Shipping folklore says cycles last seven years and history supports this view. For example, the average cycle since 1950 has been 7½ years peak to peak. Admittedly these are hairy statistics, but if they are roughly correct and, if this is an average cycle, we are at the halfway mark. It is now exactly 3½ years since Lehman Bros. collapsed on 15 September 2008.
Sluggish & Confusing 1st Half
After its dramatic start in 2008, the first half of this cycle has dragged on without nearly as much drama as expected. We thought it would be interesting to take a look at how bulk shipping has fared and see which ship types have performed best so far. In our survey, we include four tankers (VLCC, Suezmax, Aframax, Prod-ucts) and three bulk carriers (Cape-size, Panamax and Handymax).
Who Earned Most?
The starting point was to calculate the free cash flow of each ship type (daily earnings less operating expenses). The result for each of the seven ship types is shown by the light bars in the graph. In straight cash the winner is, a little surprisingly, the Suezmax tanker which averaged $28,800/day, followed by the VLCC at $26,200/day and the Capesize at $21,000/ day. But, perhaps the biggest surprise is that, with the exception of products tankers, these are not exactly punishing results. With LIBOR interest rates at below 50 basis points, the first half was a long way from the horrific markets of the 1980s.
Who Lost Value?
However, to sort out the real winner, earnings have to be related to vessel cost, and that's where it gets tricky. The change in asset values during the last 3½ years has been much more dramatic than the drop in earnings and the seven ship types all lost heavily on the capital account. The graph shows the average daily loss, calcu-lated by taking the market value of each vessel on 15 September 2008, deducting the market value on 2 March 2012 and converting the results to $/day. The Capesize bulker suffered most, losing $83,000/day over the 3½ years, closely followed by the VLCC which lost $78,678/day.
Not a Bad First Half?
Based on these figures, the first half of the shipping cycle has been really quite an easy-going affair. But, unfortunately, one cash flow is missing from the graph - the cash needed to pay for $182 billion of deliveries scheduled for 2012. This massive sum, the fall of asset values and a European banking system, whose capacity to finance shipping deals diminishes by the day, poses a challenge. The cash is out there somewhere, but whos got it?
And the Second Half?
So there you have it. The teams are trotting out for the second half of the match, and it's beginning to look as though cash will play a much bigger part than in the first half. But that's often the way with shipping cycles. Luckily theres only another 3½ years to go unless the game goes on into extra time. Have a nice day.