Leading shipbrokers Clarksons has released research data that pinpoints a remarkable upturn in sales of second-hand containerships year to date. Company analysts report optimism for the near-term outlook, suggesting vessel prices have yet to peak.
Describing the magnitude of this upturn, Martin Rowe, managing director at maritime brokerage, Clarksons Platou Asia Limited, told Forward with Toll, “So far in 2017, Clarksons Research data reveals a 117 percent increase in second-hand sales in twenty-foot equivalent (TEU) slot terms and an 89 percent increase in number of vessels sold compared to same period in 2016.”
Present trends suggest the yearly growth in boxship sales is on course for a six percent uplift, compared to an average of three percent for the period 2000-2016.
Rowe believes there are several contributory factors behind this spectacular uplift in container ship sales volumes. He pointed out that prices had softened during the early part of 2016, but the collapse of the Korean shipping line Hanjin had major implications for the pricing structure in the market for ships.
He explained, “Ship prices nosedived in the wake of the demise of Hanjin – a fire sale situation developed as the controlling institutions sought to offload dozens of high-grade assets simultaneously. It was more than the already weakened Sales & Purchase (S&P) market could absorb, especially in view of the fact that ‘conventional ship finance’ was scarce during the period in question.”
This combination of scarce funding and a defunct shipping line flooding the market with ships exerted downward pressure on prices, as Rowe clarified, “The only way for the second-hand container S&P market to continue to function was to see prices fall, so that the handful of cash buyers who were still there were able to snap up assets at prices sometimes as low as 33 cents on the dollar.”
Sales of Korean assets have contributed almost one-quarter of the upturn in containership volumes so far during 2017, as reported by the Shipping Gazette.
One consequence of the plentiful supply of cheap second-hand containerships is that it has facilitated the growth of start-up liners services, such as the South Korean carrier SM Line, as reported in The Loadstar. Bonuses have been softened fuel costs and an upturn in freight rates. Drewry noted that many of these containerships had been put on the market by banks that had taken out a mortgage on the vessel and that the glut of vessels presented opportunities for incomers to penetrate the container shipping sector.
Another factor driving containership sales is the opening of the new Panama Canal locks, which has led to old panamaxes becoming surplus to requirements, reported the Shipping Gazette.
Market prices bottomed out as asset players woke up to the fact that it was the best time in 20 years to buy containerships, insisted Rowe. Furthermore, the growing maturity of the containership sector has released finance through a more liquid market, as stated in the Shipping Gazette.
Rowe went on, “This meant that values turned around quite rapidly as the bulk of the Hanjin fleet got sold. That, combined with strong demand from the Chinese domestic trades for containerships, meant that second-hand sales of classic panamax size and upwards have been enjoying something of a renaissance.”
Rowe is reasonably upbeat about market demand over the short term, though he cautioned that the ‘low hanging fruit’ of super cheap vessels has largely gone. The uplift in freight rates will also soften growth in sales by sellers who are urgent to dump distressed assets, he added. One possible cloud on the horizon is a prolonged upturn in newbuild activity, noting that six of the largest ships ever built could hit the market by year end 2018.
He stressed, “There are still a number of large hungry shipyards all keen to peddle new designs at attractive prices and plenty of leasing companies willing to write cheques for the financing of new shipbuilding.”
Rowe then pointed out that for second-hand vessels financing can still be challenging, especially sourcing suitable debt finance.