To be trite, every cloud has a silver lining, and the stormy shipping market crisis' shining beacon appears to be strong investment opportunities in secondhand ships. In its latest report, "Secondhand Ships: Investment Potential and Value for Money," Drewry's argues that "adversity provides opportunity... therefore, acquisitions made now could prove to be bargains." Drewry believes that 1999 and 2000 should be interesting and active years for the secondhand ship market.
Drewry's analysis of market potential through to 2003 in the mainstream markets concludes that the highest investment returns could come from Panamax and Handymax bulk carriers but most classes of bulk carriers and tankers could
cross a 10 percent IRR "hurdle rate" at some point over the period - the crucial factor being timing.
Although newbuild prices have remained in check for years, the shipping industry maxim that there is no money to be made in newbuilds still seems pervasive. Money is often made, however, in the use of secondhand ships, and the secondhand market has become volatile and, currently, there seems to be no shortage of potential buyers when a vessel on offer is regarded as "quality tonnage."
The ability to realize the potential of these acquisitions will depend on the pace and extent of market recovery over the next two to four years. For the moment, however, Drewry feels that the key views are those of potential sellers - do they want to/are they able to tough it out? Will banks put pressure on owners to liquidate assets? Another maxim in shipping circles is that the decision to sell is often far harder to take than the decision to buy. Another key aspect taxing minds in the marketplace - and especially potential buyers - is, what is a ship worth? As "Secondhand Ships" points out, a lot depends on who is asking the question and why.
"Secondhand Ships," sees other issues that are changing the marketplace. While much of the practicality of buying and selling ships follows established, "tried and trusted" methods and procedures, the world is changing and new generations may want to embrace new methods - even if the old and arcane retain many merits.
The changing balance in fleet owner nationalities may force the adoption of local practices and require centers of broking to relocate. Equally, the advancements, opportunities and challenges posed by the IT revolution could also see the conduct of S&P transactions undergoing reform in the new millennium.
Most observers of the secondhand market have cognitive impressions of buyer and seller trends, particularly by nationality. However, this is not always borne out by the facts. Drewry's research has found that, although buyer patterns in the mainstream dry bulk and tanker sectors show an expected Greek dominance, seller patterns do not present a particularly clear cut picture. The mainstream markets are consolidating and Drewry asks the question whether a mixed selling pattern alongside a better-defined buying pattern is a sign of this.