Summers are usually the season of the year to be leisurely enjoyed at the beach and under the sun, especially for those in shipping who during the rest of the year are trying to make a living from an office far from the sea and the ‘subject matter’ of their trade. Business in shipping, like in many other industries, during the summer usually slows down meaningfully reflecting the people ‘missed in leisure’ and also the fact that people staying back in the office are either too junior to originate a position or otherwise opt not ‘rock the boat’ in any way at such time, unless it’s a real boat at the beach.
Sometimes however the boat rocks itself in the middle of the summer for the reason that no seasoned hands are at the helm when a wave breaks and light trading volumes amplify any market movements. In finance, it’s called the ‘summer curse’ as many ‘tragedies’ gestated or came to full fruition during summertime, from the blow up of the mega hedge fund Long-Term Capital Management (LTCM) and the related Russian and financial crises in the summer of 1998, to the mortgage securities and money markets freeze in the summer of 2007 which was the ‘dress rehearsal’ for Fannie Mae’s tremble in the summer of 2008 that precipitated the collapse of Lehman brothers in early September in the same year. We do not wish to be reminders of bad events that took place in the past. Far from us such intent.
The summer of 2013 can go down in history as rather robust as far as summer business is concerned. There have been about 200 transactions for the Sale and Purchase (S&P) in the second-hand market between the beginning of June till the end of August 2013, according to data compiled by Karatzas Marine Advisors & Co. In the same period last year, there have been about 170 transactions, an increase in volume of about 17% y-o-y. The data were collected from market sources, private conversations and interviews, and publicly available info, and pertain to only five major asset classes: dry bulk vessels (including capes, iron ore, multipurpose, general cargo, open hatch, etc), chemical and product tankers (‘pumproom design’ and IMO-rated), gas carriers (including LPG, LNG, ethylene, etc), crude tankers and containerships. Vessels in several markets were excluded from our calculations such as offshore assets, passenger, Ro-Ro vessels, etc
As one may suspect, the dry bulk market has been the most active with about 50% market share both for the summer of 2012 and 2013; however, in a surprising turn, August 2013 has been a very active month with twice as much volume as in June or July 2013. Obviously some buyers were not very diligent about enjoying their vacation time!
In the demolition market, on average 60 vessels (from the categories outlined above) for each of the three months were sold for demolition. Again, dry bulk vessels have been domineering the market with about 65% market share. We suspect that some of demolition sales reported in August 2013 may yet have to reflect the full reality of the market, the precipitous drop of the Indian Rupee (due to ‘de-coupling’ of the emerging markets and the concerns about India’s growing deficit).
The summer of 2012 had been busier in terms of demolition as about 20% more vessels were scrapped then than same period this year. This may be explained by the fact that freight rates this summer have been holding better than last year, especially for bulkers, and also, last summer, besides strikes and labor issues at the breakers’ yards, ‘the coast was clear’ from major problems like drastic currency fluctuations.
However, if the summer of 2013 was exceptionally good in any particular sector, that sector has to be newbuildings, as per graph above. About 280 newbuilding contracts were reportedly signed in these three months, 100 more vessels than the vessels scrapped in the same period. In a nutshell, three vessels per diem were contracted to enter the world fleet in the last three months than were exiting the market through scrapping. Has anyone mentioned that there is shipping crisis? One would never know from the pace of newbuildings!
The summer of 2012 was not exactly dead quiet on newbuildings, but at least in the summer of last year, about 50 vessels, on a net basis, left the world fleet than were contracted as newbuildings. If there is a ray of hope in terms of newbuilding enthusiasm, one may find solace that about 40 gas carriers were ordered in the summer of 2013, versus ten such tankers in the same period last year. Gas carriers overall seem as the most balanced market sector so far in terms of tonnage capacity and demand, and the sector looks better prepared to absorb such tonnage compared to any other sector.
© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.
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