For those with strong balance sheets and sound corporate banking relationships, it is tempting to order new ships when newbuilding prices are well off their highs and look set to climb again in the months ahead. But the business logic seems unfathomable at a time when there are already too many ships on order, with many owners seeking to defer deliveries, switch their original contracts or bale out completely.

Today, the orderbook comprises well over a third of the existing fleet and most of it will deliver within the next 30 months. Clarkson statistics reveal that the contracted tankers of more than 10,000 dwt equate to 27.5% of today’s fleet, container ships almost 26% and bulkers a daunting 56%. In the specialised sectors, offshore vessels equivalent to more than a fifth of the existing fleet have been contracted and the car carrier fleet is due to grow sharply, with around a quarter of existing capacity still waiting to deliver.

These numbers don’t seem to deter some brave shipowners, it would seem. According to a recent Clarkson commentary, there has been a flurry of new orders recently, “despite the flaky state of the world economy”, with a total of 61m dwt of ships contracted so far this year, including nearly 16m dwt of tankers, 41m dwt of bulk carriers and 2.4m dwt of container ships.

Part of the reason for the apparent confidence in the dry bulk sector – apart from the relatively buoyant market – is the gap between the cost of new ships and secondhand prices. In the 1980s, Clarksons estimates, the cost of a five-year old Panamax bulker was around 58% of its new price while an Aframax could be picked up for 55%. Assuming that ships have an average life of 20 years – itself a conservative assumption – this meant that secondhand vessels could be bought for little more than half of their initial cost but with three quarters of their working lives left. A bargain, it would seem.

A decade later, the figures had adjusted to reflect a more balanced demand supply backdrop. The five-year-old price averaged about 74% of the new ship price, roughly as one would expect. However, in the 2000s, “there was another step up to 91% for the Aframax and 99% for the Panamax bulker,” Clarkson says. “The market was paying well over the odds for a prompt ship to cash in on the exceptional rates available.” Today, there is a distinct gap between bulk carriers and tankers. A five-year-old Panamax typically costs about 110% of its new price whilst the Aframax is more in line, at 78%.

Bulk carrier owner strategists, therefore, presumably argue that it makes sense to have a cheaper new ship in two years time when the market may be firmer, rather than a secondhand one today when uncertainty still surrounds the future of the world economy and therefore the health of shipping. However, the converse could well turn out to be the case: since there are so many bulk carriers on order and due to deliver over the next 24 months, it might be far wiser to buy a secondhand bulker today and make the most of the market in the short run.

Meanwhile gloomy predictions of laid-up tankers and a worsening global economy are an unwelcome greeting for tanker owners as they return from traditional summer breaks. The seasonal fall in oil shipments and a huge delivery volume are far outstripping any demand growth. As a result, VLCC rates are at or below breakeven and analysts predict that if they dip further, owners will opt for lay-up. Some units are already idling, as their owners shun today’s rates as unacceptable. The wisdom of locking tonnage into medium- or long-term charters in past months, perhaps at rates that were significantly discounted from spot levels at the time, once again appears to be a sound strategy.

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Services Ltd.