Why Vessel Prices Remain Stubbornly High
The past few years’ trade disruptions–from COVID to the Russia-Ukraine war–enormously benefited container ship, tanker, and dry bulk owners alike as these vessels surged in profitability. Windfall profits from recent trade disruptions gave many shipping companies the chance to significantly reduce their debt, leaving them with more cash on hand than ever before.
Where Did the Excess Cash Go?
After paying back lenders, shipowners unsurprisingly chose to invest their excess cash into what they know best: more ships. Shipowner negotiations determine the secondary market for vessels, so having both buyers and sellers flush with cash naturally supports higher ship prices—
Sellers face less urgency to offload vessels when they have strong balance sheets.
Buyers can afford to pay more, driven by ample liquidity and a desire to grow or update their fleets.
A Disconnect Between Ship Prices and Vessel Earnings
Remember: shipowner-determined ship prices are entirely separate from charterer-determined vessel earnings. Charterers negotiate vessel earnings purely focused on cargo transportation cost, i.e. how much the vessel cost to buy at the origin, ship, and then sell at the destination. Whether a vessel was purchased for a premium in the secondhand market doesn’t affect what a charterer pays in freight rates.
Given this disconnect between ship prices and vessel earnings, we’re now witnessing historically high ship prices relative to actual vessel earnings. This gap may persist until the extra cash shipowners accrued during the recent boom years is finally absorbed or spent.
The Bottom Line
Just as inflation in everyday goods can persist when consumers have more disposable income, ship prices can remain elevated when their natural buyers—shipowners—are flush with cash. Until that liquidity normalizes, expect second hand ship valuations to remain stubbornly high, regardless of how much freight rates might soften.
