I decided to buy a ship…

Today I decided to take some calculated risk. So I decided to buy a ship, and what is the best ship to buy? Of course, the one that has the worst cash-flows! Today, one can find ships with this characteristic at the Dry Cargo markets. 

That why I decided to buy a 5 year old Japanese built Capesize bulker, of 177,000ton capacity, at 15M$, working on carrying iron ore. Which is trading below it OPEX most of the time nowadays, hence making it available at an attractive price. Under normal market conditions, this ship would command a price close to 30M$.

With 50% loan and considering another 3 years of bad market, followed by 3 years of good market at the end of which I will sell the ship, I can probably have an IRR of 17%. Not bad huh? Then why almost no one enters the deal? Well, Shipping is an extremely volatile market, that is affected by the price of oil, the price of steel, the availability of shipbuilding capacity, international regulations, the weather, the global demand/production balance of commodities, the World GDP, geopolitical events, the scrap price of vessels, and most importantly, by the prevailing perceptions. 

It is the first fully Globalised business in the world. A Shipping venture cannot be described in a Business Plan because most of the assumptions can be wrong at any time. 

So, if you wish to be a Shipping Investor, you need a strong stomach, loaded pockets, good instinct, and Bankers or investors that trust your ability to “read the markets”. 

In the recent years, the golden boys of Wall Street found an opportunity to enter the Shipping Industry, as the prices of assets were very low. However, Shipping can take a limited amount of capital after which overcapacity takes place and prices fall.

Prices of the dry cargo ships have fallen greatly, and may fall even lower. This made the Private Equity investors, whom known as short term investors, leave the market and offer their vessels to the traditional players at attractive prices. Encouraging the usual asset players “the Greeks” to buy with both hands. As last year they bought more than 20B$ of used ships, with UK interests following at about 7B$. 

So it is difficult to say that I was right in buying my imaginary ship, or that the Greeks were right to buy theirs, only time can tell. One think is sure, that if you want to invest in ships, you must have long term investor’s qualities, and enjoy the experience, wisdom and patience that enabled the Greeks to control this trade and control one-fifth of the world fleet of ships.

Published in Al Wasail Newspaper