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Drewrys Secondhand Ships Report identified the key elements in the secondhand ships market. Main components examined in this Report include:

• Secondhand Ships - market potential, opportunities and threats
• The scope for S&P Forward Agreements
• Key components and drivers in shipping market cycles
• Buyer behaviour influences and the implications of market segmentations.
• Core elements of the S&P transaction from negotiation to delivery
• Ship valuation the basics
• Ship finance methods

For any business decision-maker investigating the secondhand ship market, this analytical report identifies and examines all the elements in the mix and will prove invaluable.

Section 1.    Executive summary
                       —    2004 - A remarkable year for shipping
                       —    Prospects for the secondhand ship markets
                       —    Market strategies
                       —    Value for money?
                       —    The evolution of a derivatives market
                       —    Some of the €˜practicalities'

Section 2.    Shipping cycles and the evolution of  the secondhand ship markets
                       —    Shipping - a multi-cyclical industry
                       —    Key sector cycles influencing the shipping and secondhand
                             ship markets
                       —    The economic cycle
                       —    The cyclical patterns within key industries
                       —    The oil industry
                       —    The steel industry
                       —    The power industry
                       —    Other elements in the dry bulk cycle
                       —    The shipbuilding cycle
                       —    Trends in newbuilding prices
                       —    The demolition market cycle
                       —    The ship finance market cycle
                       —    The development of freight rates
                       —    Developments in the secondhand ship or sale and purchase (S&P)
                             market

Section 3.    Buyer behaviour
                       —    Liner and tramp shipping
                       —    Ship ownership rationale/strategy and the impact on the marketplace
                       —    Categories of ship owner
                       —    Timing
                       —    Market segmentation and sectoral differences
                       —    The main tramp shipping sectors
                       —    Dry bulk carriers
                       —    Crude and products tankers
                       —    The secondary tramp markets
                       —    Chemical carriers
                       —    Liquefied gas carriers
                       —    Reefers (refrigerated cargoships)
                       —    The liner shipping sectors
                       —    Containerships
                       —    Others

Section 4.    The sale and purchase transaction process
                       —    The basic elements
                       —    Market analysis and the negotiation process
                       —    Market analysis
                       —    The negotiation process
                       —    Inspections
                       —    Inspection of classification society records
                       —    Superficial inspection
                       —    Sale drydocking
                       —    Memorandum of Agreement (MOA)
                       —    Delivery
                       —    Loan and mortgage agreements
                       —    Caveat emptor

Section 5.    Ship valuation
                       —    Introduction
                       —    Ship Value Assessments (SVAs) and the potential for a Forward Ship
                             Value Assessments (FoSVA) market - the €˜birth' of the S&P
                             Forward Agreement
                       —    Key aspects of S&P Forward Agreements
                       —    How does a S&P Forward Agreement make a difference to
                             €˜asset value' management?
                       —    Who might want to trade in S&P Forward Agreements?
                       —    How is a S&P Forward Agreement structured?
                       —    Other issues and considerations
                       —    Aspects of ship valuation and the determinants of price
                       —    Some basic considerations
                       —    Market characteristics
                       —    Elements in valuation methodology
                       —    Caveats and qualifications
                       —    Quantitative factors
                       —    Qualitative factors
                       —    An illustrative example

Section 6.    Methods of financing secondhand ships
                       —    Introduction
                       —    Traditional ship finance (the debt market)
                       —    Appraisal procedures
                       —    Other forms of ship finance
                       —    Boutique financing
                       —    Leasing
                       —    Capital and investment markets

Section 7.    Investment evaluation techniques - alternatives and limitations
                       —    Introduction
                       —    Cash flow
                       —    Capital cost recovery and return on investment
                       —    Capital cost recovery
                       —    Return on investment

Section 8.    Operating costs
                       —    Operating cost components
                       —    Manning
                       —    Key industry standards
                       —    STCW
                       —    SOLAS
                       —    Manning cost components
                       —    Indicative wage costs
                       —    Insurance
                       —    Insurance cost components
                       —    Hull and Machinery (H&M)
                       —    Protection and Indemnity (P&I)
                       —    Other areas of cover
                       —    Repairs and maintenance
                       —    Stores and supplies
                       —    Management and administration
                       —    Summary of current operating cost trends and developments

Section 9.    Outlook for the secondhand ship markets
                       —    Introduction
                       —    Method of approach
                       —    Bulk carriers
                       —    Tankers
                       —    Containerships
                       —    Other ship types
                       —    Chemical carriers
                       —    Gas carriers
                       —    Reefers
                       —    Other ship types

Tables

• Secondhand LPG and chemical carrier values - based on 10 year old ships
• Selected indicative secondhand price trends, 1H2004
• Principal commodity constituents of dry bulk trade
• The bulk carrier fleet as at mid-2004
• The tanker fleet as at mid-2004
• The chemical carrier fleet as at mid-2004
• The LPG carrier fleet as at mid-2004
• The reefer fleet as at mid-2004
• The containership fleet as at mid-2004
• Characteristics of vessels used in BaSVA assessments
• Typical reasons for seeking ship valuations
• Banks providing ship finance to Greek shipping
• Illustrative cash flow results based on five year old Panamax bulk carrier purchased at the start of 1995 and sold at the start of 2004 - Case 1
• Illustrative cash flow results based on five year old Panamax bulk carrier purchased at the start of 1995 and sold at the start of 2004 - Case 2
• Illustrative cash flow projections based on five year old Panamax bulk carrier purchased at the start of 2004 and contemporary market outlook
• Leading seafarer supply countries
• Countries holding €White List€ status
• Core activities of company and ship security officers
• Selected ITF wage scale rates
• Sample wage cost summary
• Estimated P&I Club Free Reserves
• Ship operating cost reduction expectations through using a third party ship manager
• Key elements of Marpol 13G

Figures

• Historical and projected freight rate trends for bulk carriers, tankers and containerships
• Strengths, weaknesses, opportunities and threats in the secondhand market for the main shipping sectors
• Recent trends in crude oil prices
• Recent trends in tanker spot freight rates
• Recent trends in Chinese steel production and iron ore imports
• Recent evolution of seaborne dry bulk trade and the bulk carrier fleet
• Newbuilding market - trend in orders and deliveries
• Evolution of newbuilding prices
• Nominal vlcc demolition price trends
• Ship demolition activity
• Tanker period charter rate averages
• Bulk carrier period charter rate averages
• Evolution of the Baltic Exchange indices
• Containership timecharter rates and estimated East/West trades average box rates
• Estimated timecharter rate for standard '1700' type containership
• Reefer 12 month period rate trends
• Evolution of reefer seasonal rates
• Trend in 6-12 month charter rates for LPG carriers
• Evolution of AG-Japan LPG spot rates and time charter equivalents
• Evolution of spot rates for easy chemicals
• Trends in secondhand tanker prices
• Trends in secondhand bulk carrier prices
• Trends in secondhand prices for 5 year old containerships
• Trends in secondhand prices for 10 year old containerships
• Trend in reefer secondhand prices
• Potential tramp sector ship buyer rationale and motivations
• Consolidation - charterers faster than shipowners?
• Carrier owner and non-carrier owner/tramp shares within the containership fleet
• The basics of the ship sale and purchase process
• Caveat emptor - example of a potential S&P risk
• S&P Forward Agreements and the forward value curve
• Value trend for SVA ship categories
• Selected example elements in a valuation exercise
• Trend in 6 month Libor rate on US$
• Elements of loan appraisal criteria
• Present worth of US$1 at 5%, 10% and 15% continuous discount rate
• Selected indicative annual capital cost co-efficients
• Trend in price averages, 1997-2003
• Class survey requirements - intervals and conditions
• Evolution of total operating costs
• Pattern of operating costs and charter revenues: Panamax bulk carrier
• Pattern of operating costs and charter revenues: Vlcc
• Projected trend in bulk carrier period charter rates
• Potential change in bulk carrier earnings and S&P values
• Implied value trend for 5 year old bulk carriers - based on overall fleet averages and notional sectoral variations
• Projected trend in tanker spot rates
• Potential change in tanker earnings and S&P values  
• Implied value trend for 5 year old tankers - based on overall fleet averages and notional sectoral variations
• Projected trend in containership period charter rates
• Potential change in containership earnings and S&P values
• Implied value trend for 5 year old containerships - based on overall fleet averages and notional sectoral variations

Secondhand Ships: Timing is Everything identifies and examines all the elements in the secondhand ships mix.

Shipping cycles:

• Shipping - a multi-cyclical industry
• Trends in newbuilding prices
• Trends in freight rates
• Trends in secondhand prices
  

The S&P transaction process:

• The basic elements
• Market analysis and the negotiation process
• Inspections
• Memorandum of Agreement
• Delivery
• Loan and mortgage arrangements
  

Ship valuation and ongoing costs:

• Ship Value Assessments the S&P Forward Agreement
• Aspects of ship valuation and the determinants of price
• Market characteristics
• Elements in valuation methodology
• Ship finance
• Operating expenses
  

Drewry's  Report is essential reading for ship owners and potential ship owners, ship financiers, and potential derivatives traders who need to understand that:

• The tramp sectors, commodity shipping is more influential than industrial shipping and, as such, is the key driver behind volatility and liquidity in the S&P markets.
• The secondhand ships market is still full of risks and Drewry points to the S&P markets as being imperfect and particularly prone to sentiment-driven change.
• 2004 saw the industry being offered its first opportunity to test out a risk management instrument, S&P Forward Agreements, which could make it possible to trade the value of a ship over its entire forward curve.

In Vogue

Drewry's Report declared that ship ownership was back in vogue which subsequently made the market for secondhand ships soar to the extent that prices for immediately available modern ships exceeded those for newbuilding orders. More recently, most of the great shipping fortunes had been made from the astute (or sometimes fortuitous) timing of ship purchases and disposals. Hence, understanding and reading the ship sale and purchase (S&P) market is a vital tool in the successful ship owner armoury.

The tramp sectors

The ability to reap benefits from the changing patterns seen in the S&P market relies primarily on the motivation that has taken the ship owner into the industry. The tramp sectors embrace two core operational approaches - industrial and commodity shipping.

Industrial or commodity shipping?

Industrial shipping takes a long-term transportation view and ties up ships under various period cover agreements. In contrast, commodity shipping - where the ship itself is the commodity that is bought and sold - tends to be the path to the greatest riches as well as the greatest risks. The general preference for the latter throughout much of shipping is a key influence in the encouragement of both volatility and liquidity in the S&P markets.

Ship finance

An active S&P market also triggers demand for ship finance. Most of the deals concluded will be bilateral arrangements between an individual owner and an individual lender. For the banks, this is an area of potentially deceptive risk. Compared to newbuildings, the sums advanced may be relatively modest. However, the need to understand the shorter-term market picture and consequent exposure risks becomes more crucial.

Beware the risks

The S&P markets are imperfect and far from being fully transparent. They are swayed by sentiment and overreaction. Hence, it is vital to look at potential ship deals in terms of the strengths, weaknesses, opportunities and threats to their particular sector and their market cycle history. In addition, not all fleet sectors are equally liquid and, in some, market entry and exit may be less than straightforward. Certainly, few ships are truly identical.

Risk management

Buying and selling ships involves risks. 2004 saw the industry being offered its first opportunity to test out a risk management instrument. The thinking behind the planned development of S&P Forward Agreements is that it could make it possible to trade the value of a ship over its entire forward curve, whereas currently the options are limited to the spot environment of the immediate S&P market or the newbuilding berth window. Also, the nature of hedging tools means that there can be circumstances where profits might be made because the market is falling.

History provides valuable lessons and Secondhand Ships: Timing is Everything is no exception. Order your copy today...