WHEN TO BUY A SHIP: A 5-Step Process

by Geoff. Uttmark

Part One of a Two Part Series

Despite depressed freight rates, second hand values have been rising in the dry bulk sector. The best recent example is the sale of the Japanese handysize bulk carrier Hanei Pearl, 38,000dwt built in 1984, for $5.85 million, substantially more than the $4.9 million that George Economou of Alpha Shipping paid for her sistership, Sanko South, in November. In a broader context, Shipping Intelligence reports that bulk carrier values are up 10.5% in the last six months, while charter rates are down 3.2% during the same period.

In light of what some view as “irrational exuberance” in the sale and purchase market, we thought it appropriate to go back to the classroom to learn how to calculate the financial return on a shipping project. While stronger values have already emerged on the dry side, in celebration of Teekay’s “amalga-merger” with Bona, our analysis will use the much heralded (and frequently ordered) aframax tanker. The aframax tanker involved in our analysis is not an actor. She is a real vessel, playing the role of herself. For our analysis, we use real numbers, plausible assumptions (we think) and proper techniques. In the end, we will leave bankers and owners to decide just how to quantify a hunch.

This is only an excerpt of WHEN TO BUY A SHIP: A 5-Step Process

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