Market Insight | Week 34
Following Russia’s invasion in Ukraine in February 2022, there has been an observable increase in premiums associated with imposed sanctions and war insurance. This has notably impacted the demand for older vessels, with heightened interest from owners based in Turkey, the UAE, and China. Additionally, the geopolitical tensions resulting from the Israel-Palestine conflict, leading to what has been termed the “Red Sea Crisis,” have further contributed to rising premiums for ships transiting the Red Sea, reaching 1% of the vessel’s value.
In the case of bulk carriers, similar momentum has been evident this year so far. In fact, we are witnessing the second-highest number of transactions involving vessels over 20 years old. This figure is approaching the record number of 64 deals for the same period (January to August) in 2022, which was also the year with the highest number of sales and purchase transactions for bulk carriers over 20 years old, totaling 87 deals. We would like to highlight that, based on our preliminary data, 2024 is shaping up to be the year with the second-highest number of SnP deals for dry bulk vessels (January-August period), trailing only 2021, which continues to hold the record for the most transactions in a single year. So far this year, our data indicates that there have been 60 SnP deals involving bulk carriers (20,000+ dwt) over 20 years old. Upon closer examination, the majority of interest originates from Chinese companies, with 37 confirmed deals involving shipping companies based in China. The remaining interest is distributed among Greek, UAE-based, Turkish, and Vietnamese buyers, each accounting for only a few vessels. Notably, Greek interest in such vessels remains minimal, with only three vessels being acquired. Regarding sellers, Greek owners represent the majority, with 19 vessels sold, followed by Chinese sellers with 17 transactions.
New environmental regulations, including the recent implementation of the EU ETS system, are expected to accelerate the disposal of very old vessels, which, in the long term, will pose an increasing challenge for owners wishing to trade in international waters. In 2022, war-related premiums played a significant role in the acquisition of such older ships. Looking ahead to 2024, it is possible that domestic shipping could justify some of the Chinese interest in aging vessels. However, this strong demand for older ships is accompanied by low demolition activity, resulting in a gradual increase in the average age of bulk carriers, rising from a low of 8.50 years in 2016 to the current 12.30 years. Several factors contribute to the reluctance of owners to demolish their vessels, including a favorable freight market, which offers profitable opportunities, particularly for premium-related routes, as well as challenges in the steel industry in key Indian-subcontinent nations. These challenges include the impact of Chinese export dumping, political and economic instability affecting shipbreaking activity, declining steel prices, and other factors that would require further detailed analysis to fully address.