Panamax Earnings Vs. Values

A core tenet of valuation theory: the price of an asset is the net present value of the cash flows it generates…unless that asset is a ship.

Since 2022, the dry bulk market has held a clear gap between high vessel values and weak earnings.

This gap has persisted for these 2+ years largely due to ship owners’ optimistic belief that the high price they’re paying for vessels today will be justified by higher earnings in the future.

However, the banks and credit funds that finance vessel purchases do not accept optimism for future earnings as a method of payment and need to be repaid using vessels’ actual daily earnings.

The present reality: Panamax bulker sector vessel earnings have fallen to less than $10,000/day, and even vessels with modest leverage from banks likely have cash breakeven levels of around $11,000/day.

Shipowners who have retained their vessels’ earnings should have cash on hand to cover the cash shortfall, but those that don’t will be at the mercy of their lenders providing a temporary waiver.