Shipping investments in 2024: Handysize and Aframax vessels lead ROI rankings

Determining the optimal investment in shipping is challenging, particularly in the present high-inflation environment, where asset values have reached their highest levels since the boom period of 2003-2008.

However, an extensive analysis made by the Greek maritime research house Allied QuantumSea has highlighted that Handysize and Aframax vessels are presently the most attractive assets, offering the best return on investment (ROI) within the bulker and tanker sectors.

To capture the ROI of these assets, Allied analysts, Chara Georgousi and Matthew Harrington, modelled their earnings using two different approaches, providing distinct perspectives.

The first assumption takes the five-year average of the one-year period charter rate for each vessel type and uses this as the benchmark for future earnings.

In the dry bulk sector, asset values and earnings vary significantly among vessel sizes, influencing their overall investment attractiveness. When considering the ‘backwards facing’ one-year time charter (TC) averages, analysts found that Handysize vessels outperform all other sizes, with an ROI of 52% over five years. Kamsarmaxes and Ultramaxes followed with ROIs of 43.5% and 43.8%, respectively, while Capesize bulkers ranked last, achieving an ROI of 27.1%.

Examining the tanker sector, the analysts noted that the spread of results was narrower, with Aframaxes topping the list, with an ROI of 32.6% over a five-year period. MR tankers provided a decent ROI of 31.9%, while VLCCs and Suezmax tankers lagged with estimated returns of 26.2% and 29%, respectively.

The second approach

For a more accurate assessment, Allied QuantumSea researchers implemented a second model using the Baltic Exchange Implied Five-Year Time Charter Rate, a measure of earnings based on FFA contracts covering the next five years.

This approach somewhat reversed the previous findings. Capesize vessels emerged as the best choice to maximise ROI, with a 28.2% rating, narrowly above the 26.6% offered by the Handysize segment. Kamsarmaxes followed closely with an ROI of 23.7% over five years, while the Ultramax sector fell to last place, offering 16.3%.

In the tanker sector, Aframaxes retained their top position, while Suezmaxes climbed to second place, marginally above VLCCs. Specifically, Aframax vessels led with an ROI of 37.7%, while Suezmaxes, VLCCs and MR tankers achieved ROIs of 33.8%, 33.2%, and 32.7%, respectively.

“Overall, this modelling paints a promising picture under both scenarios for both the Handysize and Aframax sectors. It also makes clear how important an individual’s sense of the future direction of the market is – the Kamsarmax ROI swung from an ROI of 43.5%, when basing future earnings on the past TC rate, versus an ROI of 23.7% when basing future earnings on the present FFA outlook,” said Ms Georgousi and Mr Harrington.

It is important to note these are essentially upgraded TC earnings to asset price ratios. Factors such as spot market exposure, economies of scale, and access to finance will all have a substantial impact on the (relatively low) ROI figures stated here.

Depreciation and appreciation factors

Allied’s analysts made benchmark assessments for the core asset classes, assuming a project lifecycle of purchasing a 10-year-old asset, fixing it on a five-year period charter, and then reselling it under the ‘rule of thumb’ assumption that assets depreciate at a rate of 6% per year.

Data tracking secondhand values from early 2010 to the present reveals the significant impact of depreciation and appreciation on overall ROI.

For example, a 10-year-old Capesize bulker purchased in 2011 would have been sold at just 18% of that price in 2016 – equivalent to annual depreciation of 29%. Conversely, a Panamax purchased in Q4 2016 would have more than doubled in value by late 2021, equating to an annual appreciation of 18%.

Similarly, in the tanker sector, purchasing a Suezmax vessel in early 2016 at mid-US$42M and reselling it after five years in the high US$17M range results in annual depreciation of just over 16%. In contrast, investing in an Aframax tanker in mid-2018 and reselling in late 2024 could result in a 79% increase in asset value, translating to an annual appreciation of more than 12%.

This highlights the importance of having a view on the direction of asset values over a multi-year timeframe, as changes in vessel prices can make or break a project.