An investment opportunity could be emerging for tanker owners in the Handy segment, as the global fleet in this particular segment is ageing. In its latest weekly report, shipbroker Gibson said that “this week has seen freight rates for both clean and dirty Handies in the Black Sea and Mediterranean surge to record levels, showing some of same extreme volatility that the VLCCs saw just a month ago, albeit not for the exact same reasons. Such supercharged rates have made this sector one of the best performing asset classes in recent weeks. But the Handy sector has interestingly been devoid of investment in recent years, with effectively no order book and an ageing fleet. Questions therefore need to be asked as to whether this is now a sector worthy of renewed investment?”
According to Gibson, “the Handy fleet is ageing. Whilst the fleet typically trades for longer than most other asset classes, with an average scrapping age of 26, the implementation of the ballast water management convention is likely to bring the scrapping age down. Furthermore, the pool of modern Handies under 15 years old is also set to shrink. The max 15 year fleet currently stands at 309 vessels, however, next year 33 vessels will move into the over 15 category, whilst only 3 newbuilds will enter the market, making the max 15 years fleet just 279 vessels. In fact, between 2020 and 2023 on average 35 Handies will move into the >15 age group per year. Charterers who have a max 15 year requirement will therefore face increasing difficulty securing suitable tonnage, whilst freight premiums for modern tonnage will surely rise”
The shipbroker added that “of course, the other side of the story is that of demand, with bearish expectations for demand being one of the reasons why investment has been lacking. Indeed, the dirty Handy sector was one of the few sectors where IMO2020 had the potential to negatively impact demand. When the implementation date for the convention was first set in stone, many in the industry expected gasoil to steal significant market share from fuel oil (one of the primary cargoes for Handy tonnage). Whilst this is true to a certain extent, expectations for compliant fuel oil demand have been consistently revised upwards, creating opportunities for Handies to play a key role in transporting compliant fuel oils to both major and regional bunkering hubs”.
“So, does this mean there is now a renewed case for investment in Handy tonnage? Perhaps, although caution is still required. Whilst the count of Handy fixtures in the dirty products sector have been in falling in recent years, the decline rate has slowed and fixture volumes this year could be on par with 2018 levels. However, notably for the clean Handy sector, spot fixture volumes for 2019 look down on 2018 levels, having risen consistently over the past few years. Another threatis how much market share the sector is losing to larger MRs in the 45- 55,000 dwt range. This year however, MRs appear to have been less actively in terms of the number of part Handy cargoes carried, although they will remain a constant threat to the sector over the coming years”, Gibson noted.
“From an investment perspective, a newbuild MR costs just $2m more and offers a much more diverse range of trading optionality, often making it a more attractive investment proposition compared to a more niche Handy. This goes some way to explaining why investment in the Handy sector has been so limited. However, with a shrinking modern fleet and a reasonable demand base, the case for investing in the Handy sector appears to be growing. If investment is not forthcoming, then those charterers who rely on modern Handysize tonnage to serve their business requirements, could find it increasingly difficult to secure suitable vessels in the future, unless they are able to reconfigure their programme around the larger MRs”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide