New ship or old ship, the shipowner is in a dilemma

2014-10-09 09:00

Some MR product tankers with around 10 years of service Tankers ( Ship type Shipyard Trading Owners of such vessels are now facing difficulties in choosing new ship investments. Since these vessels were acquired at lower prices a few years ago and currently have high-priced time charters, should owners retain these vessels for future business development or replace them with new, environmentally friendly vessels?

Poten & Partners, a shipping consultancy, stated in its latest report that more and more market participants are questioning whether tanker owners should order new vessels to replace older ones.

In response, after comparing some investment case assumptions, Poten stated that under the current charter rate environment, investors are better off continuing to use existing vessels rather than acquiring new ones. However, other factors need to be considered, such as the higher operating expenses of older vessels compared to newer ones (especially compared to the first year of operation of a new vessel). In addition, financing for older vessels is more difficult, resulting in higher financing costs. These subtle changes can affect the relative economics of investment. Another factor to consider is market liquidity. In the current market, acquiring older vessels is easier than acquiring newbuild resale vessels, as resale vessels may see price increases in the second-hand market.

Another point to note is that the ability of older vessels to secure a next charter when the current one expires is a key factor in determining the investment direction. After the long-term charter expires, non-environmentally friendly vessels may reach 15 years of age, making it more difficult to compete in the charter market with environmentally friendly vessels. This will affect the residual value of these older, non-environmentally friendly vessels. Poten indicates that timing has always been key in the tanker market. When owners choose to invest in vessels, whether it's modern vessels or older ones, it's crucial to invest at the beginning of the market cycle. Whether now is the right time to invest is another topic that needs to be discussed.

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