So far, it’s certainly been a ‘year of the Dragon’ for sale and purchase, one symbolized by power, confidence, and fortune. But for the freight market, it’s perhaps been a misnomer so far. Hire rates, for the most part, have been unremarkable, according to Break Wave Advisors.
Lackluster Performance
As the summer season comes to an end, the year’s odd nature persists in perplexing pundits. The secondhand market has been noteworthy, especially pinned against the rather lackluster (uninspiring) performance of the freight market. Prices and volume of SnP transactions were robust. The question on everyone’s mind throughout the year (and more so as we crept deeper and deeper into ’24) has been, ‘Why have secondhand prices performed so well despite less-than impressive earnings?’ Granted, new building prices have mounted and have driven demand for (slightly) cheaper and more readily available tonnage up.
Demand for secondhand assets has been high regardless of the cost of new buildings. After all, not every shipowner is in a position to invest in new building projects; this is usually a strategy reserved for larger or well-placed companies. But we are seeing an appetite for acquisition from heavyweights as well as smaller players. Secondhand activity is alive and well, with both supply and demand forging forward.
Across all segments, prices have been on the rise throughout ’24, with the greatest increase coming circa March – April. To be exact, from the beginning of the year, prices have increased anywhere between 13% and roughly 17%, depending on the segment. Capes led the way, followed by Ultras, P’maxes, and Handies. Capesize and Panamax bulkers had started gaining momentum within ’23; comparing their prices from the dog days of ’23 to today, they have seen their values increase by as much as 25% and 20%, respectively. The secondhand market’s overall improvement and firming dates back to the winter of ’22 and early ’23, due largely to boosted hire rates.
The continued improvement has provided pundits with more questions though, as freight rates along the same time frame don’t exactly line up. When placing the graphs of freight rates and secondhand values next to each other, the former resembles a mountain range with (rather) jagged peaks while the latter can be compared to gradually rising hills.
Assets Price Improve
Ultras and Handies have had smoother hire performance while asset prices improved, although ‘smoother’ doesn’t denote a positive path and certainly doesn’t align with their stellar secondhand performance. The springtime bloom, or bloom, observed across all four segments is worth analysis.
The Cape segment saw its secondhand values start to climb earlier than the other sizes, around January. By the time May rolled in, Capers had gained circa 10% in their value. Freight-wise, this segment saw a spike between March and April. Secondhand values for P‘maxes started to climb in early spring, in step with a firming to rates occurring in the same period; prices for this segment rose by about 8-9% by May.
Handies saw an abrupt ascension in freight rates right around March, with rates staying buoyant thereafter, a characteristic also shared by Ultras (i.e. less volatile and jumpy than Capes and Pmaxes). Secondhand values began climbing in February (similar to the Cape climb, in that their ascent started slightly earlier in the year), and culminated with a 10% increase. The start of the year saw dips in hire rates for Capes, Ultras, and Handies before improving (although the Capes’ path has been bumpier since).
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Source: Breakwaveadvisors
