To buy or not to buy?
We might have to wait until next year to get answers to the current shipyard capacity conundrum
Next year, softening newbuild prices will make ordering new ships more attractive than buying secondhand tonnage across many sectors including dry bulk, according to Dr Adam Kent, director of Maritime Strategies International (MSI).

Speaking at the 8th Annual London Ship Finance Forum, Dr Kent said that while it still makes sense to buy secondhand in 2017 that picture will change from 2018: “We are expecting newbuild prices to fall off a little bit more in 2018. Actually, in 2018, it becomes a more compelling case to start ordering newbuild vessels than it does secondhand tonnage across a wide range of sectors.”
As the shipbuilding capacity still exists, there is also an expectation that going forward the market will experience shorter, sharper construction cycles because capacity is no longer a limiting factor in accessing tonnage quickly. “Shipyard capacity is elastic, and it will rebound quickly depending on market conditions and newbuilding prices,” says Dr Kent.
The common view
However, Dr Kent’s opinion on when to resume ordering is more optimistic than that held by other panellists at the forum. One panel, made up of shipowners, did not show much interest in newbuilds at all, given both the volatile state of the market and the fact that banks are not lending.
“In 2018, it becomes a more compelling case to start ordering newbuild vessels than it does secondhand tonnage across a wide range of sectors.”
Asked if it was time to just suck it up, get used to the rates and start shopping, Kathleen Haines, treasurer and chief executive of Heidmar Inc, said: “We do see owners looking a little more anxious to jump in because they’ve gone for several years now of not buying ships. And I think they’re frustrated. A couple of years have gone by, their fleets are getting older, they need to be renewed or at least refreshed.”
Ben Kim, head of KMARIN’s portfolio management team, said: “Brokers are trying to push us to buy more newbuildings but we are pretty cautious about this as we already suffered a big loss. We ordered a vessel in 2011 and although it is only four to five years old it is already at a 50% discount of its book value.”
Leon Pattitsas, founder and chief executive of Atlas Maritime, echoed Mr Kim, saying that Atlas Maritime would “stay away from newbuildings”, adding that the company recently bought a secondhand ship as “we think there is more value there”.
Marco Fiori, chief executive of d’Amico Tankers, agreed with the no newbuilding stance. “I think shipping companies are often their own worst enemies by overbuilding,” he said. “This time I think there is also a consolidation of shipyards that is happening, at least in our sector. There is a lot of stress in the market.
“In the past there was a correlation between rates and prices especially in the secondhand market. However, when you saw rates growing in 2015, secondhand values didn’t follow up so you were left wondering what was going to give, would the rates come down or the prices go up? The rates came down in 2016. Now I think we’re starting a cycle again where the rates will be picking up and values will probably start coming up.
“We really need a strong secondhand market. If we don’t have a strong secondhand market, it’s problematic.”
Excess yard capacity
Excess shipyard capacity is a problem currently facing all sectors, with regular reports of yards having problems, entering bankruptcy or having to restructure. However, they are aware that only around 10% of the main sectors are over 20 years old so the immediate scrapping candidates are few and far between. This has given them pause for thought and as a result shipyards are starting to rethink and revaluate their models going forward, says Dr Kent.
For example, Southeast Asian yards are now following China’s belief that shipbuilding is a vital stepping stone on broader economic development, while China’s yards are following Korea’s lead and building up super yards for big, multinational conglomerates to get into the specialist sector, where higher added-value profit can be made. Then, Korean yards are looking to Japan’s model of specialising on one or two very specific, high value products to make a margin.
Dr Kent also predicts that China will be relatively successful in its diversification effectively away from bulk carriers: “Looking at MSI’s view of contracting by sector, by shipyard, concentrating on China, we can see in 2016, the majority of orders in China were for dry bulk vessels,” he says. “By 2019, we think that product mix will have moved a lot more towards tankers and containerships with an increasing number of things like gas tankers also in the mix.”