Nowdays, it looks similar to the 1970s and 1980s
Ship values are causing concern, as those who bought ships when the price was high are now finding that they must face a precipitate decline in the market and book value of these same nearly-new vessels. It is something that is completely predictable, what with the febrile state of the global economy but also a perfectly natural consequence of both the over-optimism that saw so much over-ordering and the effect that this would inevitably have upon ship supply.
One does not have to be much of an historian to relate this regrettable coincidence of bad news to the situation in the 1970s and 1980s, when the seeds of the shipping industry’s long depression were sown in a similar fashion. Then it was state-supported credit that persuaded owners that they should buy against a new era of perpetual growth. Now it has been everything from short-term demand spikes to the new fashion for public finance that drove the enthusiasm that has so spectacularly backfired since the Autumn of 2008.
One can, however, be persuaded by doom-laden headlines in newspapers written by people with little concept of the historical trade cycles that govern shipping and the short term variations within these cycles that any plunge in the value of ships is unduly serious. Ship value, despite the technical connotations to which accountants like to defer, is in reality an expression of the demand for that particular ship at a moment in time. It tends to fluctuate mightily, for all sorts of strange and illogical pressures, which could range from bad weather to port congestion, to some unexplained technical problem in the engine room of a particular ship.
There are knock-on effects from seemingly unrelated happenings that suddenly will make an individual ship just the vessel which is in the right place and only that ship will fulfil the user’s needs at that time, and at an excellent price. Older and more mature ship owners, and notably those who do not have to fend off the questions of financial analysts or concoct quarterly results to still the impatience of investors who have, perhaps unwisely, been cutting their teeth in an unfamiliar shipping market, have learned to take the rough with the smooth. They know that these bad times tend to blow over and moreover, produce some opportunities for those who have husbanded their cash against the “distress” of others.
Will we have learned anything from the misfortunes of those who over-extend themselves and fall flat on their faces? After all, we had the best part of thirty years of providing under-rewarded transport to a general public that has tended to take cheap shipping for granted. We all know that while those individuals who have lost their shirts and their companies tend to disappear, the ships they so unwisely ordered live on for twenty years or more, until the demand for them catches up with their supply. It was not a pretty sight the last time around, and its consequences included the growth of a sub-standard sector and ships operated under a “minimum maintenance” regime which cost lives and did nothing for the industry’s public reputation.
But people tend to have short memories of these difficult trading conditions, while new personnel who tend to live in the present, with little knowledge or respect for the past, will tend to repeat old errors. It seems to be human nature.
Source: BIMCO, Watchkeeper