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>To fill them, anyone purchasing these vessels will likely take advantage of the lower purchase price and offer even lower freight rates. I don't expect the sup

by desdiv 10y ago

>To fill them, anyone purchasing these vessels will likely take advantage of the lower purchase price and offer even lower freight rates. I don't expect the supply and demand to change quickly. The supply of shipping hasn't changed (still the same number of ships, just different owners), and the demand of shipping hasn't changed, so wouldn't the cost of shipping stay the same? There's no incentive for the new owners to lower their prices just because they got their hands on some cheap ships. They would probably rather just make a higher profit instead.

bkor 10y ago
Within any shipping company you usually have various container vessels which you own, then various that you charter. This allows you to be flexible. So a shipping company could hand back some chartered vessels, then buy Hanjin ones. If they buy it cheaply, the average cost per day should be lower than the charter rate. Ideally they'd do this in a smart way. So same size vessels and just reduce cost. In practice, they'll probably buy bigger vessels than they used to have (bigger vessel has a lower cost per container, provided they're fully utilized). Then lower the rates as they notice it is difficult to fill them (no change supply/demand). A few years ago the shipping companies idled vessels to reduce capacity (instead of lowering prices). In 2016 it seems they do both (bit of idling, but also compete on price). Note that I didn't notice any shipping company making a profit in 2016. Average is a -5% EBIT margin ( http://www.alphaliner.com/get_public_newsletter.php?file=2016/no22/Alphaliner%20Newsletter%20no%2022%20-%202016.pdf http://www.alphaliner.com/get_public_newsletter.php?file=201... ); though this source is from May 2016.
dredmorbius 10y ago
There's no obligation to reduce costs, but there might be the opportunity to do so. If Hanjin's ships go at fire-sale prices (no idea), and if financing costs are a major component of operating costs (no idea), then you raise the possibility of a carrier with a reduced set of operating costs (lower debt obligations) competing in what's already a very soft shipping market (I've just posted HARPEX, the freight shipping index analog of BDI, and that it happens is pretty poor). In a market where capturing more marketshare means higher net cash and profit, there's a benefit to underbidding competitors. If you can strategically underbid another low-margin, high-cost shipping company, and/or crowd in specifically on their markets, you could capture yet more of the market. This isn't entirely unlike the game J.D. Rockefeller played in consolidating the oil extraction and refining business in the 1870s and 1880s, with significant collusion via railroads, to whom his Standard Oil was often a largest single customer. The question is whether you're playing the game for profit or power.

by desdiv 10y ago

bkor 10y ago

Within any shipping company you usually have various container vessels which you own, then various that you charter. This allows you to be flexible. So a shipping company could hand back some chartered vessels, then buy Hanjin ones. If they buy it cheaply, the average cost per day should be lower than the charter rate. Ideally they'd do this in a smart way. So same size vessels and just reduce cost. In practice, they'll probably buy bigger vessels than they used to have (bigger vessel has a lower cost per container, provided they're fully utilized). Then lower the rates as they notice it is difficult to fill them (no change supply/demand). A few years ago the shipping companies idled vessels to reduce capacity (instead of lowering prices). In 2016 it seems they do both (bit of idling, but also compete on price). Note that I didn't notice any shipping company making a profit in 2016. Average is a -5% EBIT margin ( http://www.alphaliner.com/get_public_newsletter.php?file=2016/no22/Alphaliner%20Newsletter%20no%2022%20-%202016.pdf http://www.alphaliner.com/get_public_newsletter.php?file=201... ); though this source is from May 2016.

dredmorbius 10y ago

There's no obligation to reduce costs, but there might be the opportunity to do so. If Hanjin's ships go at fire-sale prices (no idea), and if financing costs are a major component of operating costs (no idea), then you raise the possibility of a carrier with a reduced set of operating costs (lower debt obligations) competing in what's already a very soft shipping market (I've just posted HARPEX, the freight shipping index analog of BDI, and that it happens is pretty poor). In a market where capturing more marketshare means higher net cash and profit, there's a benefit to underbidding competitors. If you can strategically underbid another low-margin, high-cost shipping company, and/or crowd in specifically on their markets, you could capture yet more of the market. This isn't entirely unlike the game J.D. Rockefeller played in consolidating the oil extraction and refining business in the 1870s and 1880s, with significant collusion via railroads, to whom his Standard Oil was often a largest single customer. The question is whether you're playing the game for profit or power.