Ship Price Scandal

Ship Price Scandal - We Break the Big Story
04 October 2002
Yes, folks you read it first here. The European Commission (EC) has accused the world's two biggest ship brokers of not knowing the price of a ship. If this sounds too unbelievable to be true, just read on.
Are You Sure EU뭨e Right?
The accusation is made in an official EC paper entitled 밫he Situation in World Shipbuilding? It comments "The Commission's detailed price investigations.showed that in almost all cases the prices reported by Clarkson for a comparable ship were higher than the ones found through direct investigations. Clarkson re-ports the price for a standard Suez-max tanker of 150,000 Dwt as $46.5 m. USD (end 2001) and Fearnleys indicates a price of $48 m. USD, whilst the Commission's market monitoring observed several orders at a price of $43 m. i.e. 7-10% lower than reported by those companies" (Wow!). Hard hitting accusations, but is the Commission right?
It뭩 All in the Timing
In SIW we report the cash price of a European spec ship with 10/10/10/70 stage payments at a competitive yard. Where possible the prices are based on current negotiations, or if the mar-ket is quiet the brokers estimate the price at which a ship could be con-tracted.
So how accurate are these estimates? The graph compares the Clarkson price index for a Suezmax tanker (the solid line) with actual contract prices (the black squares) from the CRS database. Although the record is not comprehensive, the pattern is clear enough. Typically contract prices lag behind the index (the dotted line shows the index lagged two months) because it takes time to tie up a contract. So when prices are on the move there is plenty of room for confusion because reported contract prices are bound to differ from those currently on offer by the yards.
You Need Contract Contact, Cap뭤
Viewed this way, it is easier to understand the EC뭩 problem with price statistics. After Sept 11th sentiment slumped and the shipbuilding market was in meltdown. Many negotiations went on hold, making it difficult to estimate prices. However there were a few Suezmax contracts ?one for $50 m. in January 2002 and another for $44 m. in April 2002. Allowing for a time lag these support the Clarkson view of $46.5 m. in Dec 2001. In March a major Greek owner was negotiating a Suezmax at $45.5 m., a price he would certainly not have considered if, as the EC main-tains, the price was $43 m. three months earlier!
Commission a Bargain?
So there you have it. Prices have been moving rapidly over the last three years, and investors need to keep on their toes. So if you are a shipowner, and you can't decide whether to contract your next Suezmax through a ship broker or the European Commis-sion, our advice is this. Call up the EC and claim your 7-10% discount against the Clarkson Price Index. We make that about $39 m., which is a real bargain! Have a nice day.

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