Perhaps counterintuitively, the Covid-19 pandemic and subsequent economic downturn have not had courts forcing more ships to ­auction — but they may be pushing up prices once vessels go under the hammer.

“Certainly, the creditors that we’ve been acting for have been absolutely delighted,” said Paul Willcox, director at CW Kellock. “They’ve achieved higher prices than they’ve expected.”

The UK Admiralty shipbroker has conducted 12 auctions by Willcox’s count, including three in the US, one each in India and Singapore and five cruiseships in the UK.

That is just over half of the 23 auctions that VesselsValue has logged to the end of September, which means 2020 could be among the decade's slower years for ship auctions.

It is well short of 2016, when 94 ships were auctioned, and 2017, when 76 were auctioned.

In some jurisdictions — the US in particular — the pandemic forced authorities to digitalise the process, opening up bidding to more than just the bargain hunters that might normally be involved, Willcox said.

Among those sold at online ­auction were the 2,872-teu Arica (built 2007) and the 156,700-dwt Advantage Sky (built 2010).

The Arica, which was valued at $7.2m by VesselsValue ahead of the auction, went to Robin 4 Shipping and its $6.5m bid. The Advantage Sky, sold in South Africa, was won with a $25.3m bid by an undisclosed buyer, slightly lower than its VesselsValue estimate of $27m.

In the past, some ships had gone at steeper discounts. Last year, the 37,000-dwt Megacore Honami (built 2010) was sold at auction for $13.3m, a 22.4% discount from its VesselsValue assessment of $17.1m.

Paul Willcox of CW Kellock says less face-to-face interaction between banks and potential borrowers has meant less lending. Photo: Eggar Forrester/Zoom

The valuation service tabbed the 319,700-dwt Brightoil Galaxy (built 2012) as worth $69m ahead of its October 2019 auction, where it sold for $61.5m, a discount of more than 10%.

Willcox — who wielded the gavel during the live auctions conducted via videoconferencing — said CW Kellock lobbied shipowners looking to buy the type of ship up for ­auction to put in bids.

“It’s very often those buyers who will pay a better price, a fair price,” he said.

Tactical decision

Any dearth of judicial auctions, or the potential for more, could be aided by volatility in the market.

Holland & Knight attorney Michael Frevola said those entities that could arrest ships due to default might be reticent to do so, as the ship might be worth a ­fraction of what it was in previous years.

He described it as a tactical decision. “The question is, ‘Do I let the entire thing crash, and maybe the shipowner gets arrested by somebody else ... or do I get on board and go after the asset?’” he said.

Frevola identified other issues, too, such as whether a lender that had provided financing for a ship during an upswing in the market would want to arrest, given that it might recover only a fraction of what it was owed.

He also noted a potential unwillingness from a trade creditor ­providing necessities for a ship moving to arrest, knowing that its claims would be superseded by a lender that was owed far more.

Shipowners that see their vessels arrested then run into the problem of finding financing to post security, hastening judicial auctions, Willcox said. “Any kind of commercial activity is more difficult now.”

Less face-to-face interaction between banks and potential borrowers has meant less lending, he added.

“Normally you would sit across a table and a bank would meet a ­client and be able to judge who they were dealing with,” he said.

“At the moment, you can’t really do the same thing by Zoom. I think the banks are being cautious about who they lend to because they’re not able to meet face to face and build up a relationship.”

Without security, the arresting creditor can move to have the ship sold to prevent asset depreciation and to keep custodial costs from cutting into the proceeds from the sale.

Once the ship is on the auction block, it could represent a compelling opportunity for the right buyer.

Frevola said some owners will see those ships as having value, with secondhand prices sliding.

“If you can do that, that’s when you can really wind up making a killing,” he said.

“In the situation we’re dealing with now, and all the instability we’re dealing with, a year from now the people who saw value where others couldn’t, they’re going to look like geniuses.”