So far, it’s certainly been a ‘year of the Dragon’ for sale and purchase, one symbolized by power, confidence, and fortune. But for the freight market, it’s perhaps been a misnomer so far. Hire rates, for the most part, have been unremarkable. No one has heavily complained about them, but nobody has really raved about them, either. Throughout the year, the industry’s freight market has struggled to find footing and identity, bobbing up and down, at times improving, but not by much. Perhaps the freight market can retroactively be dubbed the ‘year of the Draggin’. As the summer season comes to end, the year’s odd nature persists in perplexing pundits. The secondhand market has been noteworthy, especially pinned against the rather lackluster (uninspiring) performance of the freight market. Prices and volume of SnP transactions were robust. The question on everyone’s mind throughout the year (and more so as we crept deeper and deeper into ’24) has been, ‘Why have secondhand prices performed so well despite less-thanimpressive earnings?’ Granted, newbuilding prices have mounted and have driven demand for (slightly) cheaper and more readily available tonnage up. Demand for secondhand assets has been high regardless of the cost of newbuildings. After all, not every shipowner is in a position (especially with today’s NB prices) to invest in newbuilding projects; this is usually a strategy reserved for larger or well-placed companies. But we are seeing appetite for acquisition from heavyweights as well as smaller players. Secondhand activity is alive and well, with both supply and demand forging forward.
Across all segments, prices have been on the rise throughout ’24, with the greatest increase coming circa March – April. To be exact, from the beginning of the year, prices have increased anywhere between 13% and roughly 17%, depending on the segment. Capes led the way, followed by Ultras, P’maxes, and Handies. Capesize and Panamax bulkers had started gaining momentum within ’23; comparing their prices from the dog days of ’23 to today, they have seen their values increase by as much as 25% and 20%, respectively. The secondhand market’s overall improvement and firming dates back to the winter of ’22 and early ’23, due largely to boosted hire rates. The continued improvement has provided pundits with more questions though, as freight rates along the same time frame don’t exactly line up. When placing the graphs of freight rates and secondhand values next to each other, the former resembles a mountain range with (rather) jagged peaks while the latter can be compared to gradually rising hills. Things become interesting when one hones in on the numbers and compares freight rates to secondhand values since the start of the year. The year kicked off riding an uptick that stemmed from the last month of 2023. The SnP market had already begun to gain momentum but responded to this higher hire hike rather quickly. (Side note, prices react much faster to most freight improvements nowadays, although the same cannot be said when hire rates start to drop where secondhand values are more resilient and have a lag in following rates downward in the short run). The Capesize freight market has been the most unstable this year (not surprisingly, as that is the nature of this segment, complete with all the usual ups and downs). However, this segment’s secondhand values have steadily increased over the same period. The Panamax segment’s freight rates, likewise, have oscillated within ’24 while ship values have increase.
Ultras and Handies have had smoother hire performance while asset prices improved, although ‘smoother’ doesn’t denote a positive path and certainly doesn’t align with their stellar secondhand performance. The springtime bloom, or bloom, observed across all four segments is worth analysis.
The Cape segment saw its secondhand values start to climb earlier than the other sizes, around January. By the time May rolled in, Capers had gained circa 10% on their value. Freight-wise, this segment saw a spike between March and April.
Secondhand values for P‘maxes started to climb in early spring, in step with a firming to rates occurring in the same period; prices for this segment rose by about 8-9% by May.
Ultramaxes had a more gradual uptick in hire rates for this period, with a climb in 2nd hand values similar to Pmaxes in timing, brevity, and gradient - amounting to a growth of about 8-9%, as well.
Handies saw an abrupt ascension in freight rates right around March, with rates staying buoyant thereafter, a characteristic also shared by Ultras (i.e. less volatile and jumpy than Capes and Pmaxes). Secondhand values began climbing in February (similar to the Cape climb, in that their ascent started slightly earlier in the year), and culminated with a 10% increase. The start of the year saw dips in hire rates for Capes, Ultras, and Handies before improving (although the Capes’ path has been bumpier since).
To summarize, the Capesize and Handysize segments completed longer ascents (that started earlier and culminated later), while Panamaxes and Ultras underwent shorter, quick climbs; although all 4 sizes saw strengthening to secondhand values, much of it coming in the first 5 months of the year and more specifically within the spring season. Sellers have certainly enjoyed the year so far, raking in lofty prices for assets that don’t seem to be earning on par with what buyers are paying. Of course, it is not enough to focus on the numbers we’ve seen in 2024. There is the before and after to all this. What has transpired has, for the most part, been reflected in hire rates. And what follows is left perhaps to conjecture as well as momentum. But it is the current or incumbent condition that has been a complex conundrum to crack.
Data source: Doric