cover story
MPP VALUES ALIGNED | 7,800 DWT MPP
12,800 DWT MPP (HEAVY-LIFT**)
35*
35*
30
30
2007
25
25
2016
20
20
15
15
10
10
5
5
0
0
5
10
15
TAKING CARE OF BOTTOM LINE
Newbuild and secondhand MPP prices flatten.
0
20
Age of Ship (years)
2011
0
5
10
15
20
Age of Ship (years)
*Value in US$ millions / **Heavy-lift has more than 80 tons of gearing capacity / Source: VesselsValue
acos Panayides, AAL managing director, explained how each new tranche of refinancing for distressed vessels beats down traditional operators. “Over Ulrich Ulrichs the last five Rickmers-Linie to six years the market has witnessed a number of new transactions, either in the form of finance restructuring, or new sale transactions for a single vessel or a fleet of sister vessels. For every new transaction, the buyer, whether an existing ship owner or new entrant, achieves one common goal: a lower breakeven cost level made up of operating expenses plus depreciation plus financing cost. “Consequently, these new transactions bring a new era in pricing strategy as lower revenues can be accepted for those vessels. Other stakeholders in the same sector with more expensive financing deals and higher asset values on their books are left in dire straits.” Panayides continued that ship asset values now lean on a cashflow
formula – based on the expected future returns of the vessel – rather than the traditional direct depreciation formula – based on the construction price less the scrap value and Kyriacos divided by the Panayides number of years AAL of expected trade. “For example, a vessel that was built five years ago at, say, US$40 million had a breakeven level of, say, US$15,000 per day with the owners reluctant to accept anything less than that. Two years later, that same vessel is sold at US$28 million, which brings the breakeven level to US$12,000 per day. Then a year or two later, the market sinks to the lows that we are experiencing today, driving that same ship to default, hence a new transaction takes place at an even lower breakeven level. “The value of that ship is now US$15 million – you can do the math on the impact. Those that failed to strike or have not yet struck a new refinancing deal will end up with huge losses and eventually default.”
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There is much to be considered when pricing project cargo moves, not least that cheap freight quotes might hide a multitude of sins. In pointing up common mistakes, Daniel Cser, agency owner at ICAT Logistics DTW, said that finding a company online with lower freight costs than any other shipper may have made your bid more competitive, but a lack of agents on the ground and insufficient documentation could lead to equipment being warehoused for more than a month while the problems are ironed out. He added that the time lag between an order for big equipment being placed and the actual delivery date can be many months. In that time, fuel prices and freight rates could have risen leaving the forwarder significantly out of pocket. Experience also counts for a great deal. If a shipping partner has little experience of moving goods out of a country, they could be held up by customs and sourcing of adequate ground transportation. “Any international shipment can be tricky, but when you’re moving oversize, heavy machinery from one part of the world to another, the more your shipper is aware of the design of the machine, the production schedule and how it is proceeding and the timetable you need to follow, the more they can ensure that you stick to budget, make a profit and meet your clients’ expectations,” said Cser. “Disassembling a machine for packaging and reassembling it at the port of destination may decrease transportation costs significantly, for example. Working with a network of trusted partners overseas can eliminate delays and extra charges.”
ISSUE 5 / 2016