Alphaliner says that NYK Line’s move last week to report a loss of JP¥100bn ($972m) on its containership assets could trigger a wave of write-downs at other lines as asset valuations fall to historic lows.
NYK plans to report ¥195bn in extraordinary losses, with the ¥100bn write-down on containerships representing almost one quarter of its JP¥419bn valuation as at the end of March 2016.
“Although the market is projected to recover in the first half of the fiscal year ending March 31, 2017, market indicators have not reached anticipated levels,” NYK said.
While Japanese lines MOL and K Line have recorded impairment losses of late, Alphaliner says that most other main carriers have not taken any significant write-downs despite an obvious drop in asset values. It estimates that the top 18 carriers may need to write off around $35bn based on the level of NYK’s impairment.
Panamax vessels have been worst hit in terms of the drop in asset values Alphaliner says, with falls of up to 80% below the vessels’ depreciated book value assuming periodic impairments haven’t been applied.
The Panamax segment is the main focus of scrapping, their size now finding it hard to get decent charter rates since the opening of the expanded Panama Canal at the end of June.
Other container sectors have faired better, however the value of a ten year old vessel is down by anywhere from 30-60%.
“I would assume that since lowering of asset value increases overall gearing or leverage, this will make it less likely (or desired) for lines to secure further financing for either acquisitions or new buildings. The former does not assist to drive the much needed further industry consolidation, but the latter can be seen as positive if it helps prevent the addition of even more capacity,” Andy Lane from CTI Consultancy told Splash.
Alphaliner’s narrative is a bit weak.
NKK’s writedown cannot trigger anything, apart from losses booked in its PnL accts. it is the current set of market conditions that will trigger similar actions on the B/S of other liners.
Starving shipyards, automated processes, low price of steel, anyone can build a container vessel at 25% of price it was build 5 years ago. It means that instead of a vessel that was costing say 100 M$ in 2010 and that is valued maybe 75 M$ in your books, you can get today a brand new that cost 25M$
Thanks NYK. It is ample time that industry realize that vessels can be considered as throw-way packages and that finances tap will reopen only if main players recognize the situation.