Cheap ship valuations don’t necessarily mean attractive says VesselsValue
With ship prices plunging by double-digits in the past few years, many ship owners are pondering their next moves in a market often described as attractive. But is this really the case, when taking into account other factors, like for instance freight rates? VesselsValue’s Adrian Economakis, Strategy Director with the company describes the current and future trends of the ship valuation market. VesselsValue’ service has been established as a leading tool among banks, ship onwers and investors in the maritime industry, seeking accurate valuations of various types of vessels.
During the past couple of years, we’ve seen ship values plunging across the board, as a result of the economical and shipping crisis. Based on your data, could you provide us with some info on the ship types which have been affected the most?
Since 1st Jan 2007, worst performing sectors in terms of asset price depreciation have been the large bulkers. For example, 5 year old Capes are currently at about 30% of their January 2007 value and less than 20% of their mid 2008 peak value. For example, a 5 year old 180k dwt Japanese/Korean built Cape is currently worth around usd 31.2m, while in August 2008 a 5 year old Cape was worth usd 164m and in Jan 2007 was worth usd 89m.
In contrast, of the sectors we currently cover, the best performing has been LNG closely followed by LPG. For example, a resale large LNG vessel (160k cbm) is currently worth about USD 205m while in August 2008 was worth about USD 195m and in Jan 2007 was worth USD 207m (i.e. there a very small decline (c3%) since 2007 and a small increase since summer 2008). This is drastically different to the huge drop in values experienced across the tank, bulk and container sectors.
Do you believe that current market valuations are really that attractive, when adding to the equation, the factor of low freight rates and oversupply of tonnage?
Prices across most of the traditional tank, bulk, container sectors are certainly cheap but this does not necessarily mean attractive. It really depends on your appetite for risk, your view on the future growth of international trade vs growth of the fleet and your investment timeframe.
The issue with buying “cheap” vessels is that they are cheap for a reason, notably due to the low earnings they currently achieve, poor expectations for the future and the current high cost of finance.
Unsurprisingly, the cheapest vessels are in sectors with the worst current earnings and the largest relative orderbooks. For example; Capes, Panamax bulkers, VLCC’s and some of the other larger types have recently had extended periods with earnings at or below their operating cost, resulting in an operating loss even before capital costs and overheads are taken into account. This effectively means that you can buy such a vessel at a cheap price but you will have to support the investment until the earnings improve significantly. Therefore, there is a significant risk in buying cheap vessels at this time in the market, but also the potential for significant gains in the medium to long run if earnings improve.
The sectors with the highest potential for improved earnings are those that have the highest potential for demand growth and lowest potential for fleet growth. In terms of demand, analysis needs to be done on a sector by sector basis, but it essentially depends on growth in the world economy and for the wet and gas sectors, the changing trends of energy demand and production. For example, forecasts of the growth in crude ton miles are currently rather conservative due to the growth in the demand and supply of Gas as an energy source. Also, the gradual movement of refineries to the east is believed to reduce the ton miles of crude and increase ton miles of products. In terms of vessel supply, it really depends on the relative size of the current orderbook and the capacity for new orders in the future. Generally, the more specialized the vessel type, the lower the capacity for future supply. However, these perceptions of demand and supply fundamentals are in many ways already priced into the market which is why we have seen the gas, offshore and to a lesser extent the chemical and product tanker sectors perform significantly better than the traditional crude, bulk and container sectors.
Saying all of this, the only thing that can be said for sure about the shipping market is that the future is unknown. There are many factors that could cause a sudden increase in global demand that could quickly make current prices seem incredibly attractive (and vica versa)
How do you expect the market to behave in the coming months? Do you think that ship prices will continue to fall in the near future?
It really depends on the sector. We continue to see downward pressure in the container sectors with the continuing troubles of the German KG’s. In contrast, we have seen a recent flattening of values and decline in volatility in the Bulk and Tank sectors following the steep drop over the last few years. The bright spark of the market has been the gas ships (LNG & LPG) which have maintained strong values and good earnings. In the near future, we expect this trend to continue, although we hope to see an improvement in product tanker values as their earnings have been pretty strong over the last 6 months or so.
Additionally, it depends on the age and design of the vessels. There is definitely a preference for new, eco designed vessels. We believe these will hold up their values better than the older less efficient vessels that are generally attracting bargain prices
Which was the driving force behind the spawning of Vessels Value?
Our CEO, Richard Rivlin was the real driving force behind the development of VesselsValue. After many years of working at the top of the S&P market, he identified the need for instant and accurate vessel valuation and supporting market intelligence. This need has grown significantly with the recent difficulties of the market. Banks, funds and increasingly owners have realized the huge benefits of having an objective and daily updated view of asset values and market intelligence.
What types of services do you provide?
• Instant valuations for actual vessels, fleet and portfolios – updated and recalculated daily
• Daily historical values, time series and excel exports
• Transactions and vessel specifications
• Fleet statistics
• Advanced vessel search functionality
• Portfolios and automated alerts
What types of ships are included in the valuations that you offer?
Types of ships currently valued:
• Tankers over 29,500 dwt
• Bulkers over 20,000 dwt,
• Containers over 500 teu,
• LNG & LPG vessels over 100 cbm in size
Shortly, the service will also cover the smaller vessel sizes and offshore.
Which are your main clients?
The main 3 client types are banks, investment funds and shipowners. We also provide our services to commodity & oil majors, brokers, class societies, insurers and lawyers. We currently have around 80 clients on annual subscriptions to our service.
As would be expected, our client base is spread around the world with the largest concentrations in London, New York, Tokyo, Seoul, Athens, Hamburg, Hong Kong and Singapore.
How do you ensure that the ship prices you offer are accurately reflecting current market conditions?
We constantly test the accuracy of our valuations by comparing our values the day before each clean sale and the sale price. We also are constantly analyzing values across the different sectors to make sure are in line with current ongoing negotiations.
Our accuracy level is published monthly on our website.
Are you planning on the introduction of new ship types, to be added in the valuations you provide?
Yes, as per above, we are extending to sub handy/feedermax vessels and offshore types of vessels.
Nikos Roussanoglou, Hellenic Shipping News Worldwide