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Pandemic impact behind secondhand vessel price increase

Market volatility in the wake of the pandemic has been big factor in the recent S&P surge, but conversely, travel restrictions are making it harder to get deals done, says Watson Farley & Williams partner George Macheras

‘The days when owners would buy ships fresh from the yards, keep them for many years and trade them as part of the business are certainly reduced. People are now seeing the benefits of asset play in a more emphatic way,’ according to Macheras

MARKET volatility in the wake of the pandemic has been a leading factor in the increase in secondhand vessel prices, according to a lawyer with extensive sales and purchase experience.

The impact of travel restrictions can make it harder to get deals done, causing delays that can lead to financial and legal problems, according to Watson Farley & Williams partner George Macheras.

Mr Macheras was speaking before publication of data from Clarksons and the Baltic, which have underlined the strength of the S&P market for boxships and bulkers this year.

Figures from the leading shipbroker show that over 300 ships comprising in excess of 1m teu in aggregate were sold in the year to the end of August, just 100,000 teu behind 2017’s previous high.

At the current run-rate, over 6% of boxship fleet capacity could change hands in 2021, said Clarksons.

The most recent three quarters have set records in terms of teu capacity sold. Since the start of the fourth quarter of 2020 investment in secondhand containership vessels has topped $8.9bn.

Meanwhile, bulkers are fetching twice what they did at the beginning of 2021, with buyer interest stoked by predictions of high earnings for the next two quarters at least.

The Baltic sales and purchase assessments show that as of the end of last month, secondhand prices for a five-year-old capesize are up by 38.1% year on year to $27.6m, while panamax prices have risen 41.4% to $30m and handysize prices are up 52% to $22.3m.

Pick-ups of these magnitudes were always on the cards as a result of a misalignment of supply and demand, said Mr Macheras. The pandemic has made the market even more volatile

Older ships, particular in the tanker sector and the dry bulk sector, have proved to be profitable, but demand was immediate.

“It didn’t make any sense, even for bigger players, to look into newbuildings. It was a perfectly viable business opportunity to buy and sell ships on an asset play basis,’’ he said.

“The days when owners would buy ships fresh from the yards, keep them for many years and trade them as part of the business are certainly reduced. People are now seeing the benefits of asset play in a more emphatic way.”

So long as the deal is on the classic ‘willing buyer, willing seller’ basis, secondhand S&P transactions can be concluded in short order, with delays certainly nothing like those experienced when buying newbuildings.

“If you’ve found a buyer who’s willing to buy a ship and you’ve found a seller who’s willing to sell a ship, I’d say you can get it done in a month or six weeks or so,” said Mr Macheras.

However, restrictions associated with the pandemic have sometimes made transactions more complex and thus more time-consuming.

In the worst instances, the delays can make what is at bottom an operational problem into a financial problem, if financing ceases to be available, or even a legal or contractual problem.

Mr Macheras expects S&P markets to remain strong for at least the rest of year.

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