In Hellenic Shipping News 18/02/2015
Nikos Roussanoglou, Hellenic Shipping News Worldwide
With the dry bulk market facing its worst crisis in decades, a crisis poised to get even worse over the coming days, ship owners are pondering their hedging options, to minimize their risk. Although there are many choices, cash-rich ship owners know that the only viable way to profit from the current market conditions in the long term, is to cash in on investment opportunities, i.e. invest in new vessels, which are fast becoming rather attractive.
According to the latest weekly report from shipbroker Allied Shipbroking, in the Capesize market, “with transatlantic cargoes dropping during the second half of the week, the market lost the little support it had pushing overall rates further down, while optimism reached an almost all time low. Things are now looking likely to turn further south, as the Chinese start to head off in preparation of their New Year festivities over the coming days, leaving the Pacific market as such with ever more limited interest from charterers, while traders in the Atlantic will likely take up this opportunity to push things further down”, Allied noted.
The low levels of the Baltic Dry Index which is now trading below its historical lows, is a stark indicator of the dire conditions which prevail in the dry bulk market. As Mr. George Lazaridis, Head of Market Research & Asset Valuations with Allied Shipbroking warned, “things are set to get even worse this week as the Chinese are off for the most part, starting their New Year festivities and at the same time draining the Pacific basin of its much needed inquiries. As all this unfolds many are pondering what are the true investment possibilities within the shipping industry and where should investors find safe refuge during these troubled times?”, he wondered.
According to Lazaridis, the dry bulk market has had a strong “slap across the face”, with earnings dwindling to below OPEX levels and reports already circulating of several owners “tying up” their vessels in wait for better levels to be seen. “This has had its positive side effects as has been mentioned. Asset values have plummeted to levels that make any investment endeavour with a long –term perspective, highly lucrative. Purchases made at these levels feel as if they can’t go wrong, though it does seem to be the case were it might be better to wait rather than rush in just yet. At the same time the almost non-existent new ordering volume and the following of several cancellations and swapping of contracts to other sectors of the shipping market, have all helped to minimise the orderbook considerably allowing for a breather down the line as the fleet development starts to reach at growth levels better suited for the growth in dry bulk seaborne trade. This all might just be enough to make those who chose to act in the current market more likely in turning a good return on their investment (even if this entails a period of subsidising the vessel during the current loss making freight rates)”, Lazaridis noted.
But what of the other sectors within the shipping industry? According to Allied’s analyst, “many feel that they might have “missed the boat” in the tanker and gas markets, where rates have reached highly promising levels but inevitably this has also attracted enough buying interest to also make asset prices reach levels were it would be more risky of not achieving an interesting enough return in the case that current hire rates start to slide back to the levels we
had been used to during the past 5 years. The container ship market however seems to hold more promise than this, as after a long period of being an under performing market faced with the difficulties of over capacity with cascading effects making sure that this was felt throughout all vessel sizes, has now started to see glimpses of hope. The number of laid-up vessels has been drawn back to minimal levels, while the emergence of new trade routes with highly dynamic growth has helped propel earnings in some size groups. In particular the Sub-Panamax sizes have been some of the big winners witnessing a strong growth in demand which seems set to continue for some time. Beyond this there seems to be some promise for the Post-Panamax (between 5,200 and 10,000 TEU) have found their way around the problems caused by the larger Super-Post-Panamaxes and ULCVs, and are now ready to make a minor come back. What makes all this more promising is the fact that this has yet to be reflected entirely in their asset prices, while with the possible re-spark of U.S. consumer consumption under way and an ever hopeful scenario of a growth stimulating policy being adopted in Europe, things might just start to heat up quicker then would have otherwise been anticipated”, Lazaridis concluded.
