How do the Greek ship-owners profit from the global financial crisis?

According to a Moody’s Investors Service analysis, the global shipping slump is expected to last well into 2013 as a glut of vessels and a growing credit squeeze will challenge even the toughest companies in the seaborne sector.

Shipping companies, especially in the oil tanker and dry bulk sectors, already hit by worsening economic turmoil, weak earnings and oversupply ordered in the good times, now face tighter financing as banks cut their exposure to risky and dollar denominated assets such as ship finance to meet tougher capital rules.

However, the above mentioned shipping-related crisis seems to reinforce the Greek ship-owners, who were able to save liquidity thanks to very good years they had, and to keep significant funds in their “coffers.” And now, just before overcoming the crisis, they are trying to seize the newly emerged business opportunities.

Within a year, the ships have lost up to 24% of their value, while compared to the golden era of 2008 the prices have dropped by as much as 100 million U.S. dollars according to estimates made by the Baltic Exchange.

Despite the fact that there is a serious lack of funds available in the credit market, making it difficult for borrowers to obtain necessary financing, and despite the limited funds, compared with the previous two years, that the Greek ship-owners raised in 2012 from the New York Stock Exchange amounting to 1,129 billion U.S. dollars (source: XRTC Ltd Business Consultants), the Greek ship-owners of the Piraeus port – the Greek shipping centre – are undismayed.

According to Golden Destiny S.A., in 2012, the Greek ship-owners bought 216 ships, having invested more than 3,850 billion U.S. dollars, while in 2011 they had bought 198 ships, investing 4,744 billion U.S. dollars.

Within the first two months of 2013 the Greek ship-owners have doubled their purchases of ships and in January they signed a series of new shipbuilding contracts, anticipating that their prices have fallen to such an extent that according to them it was not worth waiting for any longer, risking losing opportunities through their hands. Indeed, Greek ship-owners have started focusing especially on the market of dry cargo vessels, where there are some preliminary estimates that the crisis might come to an end much sooner.

It is estimated that in January and February, Greek ship-owners invested on the purchase of ships almost 530 million U.S. dollars, 100 million more than their 433 million invest of last year, and in January they signed shipbuilding contracts worth 1.5 billion U.S. dollars.

What is interesting, is that today the majority of the Greek ship-owners have the opportunity to buy more than four large dry cargo ships (capesize vessels – typically above 150,000 long tons deadweight (DWT)), aged just five years, at a price that was enough to buy just a single vessel in March 2008. In other words, currently, the Greek ship-owners are buying a large dry cargo ship at a price of 29,8 million U.S. dollars, when a year ago they had to spend almost 34,8 million U.S. dollars – that is, a decrease of 14% – while in 2008 they would have needed funds worth 140 million U.S. dollars.

Another example is the following: today, a panamax (typically, cargo ships of 65,000 – 80,000 tons of deadweight (DWT)) is purchased by a Greek ship-owner at a price of 18,5 million U.S. dollars compared to 24,4 million dollars just a year ago – a 24% drop – while in 2008 the price of such a ship amounted to 81.5 million dollars, 63 million dollars more than the price of 2013.

One more indicative paradigm comes from the market of supramaxes (bulk carriers with a capacity less than 60,000 tons of deadweight (DWT)). In 2008, with an amount of almost 67 million U.S. dollars a Greek ship-owner would have bought a supramax, while at current law prices he can buy more than three such ships. Today, a five year old supramax vessel has an estimated price of 18,1 million U.S. dollars, while just a year ago the same vessel would have been bought at a price of almost 23,3 million dollars, which means a drop of 22%. And if we go back to 2008, for a purchase of such a vessel a ship-owner would have needed funds worth 68,6 million dollars.

Despite the fact that the above mentioned large fall in ship prices has brought many shipping companies in an extremely difficult position, it has also created great business opportunities to take advantage of.

The shipping market expects that the Greek ship-owners will continue in the coming months to buy ships. However, what is worth noting, as mentioned by several international bankers and shipbrokers, is the fact that today the majority of Greek ship-owners, who buy new or used vessels are, in most cases, traditional ship-owners, who prefer to do business outside the global system of stock exchanges and markets, and who prefer to be based on their own families’ funds, which make them move quickly, safer, and more targeted in order to strengthen their presence in the global shipping market after the crisis.

However, the strengthening of the position of Greek ship-owners has not only to do with the chartering sector, but with the sale of vessels, as well. With prices of ships standing, currently, at such low levels, the Greek ship-owning community is ready to redeem its investments at the right time, when prices reach the desired levels and once the Greek ship-owners have recouped their investment in a relatively short time.

After all, it is well known that Greeks belong to the prime maritime nation, which traditionally wins money by “playing” in the stock markets of ships’ prices. This is something that happened several times before 2008, when Greek ship-owners chose to proceed to a series of massive sales of tankers and of dry bulk vessels, characterized by the international press as great maritime agreements, having resulted in gains of several hundred million dollars.

Dr Panos Kapetanakis