It’s Thanksgiving today for which we give thanks as it allows us an easy

start to the report in the absence of anything more relevant and gives us

an excuse, no matter how tenuous, for why the market is so quiet.

Although, in reality, Thanksgiving is not so relevant to shipbuilding these

days as the US investors who drove so much of the 2011-13 market have

now abandoned the market and are mostly in therapy.

In fact, Black Friday – the ‘traditional’ shopping day after Thanksgiving –

is much more relevant to the shipbuilding world. Not only is the prevailing

mood in the market sombre and depressed but, there are some

sensational bargains on offer for those quick enough and with the

disposable income to take advantage. Whilst they have been keen all

year, there’s an increasing edge of desperation at some of the Korean

yards as most of them have had the kind of year that even Hilary Clinton

or David Cameron would be ashamed of. All of them are nowhere near

their annual sales targets and some of them will undoubtedly face further

restructuring in the new year. Lack of ordering has led to the destruction

of the yards’ orderbooks with none able to get close to replacing the

ships that are delivering. Many yards now have forward books which are

below 18months – which is normally when panic sets in – and which are

pretty thin beyond 12-15months.

And those are the lucky ones. They are the ones that still have control of

their own destiny and have the credibility and the financial strength still to

be able to perform. Many Korean, and indeed Chinese, yards have already

passed the point of no return and no longer even bother to market

themselves as they know that they simply do not have the ability to

perform on a contract even if they were able to find a buyer willing to take

the risk. A continuing cull of capacity is inevitable as is the rapid

shrinkage of the orderbook across the board both as deliveries

significantly exceed contracting and as the yards simply give up the ghost

and crawl away into obscurity.

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Source: Affinity (Shipping) LLP

Whilst all market players welcome the reduction of capacity to levels more sustainable in the

longer term, a further purge of Korean shipbuilding would substantially damage the

infrastructure of the best, most qualified, and technically capable shipbuilding nation leaving

the market significantly downgraded once deprived of the expertise and innovation of the

Koreans. Now that Korean Shipbuilding is more brutally Darwinian and the yards have to

stand or fall on their own, we see the potential for a rebalancing of the market with the likely

beneficiaries being the Chinese state yards who are immunised against competition by state

support. They will survive on their diet of military ships, state-sponsored domestic projects

and loss-making export business even as their competitors starve and die. That's not a

particularly pleasant prospect!

So, there’s not much to give thanks about this Thanksgiving although we suspect that anyone

who takes advantage of the Black Friday sales will be very thankful in the coming years as

they look back on the exceptional value they were able to secure at the point of maximum

desperation for the yards. An aframax in the low $40s, a Kamsarmax in the low-mid $20s, a

VLCC in the mid $80s are the cheapest Korean / Japanese prices we have seen since 2004

in nominal terms and, in real terms, we are at a generational low - or even the lowest ever.

We reckon a $32.5mill aframax in 2002 is $43.5mill in 2016 dollars, a $62.5 mill VLCC is

$85mill and a $20mill Kamsarmax is $27mill - all of which are achievable at first class yards

today. If you're interested, give us a call!

Will it get cheaper? Possibly. But, if so, not by much. A lot depends on currencies as other

input costs are on the rise. At the moment, the yards are benefitting from a bit of Trumpian

optimism in the dollar which has weakened shipbuilding currencies with the yen now below

112/$ and the Won in the 1180s / $, both of which will help the yards to address current,

horrible, US$ prices. Is now the time to move? It's very hard to see the downside with prices

at historical lows, yards already reeling and prices so close to direct cost so we see limited

scope for yards to reduce prices significantly. If the dollar reverses, as is very possible in the

current bizarre and uncertain political environment, the yards may find their ability to

continue to entertain these prices seriously compromised. Choose the yard wisely, but don't

wait too long!

As a Thanksgiving treat, we’ve created a purely spurious graph on page 1 which plots poultry

prices (the closest we could find to Turkey futures) against NB prices. Unsurprisingly, there is

no correlation but it does suggest that newbuilding is the better investment! The

Thanksgiving arbitrage - buy ships, sell birds!

BP are understood this week to have committed their two aframaxes, namely MTs

“BRITISH MERLIN” and “BRITISH CURLEW” (both about 114,000 dwt, built 2003 and

2004 Samsung), to Greek buyers for a price of US$ 29 million enbloc. The vessels

are uncoated, but it is still interesting to note the most recent sale of the smaller

Lykiardopoulos LRII MT “SIENA” (105,328 dwt, built 2002) at US$ 15.5 million,

illustrating a weakening in pricing even when considering the larger and more

modern crude vessels.

This week also saw the sale this week of the Aegean Marine controlled MT “ROSE”

(45,737 dwt, built 2004 Minami Nippon) at US$ 12 million, reportedly to Indonesian

buyers. The pricing is generally in line with recent sales of similarly aged ships, and

whilst pricing for products has weakened over the course of the year it does appear

that levels are now stabilising.

Elsewhere there is relatively little to report, with chemical tankers being the top of

people’s menu. Nakhoda-Portbunker are understood to have sold their IMO II/III

stainless steel coated/coiled vessels MTs “CRYSTAL WEST” and “CRYSTAL ZUID”

(both 8,130 dwt, built 1994 at Boelwerf) at US$ 3.35 million, and MT “VEMAOIL XXI”

(9,593 dwt, built 1994 Daedong) is also reportedly, to undisclosed interests, at an

undisclosed level.

Whilst this week has seen a slight retreat in daily Capesize rates, levels of S&P

activity have remained healthy as buyers continue to snap up tonnage across the

size categories. Asset prices show no sign of softening as strong buying interest

continues to compete for relatively few market vessels.

Japanese owners ‘Nisshin’ have grabbed headlines this week being rumoured to have

sold three sister ships MV’s “MANGAN TRADER I”, “MANGAN TRADER II” &

“MANGAN TRADER III” (83,975 dwt, built 2013 Hyundai Samho) on an en bloc basis

at US$ 15.5 million each. Whilst unconfirmed, clients of Transmed Shipping have

been linked to the deal and in terms of pricing one could say that levels fall in line

with the US$ 14.85 million that the MV “MAVERICK GUARDIAN” (82,740 dwt, built

2012 STX) achieved at auction just last week. Elsewhere Greek Buyers are rumoured

to have acquired the modern Chinese built unit MV “FH SANTOS” (81,517 dwt, built

2016 Jinhai) at US$ 15 million. Pricing appears correct once differences in yard of

build and quality of supervision have been accounted for.

South Korean Owners SK have also made headlines this week as they continue to

offload tonnage. Undisclosed Greek Buyers are believed to have purchased the MV

“K. PERIDOT” (56,724 dwt, built 2012 Zhejiang Zhenghe) at rgn US$ 8.5 million,

whilst different Buyers are being linked to the acquisition of the MV’s “K. AMBER” &

"K. CORAL" (58,018 dwt, built 2010 Yangzhou Dayang) at region/xs US$ 18 million

enbloc. Pricing on such units has continued to firm of late with these latest vessel

having set yet another benchmark for the segment.

The Handysize sector has one again seen a number of concluded transactions with

two modern Chinese units believed to have changed hands alongside Swiss Owners

reportedly disposing of a ‘Kanda 32’ type. Separate sellers are believed to have sold

the MV “PALERMO” (32,770 dwt, built 2010 Yangzhou Wenlong) and the MV

“MAPLE FORTITUDE” (32,491 dwt, built 2011 Taizhou Maple Leaf) at region US$ 6

million each. Pricing falls somewhat in line with the recent sale of the four ‘Adfines’

Handysize units (36,940 dwt, built 2012 Zhejiang Zhenghe) at US$ 8.2 million once

differences in size have been accounted for. Finally, and as aforementioned, Swiss

Owners are believed to have parted ways with the MV “SIDER CARIBE” (32,283 dwt,

built 2009 Kanda) at levels close to US$ 8.2 million. This seems somewhat weaker

than expected when one draws comparison to the MV “KARINE BULKER” (32,271

dwt, built 2008 Kanda) which sold in mid-September at US$ 8 million.

Chiquita Brands International, the USA based fruit company, recently purchased two 2.1 k Teu

container ships to expand and modernize its reefer containership capacity. The “CONTI

ARABELLA” and “CONTI SALOME” were sold by Conti Reederei. The vessels have already been

renamed “CHIQUITA PROGRESS” and “CHIQUITA VENTURE”, carrying the Liberian flag. Each is

fitted with 400 reefer plugs for Feu, while each one’s capacity could be increased to cover the

needs in Chiquita’s fruit trades. The Great White Fleet (GWF), Chiquita’s shipping branch will

operate the vessels on fruit-related routes, most probably between Central America and the US.

Both vessels were delivered in 2007 by the German Aker Ostsee yard, located in Wismar. They

have three more sisterships, of the Aker-CS-2100 design, originally built for Conti Reederei; the

“CONTI DAPHNE” and the “CONTI ARIADNE” are now trading as “LOUISIANA TRADER” and

“GEORGIA TRADER” for Lomar and the “CONTI ELEKTRA”. Each vessel is fitted with three cranes

of 45 tonnes.

This has been the second major acquisition of second-hand containerships by Chiquita, after the

company purchased two 2.5 k Teu assets in late 2015, earlier controlled by German NSC

Schiffahrt. The “CORAL BAY” and “CRYSTAL BAY”, each fitted with 566 reefer plugs for Feu.

Under their current names, the “CHIQUITA EXPRESS” and “CHIQUITA TRADER” have been

operated by GWF between Central American fruit exporting countries and the US East Coast.

The “MSC MIRJAM” was delivered by Samsung HI. The 19.2 k Teu ship was ordered in late 2014,

for USD 153 Mn. This is the fourth of six ULCS ordered at Samsung HI in 2014 controlled by

Quantum Pacific, with MSC taking the ships on 15-year bare-boat charters. Eastern Pacific

Shipping will manage the vessels. The “MSC MIRJAM” will be employed in the “2M” Far East -

Europe “AE-1 / Shogun” loop, replacing the 16.8 k Teu “EUGEN MAERSK”.

Elsewhere, the “BC SAN FRANSISCO” of 1.1 k Teu, delivered in 2006 by CSC Jiangdong, was

reported sold to Indian interests. The agreed price is believed to be in the region of USD 4.5 Mn.

In the demolition market, Indian breakers acquired the 1998-built “JUMME TRADER” of 2.5 k Teu,

at a price of USD 290 per Ldt or USD 3.05 Mn.

The “APL AGATE” of 5 k Teu was sold for scrap at a price of USD 275 per Ldt, or USD 6.32 Mn.

The vessel was delivered in 1997 and was owned by APL.

Here is a selection of news headlines this week:

• The next US administration will drop the Trans Pacific Partnership on day one of the Trump presidency

and will exit or amend NAFTA soon after

• Canada will lead the Commonwealth in indifference towards making a trade deal with the UK

• The 27 rump EU members will pursue self interest in their dealings with the UK

• Opec will discuss a joint production cap that will probably fail in implementation

• Italy’s voters are split on a North/ South basis in their support for proposed changes to the

constitution to be put to a referendum next month.

There are a few common theme running through these headlines.

Mistrust. We have entered an era in which governments are suspicious of other governments’ motives,

and regions within countries no longer trust each other, leading to an overall reduction in partnership

and dialogue.

Exceptionalism. Or in other words, “we are different, we are special, we come first.” America First, Brexit

Britain, Scottish Nationalism, the French Front National, Putin’s United Russia, Chinese mercantilism,

Turkish Erdogonism all bespeak a rise in exceptionalism, mirrored by Islamism in certain muslim majority

countries.

Bilateralism. Group deals are passé, leading to an unacceptable level of compromise. From now on,

bilateral deals will dominate international relations and trade. Whereas everyone in a group can feel that

they get something out of a deal, in a bilateral trade one party tends almost always to feel it has lost out

in some way to the other – which of course is why ship brokers exist, to take the blame.

Transactionalism. Rather than being dogmatic, whether they be socialist or capitalist, the new breed of

nationalist-flavoured governments will pragmatically conclude the deals they can conclude and will shy

away from battles they cannot win. Alliances will weaken.

It is not always easy to see who will gain and who will lose in this world, when alongside the political

upheavals we face, we are also facing economic secular stagnation, an ageing global population,

probable anthropogenic global warming and the job-destroying fourth industrial revolution.

However, it seems likely that multilateral institutions such as the UN, the intergovernmental panel on

climate change, APEC, ASEAN, the EU, etc, etc, will find their work harder in the new environment.

We hope therefore to be excused some anxiety on behalf of the shipping industry. It is already an uphill

struggle to agree on common standards, whether on safety and security via the IMO, or on common

charter party or sales terms, or on valuation methodology for loan metrics. Any form of exceptionalism

or localism makes life harder still. Perhaps it is the ever gloomier November weather in London that

lowers our mood but the non-economic costs of operating seem likely to increase for us all in the

coming years.

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