An improvement in fundamentals rather than an influx of new capital is behind the rise in boxship asset values, writes James Frew from Maritime Strategies International.
How much is a large containership worth and what drives this, is a vexed question, but one where we are edging closer to an answer, despite some confusing and contradictory estimates doing the rounds.
The recently-reported sale of six ships, including two of 13,092 teu, by Commerzbank to Maersk for an en bloc figure close to $280m does the most to shed light on this. Four of the ships in the deal had capacities of between 4,000 to 5,000 teu and as such are relatively uncontroversial. With the total value of the smaller vessels coming to around $112m, this leaves in the region of $168m for the two 13,092 teu units.
This price of $84m per vessel is spot on with MSI’s valuation of an equivalent asset, based on a non-eco design but with a 10% fuel saving relative to pre-2010 built tonnage, but more importantly shoots down some of the more outlandish valuation estimates.
The lower estimate, which was debunked, was an algorithmic stab, presumably based on the sales of smaller ships, which reportedly came in at $58m per vessel on the day before the transaction.
The more serious outlier was that provided by the December 2016 sale of three Peter Doehle-managed vessels of a similar size which was reported at $130m apiece, although we would maintain that this was part of a wider agreement between HSH Nordbank and Maersk.
The disparity in price estimates for these largest assets is just a manifestation of wider misconceptions around boxship pricing.
For example, some analysts have argued that the recent uptick in asset values is associated with the influx of private money into the sector (with much of it being channelled through MPC Containerships). This is difficult to justify, particularly since the sharpest increases in the last 12 months have been for vessel sizes where new sources of financing have been scarce – the old panamax and post-panamax size classes.
Instead, we believe that the improved fundamentals are more responsible for pricing shifts. Of course there is a positive correlation between an increase in investment flowing into a sector and increasing prices, but we believe that much of the commentary has the causality the wrong way round. Instead of increasing investment flows driving asset values, better fundamentals are driving asset values up whilst simultaneously attracting new investment.
Another way to look at the relative pricing is how second-hand prices compare to net replacement value (in other words, comparing the asset value to the newbuilding price, where both are expressed net of scrap).
This is MSI’s preferred approach for comparing prices across size classes, stripping out the short-term impact of movements in newbuilding and scrap price and instead capturing the impact of markets on vessel prices.
This approach, comparing asset values to a depreciated replacement value, has historically proven to be the best way of predicting asset values for all vessel classes, but comes into its own when looking at illiquid asset classes such as large containerships.
It also better captures the separate drivers of asset values (earnings, life expectancy, newbuilding and scrap prices), and enables to modelling of the likely upside or downside risks to specific segments of the containership market.
Mid-size containerships have been worst affected in the current downturn, and even the near-term recovery has proved insufficient to lift them out of their slump. The implications of this should be relatively obvious, given expectations of a continuing market recovery.
On this basis, it can be seen that Maersk has lost none of its ability to analyse the market and execute at the right price, with an eye to the upside. Older, larger vessels, which are most exposed to the recovery in timecharter rates, in our view make the best investments under MSI’s base case assumptions.