The economist John Maynard Keynes famously commented that “In the long run we are all dead”, and for shipping market players waiting for cyclical markets to improve it might sometimes feel like that. But with two of the previously long-suffering sectors enjoying better times recently, how do the improved market conditions impact on a long-term view of performance?
A Long Way Ahead?
The shipping markets in general have spent significant periods of time since the onset of the financial crisis back in 2008 around bottom of the cycle levels, acting as a drag on cumulative earnings. The graph compares the performance of a Capesize bulkcarrier, an Aframax tanker and a 4,400 TEU (‘old Panamax’) containership (vessels not priced dissimilarly for newbuildings prior to the crash) in terms of the monthly development of cumulative earnings after OPEX.
The Capesize generated around $29m in total by end 2016, benefitting from market spikes in 2009-10 and 2013. But with Cape earnings largely near OPEX between early 2015 and end 2016, the cumulative total did not increase much. In comparison, Aframax tanker earnings hovered close to OPEX for several years after the crisis. However, the 2014-15 rally in the tanker market allowed the Aframax to catch up, and its cumulative earnings reached around $37m by end 2016, having overtaken the Capesize total. The containership charter market, meanwhile, was largely rooted at depressed levels between 2008 and early 2017. With earnings close to OPEX for much of the period, a 4,400 TEU unit generated cumulative earnings after OPEX of less than $13m up to end 2016.
Longing To Catch Up?
But 2017 and this year so far have seen improved market conditions for bulkers and boxships. This has been welcome news for owners, but how much of a difference has it made in the longer-term context so far?
A Long Way Back…
Well the Cape has started to close the gap on the Aframax, with cumulative earnings moving to $31m, whilst Aframax cumulative earnings have remained below $40m, held back by the fall in the tanker market from 2016. Meanwhile, the gradient for the 4,400 TEU boxship is at least now upwards, with cumulative earnings tipping above $13m (other boxship classes may have performed a little more strongly, but the overall picture would be similar). But two factors mean that the picture hasn’t changed more significantly yet. Firstly, the markets have not been good enough for long enough yet. Secondly, whilst earnings have started to move away from the bottom of the cycle for bulkers and boxships, they are still far from the ‘spike’ levels that do so much to help owners’ cumulative earnings.
In The Long Run…
Still, bulker and boxship owners will be glad of improved market conditions after challenging times. However, waiting for the cumulative impact can be a long game, although turning markets can look attractive to new entrants. Shipping investors will no doubt monitor the earnings swing closely, with an eye on asset play opportunities too. Have a nice day.