URSABLOG: To Buy, or not to Buy

As I am sure I have mentioned before, the three deadliest words in the English language for a ship sale and purchase broker are ‘Wait and See.’ Chartering brokers, God bless them, know that ships have to be fixed, and if they miss one fixture, like a train, they can wait and catch the next one. This does not necessarily make the frustration any less, but it does it make it easier to forget the pain quicker. For us, a ship sale may be missed, i.e. someone else other than our clients will do the deal, but we also have to deal with the fact that the deal may not be done at all, i.e. buyers or sellers may just decide that the time, or the money, or the circumstances, or whatever, is not right. Then we have to pick ourselves up, and go looking for something else. It’s like missing a bus and having to walk it rather than just waiting for the next one, because we don’t know when or if it will come at all.

The other issue is the relationship with my brother and sister brokers, and all that entails. This is not a straight competitive fight you understand, us versus them. We have a strange symbiotic relationship with each other: we need each other to get deals done and share information in the marketplace, but we also want them to disappear, especially when they do a deal with accounts we are working. We can’t live with them, and we can’t live without them. And although there are many different brokers, with many different personalities – just as there are shipowners – I firmly believe that we should act on and behalf of our owners, and not just push them to do deals because we need them. You can imagine however that by no means everyone agrees with me, and that this approach leads to frustration too.

At present, many of my clients are in just a ‘wait and see’ mode. There are as many reasons at the moment not to do a deal, more probably, as there are to go ahead and buy. These include (but are by no means limited to) the following:

-         IMO 2020

-         Ballast water treatment system installation

-         Trade wars, or otherwise

-         The doubtful future strength of the freight markets

The added twist in the mix is the attitude of sellers and buyers. Sellers, especially in the dry market, are enjoying a busy and frothy freight market, especially the spot market, and are making better money, on a day to day basis then they have for some time. Why should they sell at today’s market prices which remain stubbornly low? Better to wait and see. And buyers are reluctant to move with all the above factors in their minds unless a ship is priced in line with their nervous expectations. Better to wait and see.

But, my shipowner friends tell me, there are deals being done, there is turnover. This is indeed true, there are. But when I ask them if they want to join the fray, they, sensible and prudent owners as they are, reply – yes you guessed it – ‘wait and see’.

For some brokers, this means that they are getting a but rusty. They work hard of course, but they lack match fitness, the fitness that comes from negotiating deals regularly. This is not about money, or just about money, but about something more fundamental, their raison d’etre.  Every striker needs to score goals, but every striker goes through dry periods too. These dry periods mean that they have to work harder for the chances: they may score by a deflection, or even force an own goal.

So what are the reasons to buy at the moment? Well first of all I have to repeat the Simon Ward Three golden rules of shipping investment, which were helpfully quoted to back to me the other day by another client; I agreed that I should abide by them, seing as I wrote them. They are:

1)     Buy Cheap. This means at the lower part of the cycle of prices, not just ships that are cheaper than others are at a particular time (those of you that receive our tonnage updates will see from the graphs that this is where we are at the moment).

2)     Buy What The Charterers Want. Shipowners are tonnage providers (unless they have specific trades of their own, which is rare). They should therefore provide the tonnage that the end users - the charterers - want.

3)     Always Have Ships AND Money. Self-explanatory I would have hoped, but if you don’t have the ships, you can’t take advantage of the market when it improves, but if you don’t have the money you can’t weather the risk of the downside when it comes.

Now I can’t do anything about the cash, but a lack of sufficient resources will prevent prudent owners from diving into buying ships, however cheap they are. There is a fourth rule, which is more of statement:

Shipowners only go out of business through choice or debt.

So that rules out overburdening the company with debt, even if it was available from imprudent lenders; those days are gone, for now at least. But as for rules 1 and 2, there is relatively cheap tonnage available (ask for the graphs if you want them) and there are ships that charterers like out there too for sale; depending on the sector and the size.

If this was all that was needed to get the market moving, I would not have time to write this blog so overwhelmed would I be with enquiries, negotiations and deliveries. But obviously there is something else holding people back: the future. Sadly I can’t do anything about that: I can’t predict it, see where the black swans are and when they will land on my pond. That is, I admit, a profound admission of my weakness, and I can only take comfort from the fact that almost everyone else suffers from this affliction too. Listed companies and analysts of course, possess that talent that us mere mortals can never aspire too.

The orchestra of the dry sale and purchase market is not in tune at the moment: buyers are playing in a different key from the sellers. I would suggest that this dissonance is due to the fact the sellers are viewing the market from the standpoint of short-term risk, i.e. the good earnings in the spot market, whilst buyers, the ones that will be investing the money rather than cashing out, are nervous about the long-term risk, and want to eliminate – or at least come to terms with – the more difficult things the future will bring..

So my earth shattering conclusion is that this trend will keep going in the same way until it doesn’t, and then we will be faced with a different set of problems, ones that we can’t predict as yet. It’s all about how much risk we want to swallow, or what our risk appetite is. The Institute of Risk Management (yes it exists) helpfully points out:

Risk appetite can be defined as ‘the amount and type of risk that an organisation is willing to take in order to meet their strategic objectives.’…. A range of appetites exist for different risks and these may change over time.

That nails it. Or not. But I do think it is helpful to think about the strategic objective of buying a ship, and whether doing so will fulfil that objective. If it does, then please give me a call, and I will be happy to help. If it doesn’t give me a call anyway: maybe you could be a seller. If that isn’t the case either, and waiting and seeing is all you want to do, call me anyway. I don’t mind waiting and I know the bus will come sooner or later, and after it’s always nicer having a conversation with a friend whilst you’re waiting.

Simon Ward

www.ursashipbrokers.com