S&P, Newbuilding and Demolition Update (March 18th, 2014)

Since our last Sale & Purchase report in January, the market has kept an active pace with general all market segments showing signs of life, and certain markets even much more so. The prevailing mode is that the world economy is entering a growth phase and that logically shipping would be the major beneficial of it; actually, a lot of market pundits have come to believe that the worst is behind us in shipping, the bottom of the market behind us as well, and now it’s the last chance to get on the boat before she leaves port.

We have been more skeptical than the average pundit – but we have been known to be of a skeptical nature – and we think that the present wave of enthusiasm may be a tad too much given the overall state of the market, still.  Since our last report, we have had the opportunity to travel extensively and catch up with shipowners, charterers, banks, vessel managers, etc Certain markets such as older containerships remain abysmally bad, and several independent shipowners have been very concerned about the outstanding orderbook in every sector. Yes, indeed, independent shipowners have ordered vessels as well, but the majority of the ordering has taken place from financial players who have been riding fully the ‘eco design’ wave; to a certain extent, some of these financial players are the tail that wags the dog (rather than the charterers and cargoes) since they have been known to be placing orders and chasing markets that have been neglected during the present boom.

In the most recent developments, while China still remains that 600-pound gorilla that can move the shipping market with just a thrash of the dragon’s tail, there have been signs that the economy is slowing – despite the recently announced 7.5% official GDP growth for the next year; it’s an absolutely great number, but also absolutely interesting are the news that the Chinese government has been slowly devaluing the Chinese Yuan (CNY), that there has been the first major default of a real estate developer company in China for $500 million un-serviced ‘bond’, and that the shadow banking in China stands at an exorbitant $7.5 trillion dollars or about 85% of Chinese GDP (the numbers from last week’s front page graphic of the Financial Times.)

And just last week, Scorpio executed on a really impressive (risky nevertheless) ‘asset play’ maneuver, flipping their seven VLCC newbuilding orders in Korean yards to a US-based buyer (Genmar and/or Peter G.) for a capital gain of about $50 million for holding the orders for just a few short months; the price per vessel has been $105 million or so, about $7 million higher than the newbuilding orders, and the first time in more than three years that a VLCC changed hands above $100 million (actually more than five years, if one were to count only ‘arm’s length transactions’ where there was no involvement of seller / soft finance.) Believe it or not, there was a bidding war among several buyers for these vessels; all the buyers were sponsored by financial players; we caught several ‘old salt’ shipowners scratching their heads on the acquisition and pricing, and we noticed that although the words ‘VLCCs’ and ‘Fredriksen / Frontline’ are synonymous, ‘Big John’ has been conspicuously absent from all the gerrymandering in the VLCC space; either he knows something that the rest of the market doesn’t or the buyers of the Scorpio VLCCs know something that the market doesn’t know. For sure somebody better know more than the market.

Shipping is beautiful industry, and never boring!

VLCC TANKER MT 'GENMAR ATLAS'

VLCC TANKER MT ‘GENMAR ATLAS’

© 2013-2014 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.

S&P, Newbuilding and Demolition Update (January 19th, 2014) – Tanker Market Focus

Since our report of last week with its headline news of Euronav acquiring the Maersk Tankers VLCC fleet of fifteen vessels at $980 million, freight rates for tankers, primarily crude oil tankers, have seen levels that were almost forgotten, or even non existent any more. VLCC rates have ranged between $40,000 and $50,000 pd for this past week, while Suezmax and aframax tankers saw even higher rates, exceeding $100,000 pd for certain routes, primarily cross-Med and Baltic Sea, based on heavy delays in Bosporus and Libya having a change of heart in terms of oil exports. Clean tankers in the products trade have been ‘floating’ along with LR2s heading to Japan getting less than $10,000 pd, while dirty tankers whether cross-Med or USG-Caribs are getting better reception.

Enlightened sale of MT ALGECIRAS SPIRIT (Image source: shipspotting.com)

Enlightened sale of MT ALGECIRAS SPIRIT (Image source: shipspotting.com)

While Euronav was in the news last week with their transformative acquisition, this week they have been in the news with exceptional pricing for the sale of the 1999-built VLCC MT „LUXEMOURG” (299,000 DWT, 1999, Daewoo) for FPSO conversion to Modec at $28 million. Probably the price is close to $10 million above salvage value and several million from a hypothetical sale for ‘further trading’, but still meaningfully lower than the $35.8 million that Euronav achieved in 2012 for the sale of sistership vessel MT „ALGRAVE” still to Modec for again conversion purposes. Earlier in January, MT „SATURN GLORY” (299,000 DWT, 1998, Daewoo) was sold in excess of $23 million to clients of Sentek Marine & Trade. In the Suezmax market, Avin Oil of Greece has acquired the good vessel MT „ALGECIRAS SPIRIT” (150,000 DWT, 2000, Daewoo) from publicly listed TK Tankers at about $17.8 million. The pricing is a firm improvement over the sale of sistership tanker MT „TENERIFE SPIRIT” (15,000 DWT, 2000, Daewoo) again from Teekay Tankers to Eurotankers in Greece in early November 2013 at about $16.3 million. Still in the Suezmax market, MT „HERO” (156,500 DWT, 2011, Jiangsu Rongsheng) was sold at auction to Greek buyers (Alma) at $51.5 million.

Teekay has been active also in the buying front as they have acquired in a different transaction four modern sistership aframax tankers owned By Montanari but controlled indirectly from a European bank which had to approve any sale (MT „VALLESINA”, MV „VALBRENTA”, MT „VALFOGLIA”, and MT „VALDARNO” (2009/2009/2009/2010, 109,000 DWT, Hundong Zhonghua)) at about $30 million each. We understand that previous potential buyers were not impressed with the quality of vessels, but the pricing had to be ‘right’ given sellers’ price ideas came down sizably since early 2013 at a time when asset prices, rates and momentum were heading the opposite direction. In a sign that there is a big disconnect with tanker tonnage sold before the turn of the century, MT „NORD” (105,000 DWT, 1998, Halla Eng.) achieved $9.8 million, a price no much higher than scrap, but still strong for what vessels of this vintage have been fetching of recent.

The LR1 tanker MT „ANNA VICTORIA” (75,000 DWT, 2004, HHI) was sold to clients of Eletson at region $22 million. In general, the market for product tankers has been cooling off as many players are trying to stay away – let’s say a ‘hangover’ effect from the massive orders in the sector, while we have seen ever increasing inquiry in the crude tanker market, including purchase inquiries for VLCCs, Suezmax and aframax tankers; sometimes we are confused whether such inquiries are legitimate efforts to enter / expand in these markets or cases ‘the tail wagging the dog’. No doubt however, that there is increased levels of inquiries in the segment which could be a sign of potential ‘break out’ of the market.

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Stainless steel parcel tanker MT CLIPPER MAKISHIO (Image source: Wiki Commons)

In the stainless steel parcel tanker market, there is the interesting sale of MT „CLIPPER MAKISHIO” (19,980 DWT, 2009, Fukuoka SB) to clients of Songa Shipping in Norway at just below $27 million. There are no many sales in this niche market in general, so each one of them is noteworthy; the pricing has been fairly strong for a vessel already five years old.

The demolition market seems to be coming back to market slowly after the holidays, but again, when freight rates are solidly in cash flow positive territory, it’s only logical that owners are given an extension to do the inevitable; maybe another trip, maybe another month, but definitely not now. Tankers coming for their third or fourth special survey are the lowest hanging fruit, and the lower quality vessels with opex. Demolition pricing is solidly in the $400/ldt territory, with tankers getting $450/ldt or even more in subcontinent, with about 20% discount in China, at about $350/ldt.

Our report in the dry bulk market has been posted separately due to volume of reported transactions (please click here to access.) Developments in the financial and capital markets have always been of heightened interest, especially the prospects for a new round of stress tests with the European banks. That will be an interesting development to watch, although it seems ever likely that Basel III will have little chance to get implemented as envisioned originally and on schedule; just more regulatory bodies seem to be getting more receptive to the banks’ points of view and also giving higher priority to stimulating economic growth at the cost of curtailing or penalizing banks just because they stand on the wrong side of a benchmark figure.

© 2013-2014 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.

S&P, Newbuilding and Demolition Update (January 18th, 2014) – Dry Bulk Focus

By the end of the week, the notable decline of the BDI and dry bulk freight rates since late last year came to a stop with a marginal improvement on Thursday and Friday, mostly on relatively stronger recovery in the cape market; still, it was a down week for the index, with about 0.75% decline. Crude tankers have been the star of the week, with freight rates improving impressively on certain routes; some improvement is due to seasonality – still, winter season in the northern hemisphere, due to bad weather affecting vessel routing – heavy delays due to fogging in the Bosporus affecting Suezmax tonnage trading Black Sea, and due to lower tonnage availability in the AG – owners have been ballasting en masse VLCCs from AG to WAF for better prospects (probably an interesting point for further analysis, ballasting vessels around the Cape and incurring millions of dollars in bunker expenses in the hope of better prospects in another geography; ‘herd mentality’ possibly, but for now, AG tonnage faithful tonnage got the best of it, and their prospects look good for February, too.) The best markets have been Caribs – USG and cross-Med trading for aframaxes, where in the latter market have benefited by association due to Bosporus delays but mostly have benefited from Libya’s crude exports coming to the market again (as a reminder, just last week, rebel forces had threatened to open fire at tankers approaching terminals for loading, but the economics got the better of the threats, since oil exports translate to hard currency in a desperate country.) One of the highest fixtures has been ExxonMobil’s fixture of Thenamaris’ MT SEAOATHat 260 WS, well in excess of $100,000 TCE for cross-Med voyage.

Activity in the sale & purchase market continues robustly, as hopes for a market recovery seem to be getting stronger hold. Late last week, it was reported athat Marmaras Navigation of Greece has acquired Hull No J0021 for 176,000 dwt capesize vessel with 2014 delivery at Jinhai Heavy Industries at approximately $47 million, and also Greek independent owner Transmed has acquired Qingdao Beihai BC180-26 and BC180-30 hulls (MV CENTRANS RYTHMand MV CENTRANS ETERNAL”) for 180,000 dwt capesize vessels with 2014 delivery at about $48 million, each. These transactions stand out for a couple of reasons: despite the overall pessimism in the capesize market, still, these are acquisitions by ‘real’ independent, operating shipowners who put a lot of their own equity at risk (as opposed to ‘OPM’ investments) which indicates real conviction in the market; further to it, the pricing seems extremely competitive as compared to recent ‘OPM’, highly advertised acquisitions of comparable tonnage, and also compared to standard shipbroker tables with ‘Cape Resales’ markedly in the $50+ million territory.

Pretty woman MV GRAND DIVA!

Pretty lady named MV GRAND DIVA! (image source: http://www.shipspotting.com)

The Kamsarmax vessel MV „MINERAL PEARL (81,500 DWT, 2013, Guangzhou Longxue) has achieved $27 million, while almost comparable vessel MV „PRETTY MASTER(82,000 DWT, 2013, Zhejiang Judger S.B.) was sold at the relatively weak $24 million. Possibly the confused identity name of the vessel may explain the price differential? Panamax bulker MV „TRAVE (75,300 DWT, 2001, Hyundai Samho) was sold to Kassian Maritime in Greece at the rather strong $16.1 million, while MV „GRAND DIVA(75,600 DWT, 2007, Imabari SB) was sold at $21.5 million to Italian buyers (Augustea.) Older panamax MV „GLOBAL TRIUMPH (73,000 DWT, 1996, CSBC Kaohsiung) sold to a scrap related $8 million to Chinese buyers (Shandong Shagang.)

MV DIETRICH OLDENDORFF (image source: Oldendorff Carriers)

MV DIETRICH OLDENDORFF (image source: Oldendorff Carriers)

Ultramax vessels have been in high demand recently, and Greek buyers have acquired four SDARI 64 vessels under construction at Jinling Shipyard (Hull Nos: JLZ9120408-11) ordered by Asia Pacific Enterprises; all vessels are due to deliver in 2014 and price consideration has been at about $30.5 million per vessel. We understand also the Oldendorff Carriers has sold a Crown 63 deign ultramax vessel MV „DIETRICH OLDENDORFF” (63,500 DWT, 2013, C4x35T, Dayang S.B.) to Greek buyers at $31 million, with a market-indexed charter back to the sellers.

Supramax tonnage has also been active, with the MV „FAR EASTERN VENUS (53,500 DWT, 2006, C4x30T, Imabari S.B.) fetching $21 million, while also Japanese built MV „IKAN SERONG (56,000 DWT, 2006, C4x35T, Mitsui Ichihara) achieved excess $ 22 million.  Chinese built and with survey due shortly MV „ORIENT RISE (56,500 DWT, 2010, C4x30T, Qinghan Shipyard) achieved a rather weak $21.5 million from German buyers. Handymax vessels have also been active with sistership vessels MV „PACIFIC CHAMP and MV „PACIFIC ROYAL (43,000 DWT, 1996, C4x25T, H.H.I.) achieving $9 million each, while slightly older but comparable Japanese-built vessel MV „AZURE SKY(45,750 DWT, 1995, C4x30T, Imabari S.B.) achieved a shade below $9 million. Slightly newer and larger, still Japanese built MV „EILHARD SCHULTE (49,500 DWT, 1999, C4x25T, IHI) achieved $12.75 million from Greek buyers, while slightly older and smaller Japanese-built MV „TINA A (42,500 DWT, 1999, C4x30T, I.H.I) achieved $10.5 million by Danish buyers.

In the pure handysize market, MV „DANIELA BOLTEN (23,750, 2007, C4x30T, Shin Kochi H.I.) was sold at just below $15 million, while MV „CS SOLARIS (28,500 DWT, 2001, C4x30T, Imabari S.B.) was sold at a shade less $13 million. Large handy MV „CARL OLDENDORFF(31,500 DWT, 2002, C4x30, Saiki) was sold to undisclosed interests at $14.1 million.

Definitely lots of activity to report, and this is only in the dry bulk market. We understand that most of these sales, primarily of ‘older’ tonnage, are individual sales (as compared to en bloc ‘corporate’ sales reported in our previous report) by independent owners, signifying still strong activity in the market and expectations for a recovery. And, as not to be any doubts about the strong market recovery expected – sometime, somehow – about eighty-five (85) were ordered so far in 2014, about four (4) vessels per diem, which, surprisingly, is well below 2013 activity when on average, seven (7) vessels were getting ordered each and every single day of the year, Saturdays, Sundays and holidays included.

Long live the market recovery!

© 2013-2014 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.

S&P, Newbuilding and Demolition Update (December 15th, 2013)

Since our last market review two weeks ago, Nelson Mandela, a great human being and a great leader passed away in South Africa, but ‘selfie pictures’ by dignitaries attending the memorial service got as much attention as the man himself. In North Korea, a 67-year old ossified mummy was summarily executed on charges (among others) of ‘alcohol abuse’ and ‘womanizing’  (no wonder N Korea is not a shipping hub), while on reflection of a bull market in equities, MasterCard International (ticker: MA) has announced a 10-for-1 stock split.  Despite the bull market in equities (and commodities, and …), many companies are still hesitant to initiate stock splits – possibly reflecting on the QE-propelled bull market rather than consumption and confidence driven earnings, and thus, MasterCard’s split of about $800-share got attention; for shipping equities, reverse-stock-splits in order to meet the regulatory $1/share threshold are still more common than normal stock splits.

However, shipping’s proxy index, the Baltic Dry Index (BDI), has been having an exceptional time and closing at 2,330 on Friday, up approximately 28% in December, and 230% up year-to-date (BDI stood at 698 at the close of 2012.) The proverbial cat is out of the bag now, and more analysts are calling for a market recovery, basically on the main thesis that things are not as bad as they seem and the outstanding world orderbook has been declining over the last year as a percentage of the existing world fleet.  That may be the case, but institutional investors keep ordering (or supporting companies to order) more newbuildings; and the Chinese have announced these week some meaningful subsidies for still more newbuildings for Chinese-flagged tonnage.  Despite any doubting, we should be as festive as the season we are heading to, and note that presently, crude tanker spot freight rates – for ALL asset classes are higher than $30,000 pd, capesize vessels are making more than $40,000 pd, and in general most vessels – outside smaller containerships – trade on a cash positive basis; no a small achievement, especially having all markets moving higher on sync.

MV „CAPE PROVENCE” in laden condition (Image source: www.shipspotting.com)

MV „CAPE PROVENCE” in laden condition (Image source: http://www.shipspotting.com)

Cargill International has sold three capesize newbuilding contracts to the Scorpio Group (180,000 dwt, 2015, SWS) at a robust $57 million each, while simultaneously acquiring slightly older but much more competitively priced comparable tonnage: MV „SCOPE” (174,000 dwt, 2006, SWS) at $33 million, MV „PROUD” (178,000 dwt, 2009, SWS) at $42.5 million, and MV „CAPE PROVENCE” (177,000 dwt, 2005, Namura Shipbuilding) at $34 million, basically saving them $3 million per vessel per annum in depreciation.  We understand that the vessels acquired have short-term charter attached at below present market levels. The modern capesize MV „HOUHENG 3” (180,000 dwt, 2012, HHIC-Phil) was sold at about $50 million to Chinese interests, a rather soft price (compared to Cargill’s vessels), but the shipbuilder for the MV „HOUHENG 3” is not on the preferred list of many buyers. The older and out-of-class MV „GLORY ADVANCE” (171,000 dwt, IHI, 1996) was sold at auction at a scrap related price of $10 million to Chinese buyers, while the smaller and slightly older MV „PACIFIC CHALLENGER” (149,000 dwt, Dalian, 1995) managed a better pricing at $12 million with six-month forward delivery to her buyers, Winning Shipping in China.

MV „DYNA CRANE” (Image source: www.shipspotting)

MV „DYNA CRANE” (Image source: http://www.shipspotting)

On the panamax dry bulk front, the vessel MV „MARINE PROSPERITY” (73,500 dwt, Sumitomo, 2001) achieved a very respectable $16.5 million from buyers of Swiss Marine, while the NYK-controlled, gearless MV „SHIRANE” (77,500 dwt, Mitsui SB, 2000) obtained a solid $15.5 million from Indonesian interests. [This is the second dry bulk vessel disposed by NYK of late, as we recently reported the sale of MV „HOKURIKU MARU” (94,250 dwt, Mitsubishi HI, 1995) at $8.9 million to Chinese buyers]. As a general comment, panamax bulkers are not behaving greatly as an asset class in the last year, as their market seems to get cannibalized from bigger vessels (kamsarmax, post-panamax, etc) and smaller vessels (ultramax, etc) and there is the general belief that once the expanded Panama Canal opens, ‘panamaxes’ will be one of the worst hit asset classes. The Supramax market has been more active in general, with MV „DYNA CRANE” (55,750 dwt, Mitsui SB, 2006) achieving a solid price of $21.5 million to Olympic Shipping, which sale compares well with the sale in last month of MV „MEDI SHANGHAI” (56,000 dwt, Mitsui SB, C4x30T, 2005) at $19.5 million. The slightly older MV „ACS DIAMOND” (53,250 dwt, New Century, C4x35T, 2005) achieved a lowly $15 million. Lauritzen Bulkers has also disposed of MV „TOUCAN BULKER” and sistership vessel MV „THUNDERBIRD BULKER” (58,000 dwt, Tsuneishi Cebu, C4x30T, 2011) at about $30 million each to Swiss Atlantique.

MV „TOUCAN BULKER” (Image source: www.shipspotting.com)

MV „TOUCAN BULKER” (Image source: http://www.shipspotting.com)

The handysize / ‘handymax’ markets have also been busy, with MV „NEW RAINBOW” (42,740 dwt, IHI, C4x30T, 1998) achieving about $11.25 million, while MV „AZURE SKY” (45,750 dwt, Hashihama, 1995) a comparable price of about $8.5 million. In the handysize proper market, MV „TUNA 7” (32,250 dwt, Saiki HI, C4x30T, 1999) obtained a very respectable price in excess of $11 million, while same-builder but smaller vessel MV „TAO TRIUMPH” (23,750 dwt, Saiki HI, C4x30T, 1997) obtained $7 million. It was a better deal for the buyers of MV „SUPER ADVENTURE” (28,750 dwt, Tsuneishi Zosen, C4x30T, 1996) at $8.2 million, while the Turkish controlled MV „HANJI INSTANBUL” (27,500 dwt, Hanjin HI, C4x30T, 1997) obtained $9 million. MV „RABEE” (28,750, C4x30T, 1998) was sold to Russian buyers at slightly less than $10 million. Wisdom Marine has allegedly flipping two handysize newbuilding contracts (34,000 dwt, Namura, C4x30T, 2016) at $25 million each to unidentified buyers, while two prompt resales from Jiangmen Nanyang (39,000 dwt, Jiangmen Nanyang, C4x30T) to European buyers fetched $23 million each. One can tell right away that this market appreciates quality, which is reflected in pricing.

The tanker market overall has been fairly calm on the sale & purchase front, as people are still looking at charter rates in disbelief: while VLCC rates have been improving for more than a month now, since our last weekly update Suezmax and Aframax rates jumped from less than $10,000 per diem (which has been more or less the year average) to above $30,000 per diem. Oh, the miracles of the season! Ridgbury Tankers in the US have confirmed the acquisition of MV „RIO GENOA” (160,000 dwt, Universal SB, 2005) at $35.5 million, and Indonesian owners disposed of MT „GAS BALI” (5,000 cbm, Shitanoe Zosen, Pressurized/Butane, 2007) to clients of Epic Gas at $13.5 million.

The demolition market has been rather subdued (inversely correlated to freight rates,) however, recently announced subsidies in China this past week may have greater implication for the market overall than so far noted. You can read our commentary on the announcement by following this link!

The markets definitely have been busy, no doubt, for freight and sale & purchase; one has to make hay while the sun shines as they say, or ‘hoist one’s sails when the wind is fair’ as we people in shipping ought to say. Market activity is good and always welcome, but one also has to take into consideration that in about a week, the market will be ‘closed’ for a month; thus, charterers and everyone else are trying to clear their desks before go on leave, and some of this activity may very well end up being just seasonal.

© 2013 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.

A Ship-brokerage ‘App’ Soon?

Ever since Steve Job’s iPad tablet brilliantly defined a market segment that didn’t exist before (or at least a customer need/want that had not been decently exquisitely addressed before from a technological point), many companies have been offering their products as an ‘app’ version, from publishers to messaging services to providing updates on traffic conditions. Why then not a ‘ship brokerage app’ to provide both info on commercial vessels and mainly allow for an ‘exchange’ for buyers and sellers to buy vessels?

Why this has not been done so far? Why not eliminate the ‘hassle’ of dealing with (and cutting out) shipbrokers and save on the broker commissions? About one thousand vessels were sold in the secondary market in 2012 having a collective value of $13 billion and generating nominally $130 million in shipbrokerage commissions (again, nominally speaking, and assuming just 1% commission per transaction). There were also about 1,500 orders for newbuildings and another 1,350 vessels sales in the demolition market in 2012. Obviously, a platform that could streamline the sale & purchase process could provide significant savings to the buyers / sellers, and also make the market more efficient from an economic point of view. Why not then?

Moving the shipbrokerage business online has been tried before, by several parties actually, in the frenzy days of ‘dot com’, and all those efforts failed miserably; given such poor track record, any attempt to try again with an ‘app’ platform this time would make many a prospect app developers twice hesitant.

What’s the point?

First, shipbrokerage, like many aspects of shipping, is an extremely personable business and depends heavily on relationships, personal interaction and trust. The average price of a vessel sold in 2012 was about $13 million, which especially in a down market like the one we are experiencing, is a sizeable chunk of money for a piece of equipment/property. What’s the best price each time, ‘price discovery’ as economists like to say, is a trial-and-error attempt, each time there is a transaction, no matter how recent the ‘last done’ has been and how ‘commonplace’ the vessel is; vessels, unlike a bottle of Coke – used as a ‘typical’ transaction in a previous post – do not come with an official price tag.  The seller, within the prevailing market conditions, is trying to maximize the price they can get the buyer(s) to pay, and vice versa. Even small slips during the negotiations on pricing can result in several hundred thousand dollars ‘left on the table’; and $130,000 is just 1% of the price of last year’s average price, but still it pays a captain payroll for a year from the company’s operating budget. Negotiating the price is always a sensitive matter and takes skill and expertise; sometimes there is only one buyer, and a sense of urgency has to be created in order to put pressure on that lonely buyer to warm up and pay up; maybe keep marketing the vessel and ‘threaten’ to bring more buyers to the ‘bidding’; sometimes, when there are no other buyers around, some ‘bluffing’ may do the trick; sometimes, the seller can give up on few points that have little value to the seller but real value to the buyer (allow crew onboard a bit longer, changing the jurisdiction of the sale by delivering the vessel to a different port, etc). Buyers are not known to put their best number forward for the purchase of a vessel, and this ‘massaging’ to get a higher price gets a masterful broker to get it done by personal interaction.

Norman Rockwell's 1951 painting Saying Grace sold for $46 million

Norman Rockwell’s 1951 painting Saying Grace sold for $46 million

Sotheby’s and Christie’s and other auction houses in fine art (mainly) still keep their business model in the physical market with premier real estate locations and high overhead, luxurious style; of course it works best for the auctioneer’s to create the right image for their services, but still it’s difficult envisioning international buyers bidding online for a $200 million Monet masterpiece (or a $46 million Norman Rockwell sold last week.) Buyers have to be ‘put under pressure’ for time, by the market, and the competition, being reminded that this may be a once-in-a-lifetime opportunity (after all, Monet’s do not come to the market often, and neither good vessels at right prices – which also builds up on their value), and the message and feedback while the transaction is developing has to be passed on to buyers very promptly and clearly – which is actually one of the real services brokers of all types provide. eBay’s sale model may work well for mostly inexpensive everyday life stuff, but expensive objects usually are much more ‘labor intensive’ during their transacting.

Then, there is the cause and reasoning for which shipowners may sell their vessels: quiet often, most sellers – for good reasons, we reckon – do not put their vessels on the market for sale; they may not be active or determined sellers, they may not be sellers at all actually, or they may do not want to pass the wrong message to the market (by definition, something up for sale is negotiable on pricing and everything other respect); on the other hand, they may be sellers if the price is right, or the terms of the sale are enticing (let’s say upon termination of a charter sometime in the future, etc). The brinkmanship of good brokers is to ‘dig up’ transactions where none exist by convincing shipowners to be sellers or buyers, to bring them together and to get them to agree on pricing and the terms of a sale. For a shipowner who is looking for a vessel to buy, contacting their preferred shipbroker may be the only way to source vessels for now; what would be the alternative, to do a google search? But, on this, a bit later.

Besides the price, and negotiating on price, usually vessels are not uniformed assets despite a certain degree of standardization; they vary in many respects from the day they were conceived by engineers on a drawing board as newbuildings, to the custom modifications of an attentive shipowner, to the supervision and special care they got during construction, to the maintenance they were privileged to during their trading lives, etc No two vessels are alike, and thus, during the sale, a lot of technical information and records have to be passed between buyers and sellers, physical inspections have to be arranged, a lot of questions have to be answered, and many more exchanges have to take place in order to reach some sort of information symmetry between buyers and sellers. How a seller would otherwise share such info, some of which may be proprietary? Definitely, not by listing it on Craigslist; possibly by setting up ‘secured rooms’ or databases digitally that would be accessed by password, which is a costly and laborious process (that would undermine any cost savings by sidelining the shipbroker.)

Selling Ships on the Rocks - MV „SEALAND EXPRESS”

Selling Ships on the Rocks – MV „SEALAND EXPRESS”

To the frustration of financial institutions as buyers of shipping assets, a lot of ‘horse trading’ and emails have to be exchanged even for a sale to get any traction. And, then again, once both buyer and seller have agreed on the main terms, still a lot can happen to have everyone associated with the transaction to shift in overdrive; the market may be changing, whether for asset pricing or freight, to favor one side and motivate the other to find ways to walk away from the agreement; the financials of the seller or the buyer may be changing and make the transaction more complicated. Or even, new information comes to the market, or to the attention of the buyer or seller. One of the most memorable experiences in our shipping career has been the discovery, once agreement of main terms had been reached for the sale of a multi-vessel package between a major US-based leasing company to a private Greek buyer a few years ago, that one of the vessels, several years before the transaction, had run aground on soft sand in South Africa; while the damages from the grounding per se were minimal, the grounded vessel shifted with the tide and hit a centuries-old canon buried in the sand, which cannon penetrated the hull causing some shaft damage. It took many many long hours on the phone to get all the issues resolved and salvage the transaction – which past damages were reflected on vessel records and affected insurance premiums, and the transaction closed indeed as planned (and delivering exceptional value to our client.) If this brokerage transaction was taking place through an ‘app’, there is no that would have closed, since all the ‘soft shoe-ing’ took place once agreement of main terms had been reached.

A shipbroker, besides brokering the ‘asset’, actually provides transaction brokerage by negotiating the asset and also the terms relating to the sale and exchange of ownership and providing consulting work for having the sale conclude successfully. And to close a transaction with many moving parts in an ever moving market, transaction brokerage often means managing the transaction and the principals of the transaction, too. As we saw in previous article about the main terms of a Memorandum of Agreement based on the Norwegian Sale Form (NSF 93), there are many terms to be agreed upon for the sale, a lot of details to be tended to, and most of these terms and details are not always easily quantifiable and invariably expensive in properly settling them. Thus, transaction brokerage in shipping is one of the reasons that still maintains a ‘moat’ around the profession. But as in every other industry, the digital age is an indiscriminant industry disruptor; possibly, sooner or later, there may be a new mouse trap based on an ‘app’. Who would ever thought that commercial loans, annuities and insurance policies could be sold in the secondary market not only through brokers but by establishing an digital exchange and have the documentation and paperwork streamlined and securely posted online for buyers to see and evaluate and eventually bid high pricing? There is no need for googling for loans and loan terms, but there is an Exchange for it! Or, there may be an ‘app’ for brokering vessels!

Any suggestion for a lucky name of such an ‘app’?

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