Probably one of the greatest temptations and charms of the shipping industry has been its extremely volatile nature and mercurial reflections of the underlying economics of the trading cargoes and their own market dynamics thereof. In statistics, volatility is expressed as standard deviation, but it’s hard expressing shipping in terms of standard deviations when in the last decade, in the VLCC and capesize markets – allegedly two of the most volatile sub-sectors on the industry, spot rates have ranged from zero to more than $200,000 pd, with an average rate below $50,000 pd, depending on the time window used for the calculations.
Fortunes have been made (and lost) in shipping for those who were perspicacious enough or audacious enough or lucky enough to make the right bets at the right time, usually bets on riding the wave of a strategic shift in the markets. Probably the most famous examples have been the success of the ‘Golden Greeks’ Aristotle Onassis and Stavros Niarchos building ever bigger tankers accommodating the huge discoveries of crude oil in Middle East and the rapidly improving standards of the middle class in the US and its exponential energy demands (think of the 5,000 cc Cadillacs, etc)
Besides the changing dynamics of demand for tonnage that can cause big waves in shipping, sometimes structural shifts in tonnage supply can have as much impact on successfully making bets.
While we were re-reading recently ‘
Last of the Cape Horners', a book based on firsthand accounts of seamen sailing on the last voyages of full rigged vessels around the Cape Horn, south of the Land of Fire and through the Drake Passage, we were reminded that every so often shifts in tonnage supply have also been a great wealth creator (or destroyer) in shipping.
In the middle of the 19th century, the ‘tea trade’ was the golden age of the clipper vessels, usually three-masted, square-rigged vessels that had relatively narrow beam for their length
and relatively small cargo capacity for their size and could ‘clip’ the waves. The clippers were the vessels of preference for the ‘grain race’ and ‘opium war’ trades with the East Indies, China, Australia and the colonies (the „Cutty Sark” at the National Maritime Museum in Greenwich, UK is an eminent sample of such vessels). The introduction of steam and the steamship of the industrial revolution forced originally the evolution and building of barques and windjammers (steel-hulled vessels with five or more masts and squared rigs) where cargo capacity maximization was more important than speed in an effort to compete with steamships. By the first decades of the 20th century it became obvious that the steamship was the way of the future. The technical obsolesce for sailing ships forced the sale of many of those vessels at scrap-related prices to ‘poor’ then Scandinavian countries (mainly, Norway and Finland) with maritime tradition; the windjammer „Parma” was sold in 1932 at scrap related pricing of $10,000 to Finnish buyers, but she made for them $40,000 profit in her first year of ownership.
Fast forward several decades later, and the introduction of double-hull tankers forced many owners to sell their fleets of single-hull tonnage; the move was pronounced by the publicly traded owners who wanted to present early to Wall Street their environmental credentials, about fifteen years ago, and well before the ‘drop dead’ deadline of 2010. Most of these vessels were sold at scrap related prices, and their buyers (mostly independent Greek, Norwegian and Asian shipowners) made a killing when the market subsequently took off and there was little differentiation between single- and double-hull freight rates. The technical obsolesce of the single-hull tonnage was the fortune creator of many a modern shipping fortunes. Again, the successful bet had been on buying good quality, fairly modern vessels with the ‘stigma’ of the single-hull, and not primarily buying the brand-new, double-hull vessels at elevated prices (elevated due to increased demand as the ‘herd’ shift was taking on, and also improvements in the freight rate market).
Since the collapse of freight rates in 2008, the mantra of the shipping industry (at least a section of it) has been about ‘eco design’ vessels and an ensuing program of heavy newbuilding (despite the continuous malaise of the markets). In our humble opinion, many of these newbuilding orders are not justified, and the main effect will be keeping the markets oversupplied for years to come; although this will eventually force out of the market ‘bad’ vessels (and there are plenty of them, even some modern of them from ‘greenfield’ yards), it will keep vessel prices depressed indiscriminately even for modern, quality vessels. There will be sharp and astute vessel operators and managers who would make a fortune from such vessels.
The barque „Parma” in 1931 established the fastest sailing time by a sailing ship, reaching Falmouth, Cornwall, England from Port Victoria in South Australia in just 83 days when the ‘average’ time was about 120 days. Between her sleek hull and the favorable weather, the vessel had spread its full suit of sails for most of the voyage, including the royals (light, usually fair weather sails set high on mast of square-riggers). It was indeed a sailing deserving ‘royal’ appreciation in its own feat but also as a herald of her remaining trading life…
© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.
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