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Amit Mitra

Mumbai , March 8

CAN the price of a second-hand ship be more than that of a new one? Incredible as it may sound, but it is true in the current international tanker market.

As shipyards the world over are full with new-building orders, ship owners are willing to shell out the cost of a new ship for a five-year old vessel in the same category, resulting in prices of second-hand ships hitting the roof in the last few months. What is more, there have been instances in the last two months when ship owners purchased certain five-year old ships at a price that is more than the cost of their new-building order.

This piquant situation has forced Indian ship owners to put on hold their plans to go in for acquisition of second-hand vessels, despite sitting on significant cash reserves. "We have adopted a wait-and-watch policy as far as acquisition is considered for the time being. On one hand, we will have to wait for at least three or four years for a new ship, while the second hand market is characterised by rising mercury levels," an official of a shipping company pointed out.

Sample this. In November last year, ship owners placed an order for a new Very Large Crude Carrier (VLCC) for $105 million, while in the same month five-year old VLCCs in the second-hand market were picked up for $112 million. In the next month, the price of a five-year old VLCC fell marginally to $108 million, while that of a new building order remained at $105 million. Last month, the price of a new-building order rose to $110, as against a second-hand price of $109 million.

Similar was the case in the Suezmax and Aframax segments. In November and December last year, shipyards took new-building orders for Suezmax vessels for about $68 million, while the cost of a five-year old vessel in the same category was $73 million. In January this year, the price of a second-hand vessel in this segment was about $3.5 million more than the new building price of $70 million.

"The unprecedented heating up of the second-hand ship market was primarily because of the fact that shipyards will not be able to deliver new ships before 2007 or 2008. And with the freight market being steady, ship owners were willing to pick up second-hand vessels at such high prices," a shipping analyst said.

Indeed, shipyards, the world over, are full, with shipping companies placing significant orders for new vessels. According to some reports, up to 45 per cent of the world's container fleet and 20 to 25 per cent of the world's cape- size fleet will be added in new capacity by 2008.

Another factor that heated up the second-hand market was the steady freight market winds.

According to global reports, the average spot-market rate of VLCC, for example, was $91,900 per day in 2004 (it touched a record $2,00,000 on some days in December), as against $66,900 and $12,200 per day in 2003 and 2002 respectively.

This trend has prompted Indian companies to re-work their tanker acquisition plans, waiting for the mercury in the second-hand market to dip before dipping into the second-hand ship market.

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