Pacific Basin to target the pick of secondhand ships

Hong Kong-listed owner takes a no-newbuildings stance due to high prices

Pacific Basin Shipping is scouting for secondhand ships in a recovering dry cargo market after ruling out ordering newbuildings at today’s prices.

Hong Kong-listed Pacific Basin, which posted its first annual profit since 2013 last week, bought eight secondhand vessels in 2017.

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This swelled the company’s owned fleet to 106 bulkers from the 34 it had at the beginning of 2012.

“We still think there is significant upside in secondhand values,” chief executive Mats Berglund told TradeWinds in a post-results interview.

“We will continue to look at good secondhand ships but we will be very picky in the ships that we buy.”

Berglund explained the gap between newbuildings and secondhand bulkers remained wide historically. Clarksons, he noted, valued a five-year-old handysize at $14m compared with the $22m price tag the brokerage attached to a newbuilding.

“In a strong market it’s not unusual for the value of a five-year-old to touch the value of a newbuilding, as seen in prior strong markets,” Berglund said.

“We are nowhere near that level yet. Hence, we see continued upside in secondhand values, which is good since we already have 106 of them.”

b4edd32b4a962901741b4a93230ccc62 Pacific Basin Shipping has a fleet of 106 owned vessels Photo: Pacific Basin Shipping

The price gap is just one of the reasons Pacific Basin is not looking to book fresh newbuildings. Excess capacity on the water, a global fleet not yet at full speed and upcoming regulations are all barriers.

“Ordering a ship today that delivers two years from now that you need 25 years life out, that is going to be an outdated ship,” Berglund said.

“It’s much easier for us to make sense of a secondhand ship which has a much shorter payback time and a much lower price.”

Last August, Pacific Basin struck a deal for five bulkers that saw Imabari Shipbuilding and Tsuneishi Shipbuilding become shareholders.

Berglund said the transaction was unique and involved Pacific Basin’s two largest tonnage providers. However, using shares to acquire vessels will be difficult to replicate, he added.

“We are always looking at accretive ways to use our share but it’s difficult to repeat such a transaction,” Berglund said.

“Most sellers of ships need to sell because they need the cash,” he said. “They are not in a position to take shares.”

Pacific Basin recorded a profit of $3.6m in 2017, its first year in the black since 2013, in a recovering dry cargo market.

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Berglund expects the market to improve further in 2018, aided by a slowdown in newbuilding deliveries.

“If demand remains at reasonable levels the market should continue to tighten a bit,” he said.

According to its results presentation, a $1,000-per-day rise in freight rates translates to a $35m to $40m lift in Pacific Basin’s bottom line.

“You combine our business model with having a much larger fleet and a lower cost structure and we feel we are well positioned to take advantage of the recovering market,” Berglund said.