ναυτιλία98 ΔΕΥΤΕΡΑ 6 ΙΟΥΝΙΟΥ 2016 Η NΑΥΤΕΜΠΟΡΙΚΗ

With the Baltic Dry Index (BDI) higher by

more than 100% from the bottom es-tablished in February, lots of activityhas been focused on buying 'cheap ships',especially in the dry bulk sector. Drybulk asset prices have been at compelling

levels by historical standards despite the recent improvementin asset prices. A call to buyvessels at present levels seemswell justified by historical stan-dards as ship prices are theirlowest.

There have been many road-shows and investment presen-tations to investors and manyshipowners are pounding theirfists on the table that this isthe time to go long the drybulk market and acquire vesselsin the secondary market, de-spite the still weak freight mar-ket. On many occasions, thezeal of raising money to buyships it reminds of the 2010when shipping asset priceswere low and shipowners werelooking to buy cheap vessels.Like at present, in 2010 freightrates were weak and assetprices low and there had beenlots of temptation to buy ves-sels, whether tankers, contain-erships or dry bulk. Like at pres-ent, the weak freight marketin 2010 had been the hurdleto overcome, but signs of a mar-ket recovery in 2013 convincedmany shipowners and equityinvestors to bet big on the drybulk market.

Three years later, there havebeen misgivings about mostof those investments in the drybulk market as publicly tradedcompanies like Scorpio Bulkerswere forced to a complete re-treat from the capesize marketat a loss of more than $300 mil-lion, while many smaller own-ers and their JV-investmentswith funds have been causefor concern.

There have been many caus-es why the investments in theshipping industry originatedaround 2013 went badly, rang-ing from following ‘herd men-tality’ to poor execution. Giventhe reaction by institutionalinvestors to investment pitchesat present to invest in the dry bulk market on account of lowasset prices, it seems that some lessons have been learned. Thepedagogic value of the lesson aside, the practical application isthat speculative and opportunistic money are now considering

shipping a highly risky industry, implying that the odds of excessinvestments in shipping will be hard to come along in the future,ensuring for a more balanced tonnage supply condition.

The subdued reaction of institutional investors to shippingnotwithstanding, the shipowners’ appetite to keep investing inshipping can be evaluated by many view points. ‘Cheap ships’typically have been the foundation of fortune building in shipping,

but, on the other hand, it takes more ingredients than ‘cheapships’ to make for profitable investments.

An analysis of the present situation of the shipping industrydepicts an industry undergoing structural changes in the world

where asymmetric risks keep building up. For example, shippingbanks make ever more evident by the day their present andfuture dislike for the shipping industry, undermining one ofthe pillars of the industry. In the financial markets, never beforethe world has experienced such a prolonged period of extremelylow interest rates, including negative interest rates by many de-veloped countries, a potentially explosive situation for monetary

policies worldwide, which willhave implications on fiscal pol-icy as well. In a world of weakeconomic growth, ever morehopes are hitched to the Chinawagon, at a time when it seemsthat there is little wind hasbeen left in sails of that countryto fuel the strong growth every-one expects; not to mentionChina’s insatiable efforts tocontrol an ever larger slice ofthe shipping market (Coscoand CSL merger, acquisitionof the Valemax fleet, massivebuilt up of capesize and VLCCvessels, etc) And, lookingaround the world, one can seethe rising rhetoric in favor oftrade barriers against freemovement of cargoes and peo-ple, a trend that logically willhave negative implications forshipping. And, in an ever in-ter-connected world of ‘the in-ternet of things’ and disruptivetechnologies, combined withincreased regulatory require-ments, the risks for technolog-ical disruption and obsolesceare not negligible for shippingany more."

Shipping has always beena volatile and risky industryand probably the main reasonthat Greeks, driven by theirtrading nature, have been at-tracted to and have thrived his-torically in this industry. Thepresent challenging state ofthe market presents opportu-nities and there is no doubtthere will be shipowners andinvestors who will benefit great-ly from the present turmoil.On the other hand, we live nowin a world of amplified riskswhen the shipping industry it-self is undergoing structuralchanges. While timing was themain ingredient in the past tomake money by buying ‘cheapships’, in our present world,

low price by itself may not be sufficient for a profitable strategy.Many more risks have to be assessed and mitigated, and for thosejumping at the low asset prices alone, there can be negative sur-prises.

Ships are cheap:Please, think before you invest

Shipping has always been a volatile and risky industry and probably the main reasonthat Greeks, driven by their trading nature, have been attracted to and have thrivedhistorically in this industry. The present challenging state of the market presentsopportunities and there is no doubt there will be shipowners and investors who willbenefit greatly from the present turmoil.

ARTICLE

Basil Karatzas**

*Basil M Karatzas is the CEO

of Karatzas Marine Advisors

& Co and Karatzas Capital

& Co based in New York.

www.karatzas.com.

Three years later, therehave been misgivingsabout most of thoseinvestments in the drybulk market as publiclytraded companies likeScorpio Bulkers wereforced to a completeretreat from thecapesize market at a loss of more than$300 million, while many smallerowners and their JV-investments with funds have beencause for concern.

98 6 6 μ μ age