Splash Extra

Secondhand prices soar

Gap with newbuilds narrows as shipping bull run gathers pace

Following an abnormally strong start for the year for rates in the containership and dry bulk sectors, prices for secondhand tonnage have leapt across the board, noticeably narrowing the gap with newbuilds.

The spread of newbuild to secondhand prices narrows in rising rate environments as there is more financial incentive to have the ship on the water immediately, and the spread widens in soft rate backdrops as the ships are struggling to breakeven.

Secondhand prices started to appreciate last October and over the past month have accelerated fast in tandem with the extraordinary earnings for liner operators and many segments in dry bulk.

One London-based shipping investor, speaking on the condition of anonymity, told Splash Extra: “The trajectories of secondhand prices, and their closing in on newbuildings, is entirely unsurprising and is a normal by-product of a bull run. What is more surprising is how fast, and the extent to which this has happened.”

Tim Huxley, chairman of Hong Kong’s Mandarin Shipping, said the gap with newbuilds could get closer further still, triggering memories of the boom times 13 years ago.

“There is no reason why the gap to newbuilding prices cannot close provided it is supported by earnings,” Huxley said, pointing out before the global financial crisis of 2008 ships were valued considerably higher than newbuildings if they could give a prompt, charter-free delivery.

According to data from VesselsValue, the most appreciated asset so far this year is mid-age/older capes.

By way of example, the 2010-built Cape Providence sold in January for $18.1m. This month, the same aged Bulk Switzerland was sold for $25.6m.

Other big winners in the current run are 7,000 teu boxships as well as smaller tonnage in the 1,700 to 2,500 teu class. Feeder ship prices have climbed by as much as 50% this year.

It’s entirely possible for this spread between newbuilds and secondhand ships to continue to narrow

“In a post-pandemic world where all sectors are clicking, I think it’s entirely possible for this spread between newbuilds and secondhand ships to continue to narrow, with the secondhand index even potentially surpassing the newbuild index if rates strengthen across all sectors for a sustainable period of time,” predicted Jonathan Chappell, an analyst with Evercore ISI.

Randy Giveans, senior vice president of equity research at Jefferies, described the recent jumps in the S&P market as “incredible”, something he expects will continue as owners want tonnage now, while newbuildings have an obsolescence risk due to incoming environmental regulations.

“Hard asset prices – such as steel – are rising in an inflationary environment,” Giveans added.

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