight rates today (and also freight rate expectations) and the level of asset prices in the dry bulk market.

Dry bulk vessel asset prices: hot, but not hot enough. Credit: Karatzas Marine Advisors & Co.

Lack of finance is, in our opinion, the real culprit for asset prices not being on fire at present (and this is not necessarily a terrible thing, in our opinion.) Shipping banks have been very tight with new business, capital markets and institutional investors are not perceiving shipping to be an industry of great prospects at the moment, and export credit from newbuilding nations is low on the list. Besides seed equity and selectively follow-ons in the capital markets and anecdotal evidence of ship mortgages from banks, financial leverage in shipping can be obtained from alternative capital funds, at levels that can easily exceed 10%; not necessarily too expensive, but barely sustainable unless one expects a great freight market looking forward.

Opportunistically dry bulk is still a great market to enter although the “easy money” has already been made in the early stage of the market bouncing from the bottom. We do not espouse a blind expansion strategy in the sector but there is an arbitrage opportunity for money to be made, especially where investments can be structured to minimize the (many) risks that are still lurking in the background. There are still cargoes to be moved worldwide, and contracts of affreightment (COAs) are still available, and strategic partnerships can be set, instead of someone jumping speculatively in the market, even today, when there is the disconnect of freight and asset prices.

A bulker in the Big Apple… probably looking for money? Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

‘Shipshape 10’ News for Week Ending July 16th, 2017

‘Shipshape 10 List’, a list of news and articles published in the current week that a senior executive in shipping, shipping finance, commodities, energy, supply chain and infrastructure should had noticed; news and articles that are shaping the agenda and the course of the maritime industry.

Sometimes seemingly tangential, periodically humorous, occasionally sarcastic, sporadically artistic, inferentially erotic, but always insightful and topical.

We apologize for the absence of an update for almost a month to those who have found this blog worthwhile to subscribe to and follow it regularly.

And, this week’s ‘Shipshape 10’:

On the Cosco and OOCL transaction:
1a. China underlines shipping ambitions with $6.3bn takeover of HK group (from the Financial Times) – article quoting Basil M Karatzas

1b. China’s Cosco to Buy Shipping Rival Orient Overseas for $6.3 Billion (from The Wall Street Journal) – article quoting Basil M Karatzas

1c. Cosco Takes OOCL, Eyes CMA CGM (from Splash 24/7)

1d. As Trade Revives, Big China Shippers Merge (from Barron’s)

1e. Karma and Comfort for Orient Overseas (from Bloomberg)

1f. Not Keeping It in the Family (from Week in China)

Dryships once again on front page news:
2. A Shipping Company’s Bizarre Stock Maneuvers Create High Seas Intrigue (from the Wall Street Journal)

Brazilian shipbuilding:
3. In Lula’s Shadow, Brazil’s Shipbuilders Struggle to Right Themselves (from The New York Times)

A UK shipyard is looking far away from traditional lines of business:
4. Mersey shipyard Cammell Laird set to build UK polar research ship (from the Financial Times)

New trading patterns due to expanded Panama Canal become more apparent with time:
5. Panama Canal Does Some Good While Upending Historic Trade Routes (from Bloomberg)

US crude oil exports:
6. US crude exports forecast to exceed most Opec members by 2020 (from the Financial Times)

Wheat trade and possible impact on the dry bulk market:
7. Traders Gobble Up Wheat Amid Great Plains Drought (from The Wall Street Journal)

Opinion article in Splash 24/7 by yours truly on whether there is still time for the famous ‘asset play game’ in shipping
8. The Asset Appreciation Play Has Yet to Leave Port (Basil M Karatzas, from Splash 24/7)

Opinion article by yours truly in Splash 24/7 on shipping finance:
9. Credit is Due to Shipping (Basil M Karatzas, from Splash 24/7)

Summer is the perfect time to to take to the water, this time for pleasure:
10. 5 Summer Water Sports You Can Master the Easy Way (from The Wall Street Journal)

Panamax Containership MV ‘OOCL Montreal’ sailing upstream in Norderelbe, Hamburg. Image credit: Karatzas Images.

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Dry Bulk Ships: To Buy or Not To Buy

The dry bulk market had a great run from the fall of the last year until March this year when the BDI reached 1,338 points on March 29th.  While freight rates still have been hovering at just above break-even levels, the improvement of the market has been impressive in relative terms; freight rates have quadrupled in the last year, admittedly from abysmally low levels.

While still the freight improvement has not been strong enough to justify popping champagne bottles, it has worked miracles in terms of improving the mood and bringing soaring enthusiasm back in a market that was relentlessly bleeding cash for the last few years. The enthusiasm has been so strong that recent sale & purchase activity (s&p) has been the strongest in the last two years, while there are a couple of cases of shipowners doubling their money on ‘asset play’ transactions within the last year.

The market has given up some of its recent earnings as the BDI is now back to approximately 900 points, but the improved mood is still abundantly present. And, given that we are heading into the summer, a seasonally weak season for shipping, there have been some concerns on the direction of the market. And, now that the market seems to be taking a breather and there is some time for introspection, there is some head-scratching on the real reasons for the market bouncing back so strongly in the last year as fundamentals did not seem to justify such a strong (fourfold) freight improvement.  All in all, while the market is still decent and the mood is buoyant, one has to be more cautious at present.

Shipping asset prices have improved since last year when ships, especially when non-modern dry bulk ships were selling at a multiple of their scrap value, irrespective of quality and pedigree. Probably the “easy money” has been behind for those looking for an easy “asset play”, but shipping asset prices are still low by historical standards.  And, there has been serious interest for acquisitions of dry bulk shipping assets whether in the secondary or the newbuilding market.

But again, it’s hard for a buyer or investor to enter aggressively the market. Prices have doubled for a great deal of assets while the freight market barely covers their daily operating expenses. And, there are risks looking forward to justify an aggressive approach. Trade volumes are still anemic to imply a strong market recovery. And, shipbuilders are getting more desperate by the day at building up their orderbook. Lack of competitive shipping finance keeps a dumper on the market, but any export credit incentive or other catalyst would have a tremendous (even catastrophic) impact on the market.

While asset prices look tempting by historical standards, whether for tankers or dry bulk vessels, it’s hard making the argument that the market is in a full recovery swing and buying ships, whether for operating profits or for asset flipping in the future, can b a great strategy. The risks still lurking in the market cannot be ignored. And, in our opinion, the “irrational exuberance” we have seen earlier in the year make us believe that there is still lots of froth in the market.


The article was first published in Seatrade Maritime on June 6th, 2017 under the title “Dry Bulk Ships: To Buy or not to Buy“.


Great looking dry bulk vessel MV ‘Genco Pyrenees’ not making making (sailing in ballast). Recently photographed sailing upstream in Elbe in Hamburg. Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

‘Shipshape 10’ News for Week Ending June 4th, 2017

‘Shipshape 10 List’, a list of news and articles published in the current week that a senior executive in shipping, shipping finance, commodities, energy, supply chain and infrastructure should had noticed; news and articles that are shaping the agenda and the course of the maritime industry.

Sometimes seemingly tangential, periodically humorous, occasionally sarcastic, sporadically artistic, inferentially erotic, but always insightful and topical.

And, this week’s ‘Shipshape 10’:

The biggest story in shipping in the past week, Rickmers Holding Group filing for bankruptcy. A bad market gets to everybody eventually, but again, Rickmers is not your typical shipping name. Effectively shipping royalty with 200+ years of history. Formally established in 1834, opening a rep office in China in 1899, more than a century before China became fashionable in shipping:

1a. Bank Rejects Rickmers Restructure (The Maritime Executive)

1b. German Shipping Firm Rickmers to File Bankruptcy (The Wall Street Journal)

The season’s greatest gathering happened in Oslo this week (Nor-shipping 2017); besides technology and disruption, the hot topic of the event was shipping magnate John Fredriksen:

2a. Shipping tycoon Fredriksen says has succession plan ready (Reuters)

2b. Succession Plan in Place: Fredriksen (Splash 24/7)

2c. Norway’s Frontline in Talks With Gener8 to Create World’s Biggest Tanker Fleet (The Wall Street Journal)

A bright spot in shipping, for now and the future, the LNG market:

3a. U.S. Approves First Offshore LNG Export Application (The Maritime Executive)

3b. U.S. Approves Exports from First Floating LNG Terminal in Gulf of Mexico (gCaptain)

Panama Canal likely one of the biggest beneficiaries of the LNG boom seems to be re-calibrating their pricing model, while Egypt is working on not staying behind and ‘One Belt, One Road’ getting more attraction:

4a. Panama Canal wants to modify tolls structure (Seatrade Maritime News)

4b. Egypt aims to profit from the Suez Canal (Financial Times)

4c. DP World hitches lift on the new Silk Road (Financial Times)

Regulations for shipping still have some time till driving home the message, but given the Trump’s action this week, shipping re-active approach to everything, for once seems appropriate:

5. New shipping fuel regulation set to hit commodities (Financial Times)

And, shipping about shipping and policy, the saga of Greek and German shipping, taxations and policy never seems to miss a chance for some arguing:

6a. Schaeuble ‘proves he does not desire to see Greece on a path to growth,’ says UGS chief Veniamis (Athens News)

6b. Head of Greek shipowners’ union: Schaeuble criticism unfair; Germany has favorable tax regime, too (Naftemporiki)

Shipping banks in the news once again, but again, what’s new?

7a. Worst Offshore Slump Holds Key Lessons for Top Norway Banker (Bloomberg)

7b. Commerzbank moves closer to shedding 4.5 bln euros in toxic ship loans (Reuters)

Seemingly no-news story from a major coal country, but reading through it, miners work on the lowering their stockpiles versus digging and investing; what do they say about their conviction for a brighter coal?

8. Coal India’s Output Declines Amid Focus on Clearing Stockpiles (Bloomberg)

U.S. and Germany have been solid trade partners for decades; recent developments start raising questions on the relationship and trade. What that could mean for shipping?

9a. Trump Paris rejection widens rift with Germany (Financial Times)

9b. Trump’s right about Germany (POLITICO)

9c. Trump Targets German Trade, and the South Grimaces (The New York Times)

9d. On The US-Germany Imbalance (The New York Times)

Shipping is also local:

10. Afloat on the Erie Canal: Sonar Gear, Ferris Wheel Parts and Beer Tanks (The New York Times)

First article is opinion piece in Greek about the death of shipowner Alexandros N Goulandris. Goulandris is a legendary name in the world of shipping, and one of the last few remaining ‘Golden Greeks’ of shipping. Besides his wealth and business success, his life has been characterized by his civic duty to donate generously to cultural and humanitarian causes, mostly in Greece. Something similar cannot be said about the modern way of things which may also explain Greece’s financial and cultural decadence:

11a. Η αφανής κηδεία ενός αφανούς ευεργέτη (Protagon)

11b. Shipowner Alexandros Goulandris Passes Away (Greek Reporter)

Summer sunset on the Port of Piraeus. Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.