“BUY LOW, sell high” is the standard mantra in shipping. Today, the model of necessity is: “sell high, buy high”, said Hafnia executive vice-president Søren Steenberg Jensen at Marine Money Week.

When buying secondhand assets or ordering new buildings, the typical exercise is to gauge the current price tag in relation to the historical charter rate average, using past rates to project the return on investment over the life of the asset.

If the expected ROI is too low at the current price, don’t buy.

If owners stuck to this rule, there would be a lot fewer ships changing hands at these prices and a lot less tonnage on order in Asia.

Part of this is old-fashioned fleet replenishment. If there is persistent asset price inflation, as there is now, and you’re a long-time player, not an asset flipper, you can’t always wait for countercyclical opportunities.

Long-term players need to buy some ships “high” and view acquisition costs from a portfolio perspective, otherwise fleets will age out. Newer ships offer double-digit savings on fuel consumption.

If you wait too long, “you have a fleet that’s no longer relevant, so at a certain point, you have to invest”, said BW Group executive chairman Andreas Sohmen-Pao.

Another driver of shipping’s hunger for tonnage is a belief that the landscape of world trade has fundamentally changed.

According to this theory, the disruptions that have driven up rates and tonnage demand are not just coincidentally higher in the 2020s, they are higher for a reason: the world is transitioning, in a messy fashion, from a unipolar to a multipolar order.

The Hormuz crisis is only the latest example of this underlying change — and it won’t be the last.

“It’s no longer about accessing the global marketplace and everybody playing by a standard set of international laws and rules backed by a global hegemon,” said Jacob Shapiro, director of geopolitical analysis at The Bespoke Group.

“All the rules are going to be determined by who the hegemon is in the space you’re operating in, and the relationship that your government has with the government you’re transacting with.”

This implies a step change in trade inefficiencies and vessel demand.

The thinking, particularly among private owners, seems to be we have been raking in cash for years, financial leverage is historically low, and the on-the-water fleet is older than ever.

If there is a downturn, we can handle it, as debt is manageable (unlike in 2009) and there is plenty to scrap.

Until there is a downturn, keep growing the fleet. Owning more assets provides higher exposure to disruptions amid the transition to the multipolar world, and a greater ability to profit from chaos going forward.

As Deutsche Bank shipping analyst Chris Robertson put it: “The true black swan would be peace and stability.”

Greg Miller
Senior maritime reporter, Lloyd’s List

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