Shipping companies in India are planning to buy vessels from the second hand market, rather than placing new orders, as the prices of second hand vessels have fallen by 30%-40%. According to industry experts, it?s a good time to acquire ships, and there are predictions that the prices might fall further, owing to the economic downturn.
Currently, a five year-old VLCC vessel in the second hand market is priced around $84 million, whereas last year, the price for the same was about $150 million. Similarly, in the cargo segment, the price for a capsize vessel has fallen to $53 million, as compared to $150 million in 2008. According to experts, there are further possibilities of negotiations in the second hand market, considering the current situation.
According to analysts, asset prices in the second-hand market have crashed to half or even less of their peak values last year due to an oversupply situation in certain segments, a big drop in freight rates and lack of funding.
In the dry bulk segment, freight rates have dropped to 4000 points in June, whereas, last year it has touched 12000 points, around the same time.
?There is a huge possibility of distress sale of vessels due to the current downturn. Hence, we are mostly planning to acquire ships from the second hand market, which will be mainly for our offshore operations,? commented Yudhistir Khatau, MD, Varun Shipping.
Though shipping companies agree that it is a good time for acquiring ships from the second hand market, the concern lies with the availability of funds, hence the overseas banks are still in a wait and watch mode.
?This is a good time to buy. Though we are not sure, prices may go down further. But the biggest challenge right now is getting funds as the Indian banks have very little appetite for the shipping sector,? commented S Hajara, CMD, Shipping Corporation of India.
Keeping in line with the industry prediction, Bharati Shipyard said that though their order book is full, new orders are not on its way.
?Second hand market is a viable option, as the vessel prices have gone down. But that is happening more in the cargo segment rather than in the offshore vessel segment. However, this year, we have seen a decline in new orders,? said PC Kapoor, MD, Bharati Shipyard.
However, according to some industry experts, even new placed orders can be negotiated, in the present circumstances.
?Taking into consideration the current situation, there is a greater possibility of negotiation for newly placed orders. However, for immediate requirements, people will look at secondary market as the new builds will only be delivered after 3-4 years,? commented Arvind Mahajan, executive director, KPMG.
?Negotiation of prices is going on, and the contracts for ships that have been placed in the last 6-9 months, are facing greater pressure for renegotiation,? he added.