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CEO Spotlight: Q&A with George W. Pasha, IV

Marine Log: Tell us about the history of The Pasha Group

George Pasha IV: The Pasha Group is a family-owned, third-generation diversified global logistics and transportation company. My grandfather, George W. Pasha, II, known to many as “Senior,” founded the company in his second career. He was an automotive engineer and worked for distributors of the early classic cars such as Duisenberg, Cord and Velie, selling and servicing their products. He purchased a “Flying A” service station across the street from Fort Mason in San Francisco in December 1941, five days after the attack on Pearl Harbor. The station was an immediate success mainly due to my grandfather’s reputation as an excellent mechanic.

A year later, Senior expanded his operations to provide storage for privately owned vehicles of World War II personnel assigned overseas. This eventually led to the 1947 incorporation of the first Pasha business, Pasha Overseas Automobile Processing Company.

Over the next 20 years, the company grew, especially when George W. Pasha, III (my dad) joined his father and established the first independent automotive port processing terminal on the West Coast at Fort Mason and a body shop on Fisherman’s Wharf to service, repair, and provide a “showroom ready” product. Inheriting his father’s keen business sense, “George III” expanded the company over the years by establishing state-of-the-art automobile facilities up and down the West Coast and in the mid-Atlantic. Today, we market automotive processing services at the Ports of Grays Harbor, WA; San Francisco and San Diego, CA; Baltimore, MD; and Manatee, FL. Our facility in National City Marine Terminal opened in 1990 and has processed over 5 million vehicles to date.

Pasha 3My dad formed a stevedoring and trucking company alongside the auto terminal business to create a comprehensive logistics solution from unloading of inbound vessels to delivery to dealers. In 1972, Pasha Maritime Services was formed and the stevedoring business diversified, adding break-bulk and general cargoes of all types to the service offering. In 1987, Pasha opened an omni-terminal at berths 174-181 in the Port of Los Angeles to provide stevedoring and terminal services of steel products including steel slab. The local company was renamed Pasha Stevedoring & Terminals, as it’s known today.

In the 80’s, the company diversified in the domestic and international logistics business and Non-Vessel Ocean Common Carrier businesses largely through acquisition. One such acquisition was AFI Worldwide Forwarders, one of the pioneering forwarders serving the household goods moving requirements for the U.S. Department of Defense. This expansion brought the company to many corners of the globe.

Both my grandfather and dad had an affinity for Hawaii. My grandfather arranged shipment of military members’ privately owned vehicles to and from Hawaii out of San Francisco. In the 90’s, the company arranged for shipment of new cars for several of our OEM clients. In 1999, the company formed Pasha Hawaii and commenced ocean service between the Mainland and Hawaii in 2005, introducing the first Jones Act-qualified, modern pure car/truck carrier to the domestic trades. The MV Jean Anne, named after my grandmother on my dad’s side, has ably served the market providing efficient carriage of autos, trucks, buses and rolling stock of all shapes and sizes including Stryker tactical wheeled vehicles, rail cars, and construction material and equipment.

In 2015, we welcomed the MV Marjorie C, a combination container/roll-on/roll-off (ConRo) vessel. The Marjorie C, named after my grandmother on my mom’s side, is the only one of its type to ply the Mainland/Hawaii trade lane. The 26,000-ton vessel was engineered from a proven design by Grimaldi in Croatia at Uljanik Shipyard and is the largest ever built at VT Halter in Pascagoula, Mississippi. Pasha Hawaii added Marjorie C to not only offer increased Ro/Ro service to existing customers, but to diversify our service offering by expanding our container capabilities and frequency of service.

Quickly following the introduction of the Marjorie C into the Mainland/Hawaii trade, The Pasha Group also expanded operations via the acquisition of Horizon Lines’ Hawaii business units, and welcomed team members from Horizon Lines and subsidiaries Hawaii-based Hawaii Stevedores, Inc. and the California-based operations of Sea-Logix, LLC. In addition to adding four U.S.-flag, Jones Act containerships, the growth in overall scale and associates supporting these Hawaii business units resulted in a nearly doubling in size of The Pasha Group.

This month, Pasha Hawaii is enhancing service for both container and Ro/Ro cargo from the West Coast to Hawaii Island, with the addition of the Marjorie C providing direct service from Los Angeles to Hilo.

This new route complements the Jean Anne’s current bi-weekly service from San Diego to Hilo. By recently deploying all four container ships to service our LA-Hawaii Express (LHX) and CA-Hawaii Express (CHX) routes, we were able to adjust Marjorie C’s route to include a fast, reliable, 5-day direct call from Los Angeles to Hilo and bring weekly roll-on/roll-off service to Hawaii Island.

ML: How did you get started in the marine business?

GP: I was always fascinated and proud of the business my grandfather founded and my dad diversified and built. I spent summers working for the company gaining experience in all of our divisions. After I received my Economics degree from the School of Business at Santa Clara University, I entered the world of finance, joining Wells Fargo Bank’s training program with the intent of pursuing a career in international banking.

The 80’s were a period of rapid growth and my dad asked me to join him and manage part of our forwarding and logistics divisions. To be able to support my dad in his endeavors was very rewarding. As the oldest of five children, I’ve always felt a great responsibility to both my family and the company. Together my dad and I successfully expanded the scale and breadth of the company. In 2008, I was appointed CEO and assumed responsibility for all divisions of the company, still working very closely with our Chairman, George III.

ML: Tell us about The Pasha Group shipping and logistics business model. How has it evolved over the years since your business first started in 1947?

GP: Growth has been strategic and measured with the goal of having the infrastructure, resources, and capabilities to become a world leader in diversified global logistics and transportation services. Growth and diversification has been largely organic, endeavoring to realize synergies between the divisions and staying close to what we understand and do well. Great effort has been made to stay true to our family values, and through them we strive to support a highly performing group of professionals whose mission is to deliver excellence to a broad base of world-class clients.

The model for many years was asset light. People and property leases in strategic locations were our most important assets. In an effort to allow the company to remain relevant and competitive for another generation or more, beginning with the construction of the MV Jean Anne, we have become a very capital intense business. In 2015, we invested more than $350 Million in our business – a large departure from asset light. However, our newest vessel, the Hawaii assets of Horizon Lines and other transportation assets are all very complementary to the core business. We have leveraged off of the existing organization and internal competencies while complementing with the experienced management, operators and sales folks that joined us from Horizon.

MarjorieCML: Last year, Pasha added the Marjorie C. Have you been pleased with the performance of the new vessel? Do you have plans to add additional RO/RO vehicle carriers?

GP: Marjorie C has proven to be a great fit for the Hawaii trade. The ConRo vessel has improved our service capabilities through increased capacity and frequency for autos and oversize cargoes as planned. With her unique design, she offers great flexibility by serving a dual role of providing container service while simultaneously serving our Ro/Ro customers. We have also been able to directly call the neighbor islands. Marjorie C features the latest in fuel and emission savings including a shaft generator which uses excess power from the main engine to support electrical needs together with powering of reefer containers.

We are currently actively engaged with the U.S. shipyards to develop our vessel investment strategy. The strategy will balance the needs of the trade, Pasha’s strengths and the opportunity to embrace the latest technologies to assure efficient carriage of goods between Hawaii and the mainland.

 
ML: Last year, Pasha acquired the Hawaii operations of Horizon Lines. What assets and personnel did that involve and how has the integration of those assets been progressing?

GP: Pasha acquired nearly 900 California and Hawaii-based team members that supported Horizon’s Hawaii business, as well as its subsidiaries Hawaii Stevedores, Inc. (HSI) and Sea-Logix, LLC. In addition, we formed a Dallas service center and brought more than 30 ex-Horizon professionals aboard in that office.

Pasha now owns four former Horizon U.S.-flag container ships (Spirit, Reliance, Pacific and Enterprise) operating alongside Jean Anne and Marjorie C. This provides our customers with increased cargo capacity and the widest range of ocean transportation services between Hawaii and the Mainland. We also expanded our ports to include Los Angeles and Oakland, and more than doubled the frequency of our sailings.

HSI provides us with our own experienced manpower to load and offload cargo in Hawaii, and with Sea-Logix, we now have our own container trucking fleet to pick up and deliver our customers’ cargo, as well as provide trucking to other companies. Adding these businesses has strengthened our integrated shipping and logistics offering to our customers and leveraged synergies within The Pasha Group as a whole.

It’s been a year since the acquisition and the integration of our new employees and assets. The transition has progressed very well. Our success with this very large and complex transaction is due to the dedication of our employees, both current and former Horizon personnel, all of whom share Pasha’s key core values of teamwork, innovation and excellence.

Combining the two businesses allowed us to more effectively serve our expanding customer base while maintaining our customer service philosophy.

2014 Pasha FamilyML: Operators are under tremendous environmental regulatory pressure. How has Pasha addressed the issues of emissions, ballast water treatment and sustainability in its operations?

GP: Environmental management is one of the key responsibilities of our in-house Performance Management Team. Route planning, heat balance, hull resistance, and engine performance are just a few of the parameters regularly analyzed to ensure optimum performance on all of our vessels. We currently have projects underway to install stack analyzers and automatic engine tuning to further increase our fuel efficiency and reduce emissions. Through our Ship Energy Efficiency Management Plan we provide the most up-to-date guidelines to our crews for energy conservation.

We are in discussions with Ballast Water Treatment manufacturers and have completed engineering reviews. Currently there is not a USCG approved unit available. When approved systems become available we are prepared. Currently we minimize all ballast water exchange.

Environmental sustainability is important to Pasha and we support long-term ecological balance. We are studying alternative fuels with less environmental impact such as liquefied natural gas. The use of reusable or recycled products is encouraged.

To help eliminate pollution from port-related operations, we are also very proud to announce recently that our Pasha Stevedoring & Terminals L.P. team at the Port of Los Angeles is partnering with the Port to launch the Green Omni Terminal Demonstration Project, a full-scale, real-time demonstration of zero and near-zero emission technologies at a working marine terminal. At full build out, Pasha will be the world’s first marine terminal able to generate all of its energy needs from renewable sources.

ML: What do you see for the future of Pasha? What lessons could you impart to other operators regarding best practices?

GP: The next several years will entail filling in our organization to bring our standard as close to excellence as we can. Meanwhile we will focus on fundamentals of continuing to invest across the company in a balanced way that will promote health and growth across all of our divisions.  

 

 

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21,000 TEU box ships to have Wartsila 32 gensets

JULY 5, 2016 — Wärtsilä is to supply a total of twenty-four 9-cylinder Wärtsilä 32 Auxpac generating sets for six 21,000 TEU containerships being built at the Shanghai Waigaoqiao Shipyard (SWS) for

Shipyards struggle amid market downturn

 

During the pre-SMM 2016 Press Conference on June 2, maritime economist Martin Stopford, Non-Executive President of Clarksons Research Services, said this year shipyards worldwide have experienced the lowest newbuilding orders since the 1980s. Stopford said orders of 14.2 million deadweight tons (dwt) were placed as of the end of April 2016. On an annualized basis that equates to 42 million dwt—the lowest annual rate since 1998 when orders were placed for 37 million dwt of ships. In stark contrast, the average number of ship orders since 2009 has been 94 million dwt.

Shipyards worldwide are expected to deliver about 103 million dwt of ships this year and 88.9 million dwt in 2017.

Stopford provided a perspective on the current weak shipping markets showing the average earnings of tankers, bulkers, containerships, and gas carriers have fallen to levels not see since 2003, according to the Clarksea Index. The average earnings per day in late May fell to $8,900 per day. In 2009, average earnings per day were at $22,000 per day.

There is clearly an overcapacity of ships. He pointed to declining trend in sea trade growth, which is projected at 2 percent this year.

SMART SHIPPING’s THE ANSWER
According to Stopford, one strategy to cope with these difficulties is Smart Shipping. The rapidly evolving information and communications technology (ICT) has enormous potential to improve fleet operations and transport productivity. It will play a crucial part in the survival strategy for shipping, said Stopford.

Stopford outlined the Smart Shipping Toolbox, which includes:

  1. New Inmarsat Ka band global systems broadband data to be collected, processed and beamed ashore;
  2. Telematics: Sensors generate digital information about equipment and the ship, making it cheaper and better than ever;
  3. Data storage: Cloud storage makes it easy to store data generated by sensors. That “Big Data” is analyzed to improve performance;
  4. Smart phone-style apps and touch screens: Provide ways to do specific information jobs without the assistance of big computer systems;
  5. Information systems: Provide management with the insight into what’s going on and performance levels;
  6. Automation: Feedback loops allow automation of many tasks (navigation, maintenance, operations, etc.)

SHIPYARD CAPACITY SHRINKS
Shipyard capacity has been reduced by 20 percent with the closure of 581 “uneconomic” shipyards, but ordering levels for new ships are well below world capacity, says Stopford, so shipyards and marine equipment manufacturers are going to face a challenging year. In 2009, there were 992 active shipyards. Now, there are 423 active yards.

Based on the percentage of ship launches in the year by gross tonnage (GT), Chinese shipyards had 37 percent market share, Korea 35 percent, and Japan, 19 percent.

Korean shipbuilders have been particularly hit by the ordering slump. As we went to press, STX Offshore & Shipbuilding Co., filed for receivership. The shipbuilder could be liquidated or see its debt restructured, depending on what the court decides. STX Offshore & Shipbuilding has been under the control of creditors since 2013. The shipbuilder had losses in excess of 300 billion won last year, and 1.5 trillon won in 2014.

The top three shipbuilders in Korea, Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries, have all been hurt by the drop in oil prices as oil majors have cut exploration and production expenditures. All three had repositioned themselves towards building higher valued vessels geared towards energy production after the fiscal crisis of 2008 amid competition from much lower cost Chinese shipyard rivals.

There is expected to be consolidation among Korea’s smaller shipyards.

As of mid-March, the Top Five Shipbuilder by Orderbook Value were: HHI, with $24.42 billion, Daewoo, $19.9 billion, China State Shipbuilding, $15.07 billion, Samsung, $10.47 billion, and Japan’s Imabari, with $9.89 billion.

Cruise ship order book swells to $40 billion
Cruise travel continues to grow and expand at a record pace. This year, 24 million passengers are expected to take a cruise vacation this year, up from 23 million in 2015, according to the Cruise Lines International Association (CLIA).

Cruise ship owners are deploying more ships to Australia, China, and Asia to tap into the pent up demand for cruise travel and ordering new ships to accommodate the growth. As of last year, there were 471 cruise ships in service, with 27 new ocean, river and specialty ships scheduled to be deployed this year.

Just last month, Royal Caribbean Cruises Ltd. signed a Memorandum of Understanding (MOU) with French shipbuilder STX France to build a fifth Oasis Class ship for delivery in the spring of 2021 for its Royal Caribbean brand, and two additional Edge-class ships, scheduled for delivery in the fall of each of 2021 and 2022, for its Celebrity Cruises brand.

STX France is completing the design phase of the first prototype 2,900-passenger Edge Class ship and is set to start production this fall for a delivery in fall 2018.

If confirmed, the new construction contracts with STX France would swell the global order book to 59 oceangoing cruise ships, with a total of 176,755 passenger berths. The value of the order book is in excess of $40 billion.

STX France says that, when finalized, the three orders will secure the shipyard’s order book through 2023. Overall, STX would have 12 cruise ships on order, tied with Germany’s Meyer Werft for second most to Italy’s Fincantieri, with 22 cruise ships on order. Meyer Werft’s Finnish yard, Meyer Werft Turku, has six ships on order, with the remainder of the order book divvied up between Germany’s Lloyd Werft, Croatia’s Uljanik and Brodosplit yards, and Japan’s Mitsubishi Heavy Industries.

Not included in those figures is what would be the first cruise ship built in Russia in decades. Last month, Aleksey Rakhmanov, President of Russia’s United Shipbuilding Corporation (USC), says the company was to start construction this year of a cruise ship for an unspecified customer. No further details were available.

The market for river cruise ships is just as strong, with 40 vessels on order. In the U.S., American Cruise Line, Guilford, CT, expects to take delivery of the 170-passenger coastal cruise ship American Constellation in April 2017. The ship is currently under construction at its sister company, Chesapeake Shipbuilding, Salisbury, MD.

Nichols Brothers Boat Builders, Whidbey Island, WA, won a $94.8 million contract to build two 100-passenger, 238 ft coastal cruise ships for Lindblad Expeditions Holdings, Inc. Set for delivery in the second quarter of 2017 and 2018, respectively, the ships will operate between Baja, Costa Rica, and Panama during the winter months and Alaska, Oregon, Washington and Canada in the summer months.

Orders for new ships slow, but U.S. owners active in sales and purchase

The total capacity of these vessels is just over 7 million deadweight tons (dwt), with a total current value of $4.5 billion (See Table 1: Value of U.S.-Built Shipping). Globally, the United States (as a shipbuilding nation) is ranked in 11th place (in terms of dwt) and a respectable sixth place behind South Korea, Japan, China, the Philippines, Germany, and Turkey in terms of the current value of the U.S. built fleet. Based on the volume of ships on the water, the most prolific U.S. shipbuilder has been NASSCO, San Diego, CA, a unit of General Dynamics. NASSCO also operates shipyards on the U.S. East Coast in Mayport, FL, and Norfolk, VA. As of mid-March, VesselsValue estimated the ships being built at NASSCO had values of around $900 million (this value excludes delivered ships). NASSCO recently launched the 53,700 dwt MR tanker Independence, which VesselsValue currently values at $133.45 million (this excludes a premium for the Jones Act). The Independence will be joined by two MR2 tankers on order at NASSCO for Seabulk Tankers. As of mid-March, NASSCO had four MR2 tankers on its order book for American Petroleum Tankers.  Charts Shipbuilding

The San Diego shipyard delivered two LNG-fuelled 3,100-TEU containerships, including the lead of the Marlin class, the Isla Bella, in November 2015 to Tote Maritime. The Isla Bella, along with its sister, Perla dela Caribe, are now operating between Jacksonville, FL, and San Juan, PR.

The only other U.S. shipyard with bulker, tanker, and gas carrier vessels currently on its order book is Philly Shipyard, Philadelphia, PA (formerly known as Aker Philadelphia Shipyard Inc.) Philly Shipyard has built product tankers, crude carriers, and containerships. The Philly Shipyard built fleet is currently valued at just over $1 billion. Its order book consists of eight 50,000 dwt MR tankers and this design has been classed by ABS as LNG Ready, which provides the owner with the flexibility to choose to convert the ship to dual fuel operation in the future.

In early May, Crowley Maritime Corporation christened the Louisiana, third of four LNG Ready product tankers at the Julia Street Cruise Terminal in New Orleans, LA.

Like its sisters, the 600 ft Louisiana is based on a proven design from Korea’s Hyundai Mipo Dockyards (HMD) design. It can carry crude oil or refined petroleum products, as well as other chemical products. 

Construction management services were provided by Crowley’s marine solutions group, which provides oversight and management in shipyards across the country for Crowley and other third-party companies. Philly Shipyard also built the tankers Texas and Ohio for Crowley, and the fourth ship in the program is under construction with delivery planned for third quarter 2016.

“The christening underscores our continued commitment to building and operating innovative vessels that deliver the best possible service and efficiency for our customers who depend on us for safe and reliable transportation of petroleum products,” says Rob Grune, Senior Vice President and General Manager, Petroleum Services. “And, as is the case with its sister ships, we designed and built the Louisiana to have the capability to be converted to LNG propulsion in the future, increasing the likelihood of a long service life as new emissions regulations are developed in the years ahead.”

JONES ACT FLEET CONSIDERABLY OLDER THAN WORLD FLEET
It’s no secret that the U.S. Jones Act fleet is considerably older than the average age of the global, non-U.S.-built fleet. The current U.S.-built fleet has an average age of 33 years old versus 13 years old for the global fleet. The most recent ships produced by U.S. shipyards have been tankers and the average age of U.S.-built tankers is only five years older than the global fleet. However, there has been virtually no U.S. investment in bulkers (many of them are part of the Great Lakes fleet). The U.S.-built bulker fleet has an average age of 46 years old versus nine years old for the global fleet. Even a relatively modern ship type, such as containerships, the average age of the U.S.-built fleet is 32 years old, considerably older than the average of 11 years old for non-U.S.-built vessels.

TOP TEN U.S. SHIPOWNERS
According to VesselsValue, the Top Ten U.S. shipowners ranked by value control around half the capacity (48%) of the U.S. fleet (see Table 2. U.S. Shipowners Ranked by Fleet Value).

The Top Ten Shipowners are tanker companies or the tanker arms of oil majors. The current most valuable U.S.-operated fleet is that American Shipping Co., a Norwegian public company controlling a fleet of 10 MR2 tankers built by Philly Shipyard and leased out to OSG, which charters them out to Jones Act qualifying companies. VesselsValue estimates this fleet is worth $830 million. The second most valuable U.S. fleet belongs to new entrant American Petroleum Tankers, which is a subsidiary of Kinder Morgan Terminals, with its fleet operated by Crowley Maritime Corporation, Jacksonville, FL. This fleet will be supplemented by MR tankers currently on the order book of NASSCO. However, in the last 12 months, the U.S. order book has been very quiet, with no bulker, tankers or gas carriers ordered.

SALE AND PURCHASE ACTIVITY
If there is one area where U.S. shipping has been active, it’s been in the sale and purchase market. The dire dry bulk market is one of the driving forces behind Scorpio Bulker selling 25 vessels in the last 12 months (March 2015 to March 2016) for a combined value (at the time of sale) of $878 million (where the sale price is undisclosed, the VV Value the day of the sale is used). Altogether 88 vessels have been sold by U.S. owners for a combined value (where the sale price is undisclosed, the VV Value the day of the sale is used) of $3.4 billion (see Table 3: Sales by U.S. Owners).

Of course, under the Jones Act, U.S. companies cannot purchase foreign-built vessels to operate in Jones Act trade routes. This reduces the pool of potential purchases, which in the last 12 months (March 2015-March 2016) have been limited to eight vessels, including four MR tankers from Philly Shipyard purchased by Kinder Morgan for a reported $568 million (See Table 4: Purchases by U.S. Owners).

 

 

 

 

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How are tankers valued?

The birth of VesselsValue was driven by timing and need. In 2008, the crisis in the financial market extended into shipping. The dry bulk sector and the containership sector were hit the hardest, and while tankers remained relatively buoyant, banks needed to assess their capital commitments against the value of the assets being financed and being used as collateral. However, in the depth of the crisis (2010 / 2011), ship brokers were telling clients they could not value the ships as there had been no recent sale or “last done” in ship broker speak. Richard Rivlin, a sale and purchase broker with 30 years’ experience, had long felt that an automatic valuation system could be built, which would produce valuations in any market, at any time. Luckily, his brother is a Professor of Mathematics, and together they designed and built such a system. It quickly became apparent that the highly detailed multi-level regression model was far too complex for normal spreadsheets, and a specialist modelling company was employed to develop the model.

The model is fed by two databases. One contains the features and specification of the ships arranged in a unique structure that allows the computational model high speed access. This database is researched and compiled by VesselsValue own team of 30 researchers and analysts on the Isle of Wight in the UK. The second database consists of sale and purchase transactions and charters. Both feed the mathematic model which is operated by a team of quantitative analysts. The aim was to produce an instant, accurate and always available online ship valuations for the banks and finance houses, that form the main customers of VesselsValue.

Tankers Valuation
According to VesselsValue, five factors make up a valuation:

  1. Type (VLCC, Suexmax and so on)
  2. Features (shipyard, hull, and so on)
  3. Age
  4. Cargo Capacity
  5. Freight Earnings

Each factor is broken down into further elements that are scored. As an asset, tankers are relatively straightforward, being highly commoditized, and standardized in terms of size ranges and specification. In part this is due to the international safety and pollution control legislation that has been forced on the tanker sector. This level of standardization makes VesselsValue task somewhat easier when it comes to scoring the factors, than offshore vessels, which have just been added to the system. In the case of tankers, there are around 140 scores. One of the most important scores is the shipyard. A vessel built in China is less desirable than one built in Japan. A well-published example is the one shown above. In November 2014, the New Century-built Supramax bulker ACS Diamond was sold for $10 million. The previous week, the slightly older Japanese-built pair of Supramaxes were sold for $15.5 million each. This was an implied discount of around 40% between Japan and China. However, the shipyard scoring goes into several levels of sophistication, including many ships the shipyard has built and when the last vessel was constructed.

This model is continually updated and recalibrated overnight to give the closest possible fit to the reported sales prices. It is the analysis of the sales that can produce the weightings required for different shipyards. These are applied to all shipyards, not just Chinese shipyards.

So far VesselsValue have performed over 1,000,000 valuations to date, about 400,000 a year and the number is increasing.

How Accurate is VesselsValue?
The split of VV customers are banks and finance houses, owners and other maritime industries such as lawyers, insurers and charterers – sophisticated market participants who insist on knowing the methodology behind our valuations. But ultimately they want to know how accurate are our valuations because this will affect their bottom line. Valuation accuracy is assessed as the difference between the price a vessel is sold at, and VV valuation on the day before the actual sales date. This is expressed as a % of valuations within a certain band of accuracy and shown in a chart form. The accuracy report is available on the website.

Tanker Valuations Development
According to the VesselsValue transactions database, between the start of 2012 and May 2016, a total value of $143 billion of tankers have been traded on the sale and purchase market. During that period the value of second-hand tankers has steadily increased, as can be seen from figure 1 (“VV Tanker Matrix”) below of the VV Tanker Matrix, expressed as USD / DWT.

During that period, the MR tanker has been the most frequently traded tanker type, both in terms of number of sales, and value (see figure 2 “Total Value by Type of Tankers Sold 2012 to Date”).

So far in 2016 (to 15 May 2016) 83 tankers with a total value of $1.4 billion, have been traded on the second-hand market, and again the MR tanker is the most popular (see figure 3 “Value of Tankers Sales Jan 2016 to YTD).

Interestingly, the average age of MR2 (Chemical / Product) tankers sold in the first five and half months of 2016 is only three years-old. Altogether 17 of these vessels were sold in this period, with eight tankers being sold by owners in the USA (these were not Jones Act vessels).

The majority of tankers and the largest value of tankers sold so far this year (2016) were constructed in South Korea, followed by Japan and China. As far as owners are concerned, the lead seller across all types of tankers was Chembulk Tankers, Scorpio Tankers and companies associated with the Navig8 group (see figure 4 “Top Ten Sellers of Tankers Ranked by Number of Vessels Sold”).

Recent Sales of Interest
The top three sellers have sold tankers for completely different reasons and strategy. In January 2016, Chembulk Tankers was sold by parent company Berlian Laju Tanker (BLT) to private equity investor Kohlberg Kravis Roberts (KKR). Chembulk Tankers is said to have a number of Contracts of Affreightments (CoAs) and the older tankers were surplus to requirement. This is part of the KKR growth strategy to rebuild the Chembulk Tankers fleet. KKR has also invested in a fund to invest in two Greek bank shipping portfolios.

The number two top seller, Scorpio Tankers, was a tactical, opportunistic sale. The purchaser, Bahri (formerly known as National Chemical Carriers of Saudi Arabia) is on something of a buying spree. Bahri has recently purchased two VLCCs from Tanker Investments in December 2015, for a reported $77.5 million. The five 2014-built MR2 tankers were sold en bloc for $167 million are trading in the UAE under Bahri CoAs.

The third most active seller, Navig8 Chemical Tankers, Inc., sold the four resales (the MR2 tankers are due for delivery in 2017) under a ten-year bareboat charter (with purchase option) for a reported $35 million each. This was an internal sale within the group, and part of a longer term strategy.