The first domino? Capesize asset valuations point the way to market rebalancing

Lower earnings and values for the dry bulk sector are on the way, with the biggest ships leading the way, writes Will Fray, a director at Maritime Strategies International.

New analysis by Maritime Strategies International suggests a divergence between Fair Market Value (FMV) of dry bulk assets and their value on a Discounted Cash Flow (DCF) basis. 

Using its new market and vessel benchmarking tool SEASCAPE, MSI data indicates headwinds in the dry bulk sector, with the largest ships leading the charge.

MSI’s view puts it somewhat at odds with the market which continues to place a premium on dry bulk assets. Despite much lower earnings toward the end of 2024 and into 2025, second-hand values have remained resilient. 

For comparison, monthly timecharter rates in January and February are 40% and 39% lower respectively when compared to 2024, whereas average 5-year-old prices are up by 7% and 1% by the same measure. 

This divergence between earnings and asset values reflects broader market dynamics, where very high newbuilding prices and long lead times for new vessel deliveries have inflated second-hand asset values as owners seeking to replenish fleets turn to the second-hand market instead of ordering new.

MSI’s new ship SEASCAPE performance and asset value benchmarking platform can be used to easily generate current FMV and DCF values for single assets, fleets and entire sectors.

 The analysis illustrates the overall gap between current fleet-level FMV valuations and DCF values across the four main dry bulk segments, where both metrics represent the combined valuations of all vessels within each segment. All segments have higher fair market values in relation to their DCF, which suggests that vessels are overvalued when compared with MSI’s expectations for future earnings and values.

The divergence between FMV and DCF is largest among the Capesize fleet, with vessel fair market valuations being 30% higher than MSI’s DCF value on average. This divergence suggests that market sentiment and forward-looking expectations are far more positive for this sector than for others, when compared to MSI’s Base Case.

A key factor in explaining the divergence between FMV and DCF is MSI’s bearish forecast for newbuilding prices, for which MSI is unquestionably bearish. The SEASCAPE DCF calculations are based on a five-year investment over which period we expect a significant downturn in newbuilding prices which will place significant downward pressure on second-hand asset values. 

This is founded on several key factors that have been oft-repeated in the past. A strong orderbook (currently true) will be followed by rising shipyard capacity (true) and a rise in aggregate ship deliveries (true). 

This will ultimately undermine ship earnings, new contracting and newbuild prices and these are expected by MSI to unfold within the space of the current shipyard forward cover of three and a half years.