Dry Bulk CEO: Buying Second Hand is Better Value than New Eco-ships

CEO Mats Berglund said his company is investing in secondhand ships

Mats Berglund, chief executive of Pacific Basin Shipping, has said that buying second hand vessels offers a "better return on capital" than more fuel-efficient newbuilds, the South China Morning Post reports.

The so-called "eco-ships" were estimated to generate $360,000 a year in savings but would cost an extra $10 million to buy, meaning their cost benefit would only be seen after almost 28 years.

And Berglund believes that now is the time buy, as prices of second hand dry cargo ships were "definitely not going down" after falling 30 to 50 percent over the last two years.

"We believe the timing is right to acquire our preferred types of Handysize and Handymax ships and, as a priority, we are initially focused on secondhand ships which currently offer us better value than newbuildings at today's prices," he said the the company's 2012 annual report.

Since September, the Hong Kong-based dry bulk shipper has spent $122 million on eight Handysize and Handymax ships, which comes to an average of $15.25 million per vessel.

At year end its buying power stood at $753 million for more potential purchases, but Berglund said "we are very particular about the ships we buy."

Tim Huxley, chief executive of Wah Kwong Maritime Transport, agreed that purchases make sense, but he said many ships on the market are low quality, and that there are other issues around the logic of investing in vessels.

"Current charter rates don't really make sense and of course the lack of debt finance available means the number of people who can actually go out and buy is limited to those with cash or access to equity," Huxley said.

Over the past year, companies including Japanese shippers Kawasaki Kisen Kaisha, Ltd. (K-Line) and Mitsui O.S.K. Lines Ltd. (MOL) have announced plans to sell, scrap, or lay up bulk carriers.