Shortage as an opportunity: How you can profit from shrinking fleet sizes through anti-cyclical investing

Shortage as an opportunity: How you can profit from shrinking fleet sizes through anti-cyclical investing

April 2021 |Ship Ahoy? Perhaps not for much longer. Global shipping fleets are facing a dramatic shortage. What is often artificially used as a strategy in marketing turns out to be reality in shipping and can become a serious problem. 

The brisk trading activity on the second-hand markets shows movement, but does not solve the problem. After all, shrinking fleets can have a serious impact on the supply of the world’s population. Investment in new ships a clear competitive advantage. Find out here what role environmental protection plays in this and how you as an investor can profit from it.

Around 90% of the world’s goods are traded by sea. Around a third of this is accounted for by bulk carriers, so-called bulkers. They transport more than 5 billion tonnes of freight per year. Unlike container ships, the route of bulkers follows their goods – they go where they are needed. And so they fetch coal from Australia and Indonesia. They load ores from Brazil and South Africa. Bring grain from the east coast of South America or fertiliser from Morocco. They supply the global aluminium production with the raw material bauxite from Jamaica, among other places. Cement, steel or forestry products – just about every item of our daily needs – were on board a bulker in one form or another. 

Brisk demand on the bulker market 

The class of handysize bulkers is particularly flexible in use. Due to their size and technical equipment, these ships can dock almost anywhere. They are currently in great demand:

On the second-hand market for bulkers, a record year is already in the offing at the beginning of the second quarter. Specifically, 279 used bulk carriers have changed hands so far in 2021, according to the shipping organisation Bimco on shippingwatch.com. By comparison, a total of 794 used bulk carriers were traded in 2020. 

The fact that the market is moving is a good sign. But it does not solve the real problem. For many of the ships that are traded are a dying species. 

Age and emission values are exclusion criteria

An overview of the market as a whole shows:

There are currently around 3,800 bulk carriers of the Handysize class on the world’s oceans. 

This is likely to change significantly in the near future:

  • 572 ships of these are 20 years old and older. A ship also only has a limited life cycle and will be scrapped at some point. For comparison: in the last quarter of 2020, the average age at the time of scrapping was 27.6 years. 
  •  Ships in the 10 to 15 years and 15 to 20 years age categories are also facing cuts. They do not meet the upcoming requirements of the International Maritime Organisation (IMO) with regard to environmental protection. While the previous emission requirements of the International Maritime Organisation (IMO) have so far only applied to newbuildings, the tightening decided last year now explicitly includes the existing fleet. The new EEXI (Energy Efficiency Existing Ship Index) obliges almost the entire sailing world merchant fleet to reduce its current CO2 emissions by up to 50 percent from 2023 onwards, depending on the type of ship. Almost 90 per cent of the world’s handysize bulkers do not yet meet these targets. The maximum limits on fuel consumption, sulphur content of the fuel and the obligation to install a ballast water treatment system will also place a heavy burden on many shipping companies. 
  • Retrofits are very expensive and, depending on the age of the ships, will not pay for themselves. But ships with high CO2 emissions will face financial disadvantages in the future and will no longer be allowed to call at certain ports. So another 1,483 ships could soon be out of service here. 

The graph shows how the global handy size bunker fleet is threatened by shortage

New build orders cannot compensate for shortage

Now, one would think that against this background the number of orders for new buildings should skyrocket. But that is exactly what it is not doing. This makes the shortage even more dramatic. 

  • Just 105 Handysize Bulkers are currently listed for delivery this year. 
  • Newbuilding orders for deliveries in the coming year stand at 28 ships, and in 2023 there is currently only one ship. 

Figures like these represent an all-time low. And this despite the fact that newbuilding prices are currently as low as they were last in 2008!

Consequences of the shortage can be immense

But to what extent can it affect us all if the supply of raw materials is jeopardised by a lack of transport options? Well: a supply shortage can paralyse entire value chains and cause enormous damage. 

A current example is the shortage of raw materials on the German timber market. The German Association of Wood Packaging, Pallets, Export Packaging (HPE) recently warned that pallet producers and other manufacturers of wooden packaging would soon no longer be able to produce enough. 

Exports to China and the USA have drastically increased the availability of wood in recent months. Individual sawn timber assortments and wood-based materials, such as plywood and certain chipboard, are currently hardly available. This can result in noticeable impairments for the entire movement of goods, which can also affect the food sector, the chemical industry or mechanical and plant engineering. 

Solution: Investments in environmentally friendly ships are more in demand than ever before

The investment policy of the Hamburg shipping company Vogemann prevents these grievances. 

Since 2015, Vogemann has placed a number of newbuilding orders for highly efficient and environmentally friendly handysize bulkers such as the Green Dolphins. All these newbuildings convince with an excellent combination of increased energy efficiency and reduced emission values. The shipping company knows that what is good for the environment also increases the pressure on ship operators to use only their most efficient ships in the market. 

And it is precisely such efficient ships that Vogemann has in stock:

  • Worldwide, only two of around 2,700 Handysize bulkers between 22,000 and 42,000 ts deadweight already meet the CO2 emission requirements for newbuildings of 2029. Both are Vogemann newbuildings. 
  • Another four new Green Dolphins have already been ordered.
  • In addition, money is being raised via the Vogemann Green Ship Token and direct investments to expand the fleet with low-emission bulkers beyond that.
  • In addition to newbuildings, bulk carriers with a deadweight tonnage of between 30,000-70,000t (Handysize – Supramax/Ultramax size) with an age of up to ten years and low consumption and emission values are on the shopping list.

More efficiency is not only good for the environment, but also for the profit

The Vogemann fleet’s strategy of environmentally friendly bulkers is working. The ships already emit more than 30 percent less CO2 than average handysize bulkers. Other ships will have to reduce their speed considerably to reach the required values. Even at a speed of 12 knots, the Vogemann bulkers consume only 15 tonnes of fuel per day. That is nine tonnes less than many other ships. 

The low fuel consumption not only protects the environment, but also ensures better utilisation and higher charter rates. The evaluations show:

Comparison charter rates Handysize Bulker vs. Green Dolphin

While average rates in the handysize bulker segment are currently at a ten-year high, Vogemann’s first Green Dolphin is achieving rates around 20 per cent higher. And this since delivery. Due to the regulations that will come into force in the future, the low CO2 emissions will soon have an even greater impact on charter rates. 

Take your chance: With an investment in the Green Ship Token of the Hamburg shipping company Vogemann you secure 8 percent interest p.a. plus a share in the profits and at the same time make a difference for improved environmental protection and more security of supply!