Used Cat Market Going Forward

[Privleoplag]

I think some folks that have been sitting on the fence about buying are making a quick decision to move forward before prices rise and supplies dwindle a bit.. watching my model of boat on yacht world, 15 for sale, all of a sudden, 1/2 of them have sale pending. Or were they the ones destroyed by a hurricane and they just wanted to reduce the inquiries on those particular boats?

I posted the above before I watched the previous youtube video.. something i didn't think about, the boats the charterers had for sale if not damaged, would come back into the charter market. This will still deplete the boats for sale a bit.

[ol1970]

I think the short answer is nobody knows for sure. If I were a betting man the reason all of the boats in Tortola went pending overnight is because they will be total write-offs to the insurance company, they certainly did not have the ability to get these deals made when they are worrying about basics survival.

I was in Cannes for the boat show the weekend before last and it was mentioned by a couple of people that dealers are not able to get new allocations for boats if they didn't have it secured with a deposit before Irma/Maria. Generally the demand is strong from what I can see, but there are definitely some factors moving forward that will be interesting to see how they play out:

1) Insurance rates
2) Charter companies that rely on others to purchase the boats and "guarantee" income. What happens to those who's boats survived but are going to miss the season because of major repairs. Missing 1 year out of the term makes that whole deal not work anymore. Are those guarantees insured as well?
3) 1/3 of the Carribean (I just made that % up) is in complete shambles and will take a long time to recover. People don't want to vacation in a disaster area...this will curb demand.
4) General fear...its cheaper to charter 5 or more times a year in different locations than it is to actually own a boat. Maybe this impacts the market as well.
5) the economy has been on a hell of a run for the past 8 years, the longest cycle in history...the first thing to dry up once the next recession happens is discretionary luxury spending. This could be a triple whammy if that happens.

At the end of it all though, it is only money, and what price you end up paying shouldn't impact your dream.

[belizesailor]

Originally Posted by tuskie

You make an interesting point. Perhaps the ability to model and forecast increased earthquake risk is more difficult than to predict an increase in hurricane frequency and intensity? You won't find any climate change deniers in the insurance industry.

On the other hand insurance companies may look for any excuse to raise premiums to make more profit. There seems a lack of true competition amoungst a relatively small cartel of underwriters.

The other elephant in the room is the charter boat company business model that relies on individual investors to fork out for the boats that they charter out, taking on the risk of possible damage, loss, change of insurance policy, poor capital returns and poor resale values.

I know a few folks in the siesmic field...everyone states that we can yet accurately predict earthquakes or volcanic eruptions...much different than hurricanes.

[smj]

Probably 95+% of the cats destroyed are Lagoons, Leopards and FP's. Does that mean that maybe the people interested in purchasing one of those brands will rethink and purchase another brand and will that raise the value of those new cats that were unaffected and have no relationship with a charter company? Will the value of used cats that aren't in the top 3 manufacturers go up?


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[tatomaceda]

Sure, the supply just got low... but what about the demand. I can see a lot of people who were thinking of sailing now rethinking their dreams.

[LoudMusic]

Well, rethinking where they're willing to sail and where they're willing to leave their boat. Personally I've not been very interested in cruising the Caribbean much anyway. It's too crowded

Further, it's not like this is a new thing. The Caribbean gets hammered by hurricanes almost every year. Some worse than others. But they call it "hurricane season" for a particularly good reason.

[Tetepare]

Unless I'm mistaken, most of the VI cats are privately owned, and only rented out by Moorings et. al.

I'm guessing that many owners of destroyed cats are going to think of somewhere else to put the insurance payment.

If it's true that the best one can do on owning a chartered cat is break even, then many owners are going to be upside down (no pun intended) on the boat mortages so are even less likely to roll the cash into a new boat.

[Kentm]

Access to capital is a big question for charter companies. A lot may depend on how investors/boat owners make out after settlement. Charter Company may have to give incentives for reinvestment.

[tomfl]

Originally Posted by ol1970

SNIP

4) General fear...its cheaper to charter 5 or more times a year in different locations than it is to actually own a boat. Maybe this impacts the market as well.


SNIP

“It's tough to make predictions, especially about the future.”


― Yogi Berra

But I have to wonder about a possible increase in the cost of chartering. The area around BVI is paradise in season, that is the reason so many charter cats were there. I suspect there will still be demand to charter there, just not the supply. Econ 101 would say that will result in a price increase. Depending on how much the price increases it may make ownership more viable.

[keelsidedown]

Originally Posted by Kentm

Access to capital is a big question for charter companies. A lot may depend on how investors/boat owners make out after settlement. Charter Company may have to give incentives for reinvestment.

Interestingly, I just got a post-hurricane email solicitation from one of the larger charter outfits. I'm probably going to discontinue looking for two years while prices normalize and insurance salvage inventory enters the market. I suspect the pitch from the charter operators is that "now is a once in a what's left of your life time opportunity" made for the purpose of stabilizing their cash flow reality (keep in mind that not only did entire fleets of charter boats get destroyed, some of the prime cruising grounds will have to be rebuilt in order to sustain tourists, let alone locals. Cruising in these locations just got far more dangerous across the spectrum (disease, supplies, logistics, piracy, etc.)

[Kentm]

My best guess is that volatility and risk is what may come. The cost of a bad decision could be very high, say buying a salvage boat unknowingly that is in much worse shape than presumed against the opportunity of saving a lot because you made a great decision on a boat or deal that works out because you got it right.

[Thumbs Up]

The sooner that you can salvage one of these boats, the better. Everyone is still tiptoeing around this subject. If I could salvage one now, I might be able to save the engines and saildrives still, and there might be some lines and equipment left on it. In six months or so, no way. I want one now! but I don't want to go yet and I don't have the money. But maybe now I will be able to sell Thumbs Up and get a big FP to be my next project. or maybe a hobie cat...

[PhiSig1071]

Originally Posted by smj

Probably 95+% of the cats destroyed are Lagoons, Leopards and FP's. Does that mean that maybe the people interested in purchasing one of those brands will rethink and purchase another brand and will that raise the value of those new cats that were unaffected and have no relationship with a charter company? Will the value of used cats that aren't in the top 3 manufacturers go up?


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95% of the boats there were one of those three manufacturers, so the (unfounded) statement that 95% of boats destroyed are from those three manufacturers should come as a surprise to no one.

On top of that, common sense dictates that private owners will take more precautions with their personal assets than employees of a company will with business assets. Therefore I think it would be safe to assume that a higher percentage of the boats lost were charter boats, and charter fleets significantly consist of Lagoon, FP and Leopard.

I doubt it will have any effect on boat choice for the majority of buyers going forward.

[smj]

Originally Posted by PhiSig1071

95% of the boats there were one of those three manufacturers, so the (unfounded) statement that 95% of boats destroyed are from those three manufacturers should come as a surprise to no one.

On top of that, common sense dictates that private owners will take more precautions with their personal assets than employees of a company will with business assets. Therefore I think it would be safe to assume that a higher percentage of the boats lost were charter boats, and charter fleets significantly consist of Lagoon, FP and Leopard.

I doubt it will have any effect on boat choice for the majority of buyers going forward.

I think your first two paragraphs were agreeing with me?
My question is if they have to wait 2-4 years to have a new boat built as the charter companies have taken all the new build slots, will they consider other builders?

[PhiSig1071]

Originally Posted by smj

I think your first two paragraphs were agreeing with me?
My question is if they have to wait 2-4 years to have a new boat built as the charter companies have taken all the new build slots, will they consider other builders?

I may have misread or misunderstood your original post. I thought you meant that since 95% of the destroyed boats were Lagoon, FP, or Leopard that people would be buying other brands because the damage rate of those boats was somehow indicative of low build quality or poor safety in adverse conditions.

IE: "Lagoon, FP, and Leopard boats all got destroyed in the storm, lets buy a Knynsa or a Voyage instead because they survived and therefore must be much better quality."

Obviously a number of boats in the charter fleets were destroyed. Whether that causes a problem for buyers considering one of those models depends on how quickly and completely the charter fleet gets "restocked". If the insurance payouts and new charter owner incentives are good enough that they plan to get back to pre-Irma fleet sizes as soon as possible then yes, there will probably be a shortage of boats for private buyers. As for them going with a different builder, I think that's pretty likely if there is a shortage of build slots from the big three. I think people are more willing to switch boats than wait an extra 2-4 years.


But all that depends on what Moorings et al plan on doing with their fleet.