Used Cat Market Going Forward

[keelsidedown]

As someone potentially in the catamaran market within the next couple of years, I'm curious about used market after the last couple of Atlantic/Caribbean hurricanes. We've all seen the before and after photo of what I can only guess was a Moorings catamaran charter business with probably in excess of 50 catamarans that got thrashed and trashed.

I'm wondering how many of those will be written off by insurance companies and end up on the used market when enterprising islanders snatch them up for pennies on the dollar, put them back together and sell them for 10x-20x their costs.

Should existing sellers in the 40' to 50' category expect to be competing with refurbished hurricane specials?

Also, I'm curious about the spars market. A significant percentage of the boats in the photos are going to need new spars (masts), but I'm pretty sure that the spar producers aren't ready for the resulting demand. Is this a really bad time to be in the market for a new mast?

Does anyone have experience or knowledge of how the used market behaves when we have a season like this?

[Red Herring]

This might help...

https://www.youtube.com/watch?v=A4N-TkpEQRo

Steve

[Kentm]

A very interesting video. This gentleman's opinion is maybe more experienced, but markets have a way of moving away from knowledge. The future is highly unpredictable, especially when concerns markets. The catamaran market is the definitive illiquid market. Charter cats and boat as business cats had risks. All sales people need to create a time and price crunch. Markets are seldom simple

[Suijin]

It's pretty simple. @ 50% of catamarans that make up the used market over the next two years were destroyed. It's not sales people crying that the sky is falling...it's straightforward old fashioned supply and demand. Supply took a huge hit, prices will go up.

[SecondBase]

Right and I would add that the market splits. Reduced supply of "good" cats due to destroyed cats and also with a new sub category of "write-off cats" may open the door to lower tier pricing for boats needing work.

[Red Herring]

The vid also doesn't go into the impact on reduction of demand from decreased consumer confidence or loss of consumer interest after a large storm.

Leopard in SA has reportedly already responded to the increased charter demand for replacement boats by increasing their physical plant size. It remains to be seen if the French will do likewise, although they are under similar pressure, and will likely have to do something.

I am only interested in non charter and owners versions, and I think the prices will be forced up somewhat by a decrease in lower cost 4 cabin ex charter options. How much so, I have no idea.

[Kentm]

Their are still a lot of unknown elements. How will insurance companies handle these claims and will it build confidence or break confidence? Will investors in charter boats feel good about their experience and reinvest their settlements or be glad they got out? Can boat builders and charter companies access enough capital to ramp up production and rebuild quickly?

A lot can happen to make this difficult to understand.

[geoff326]

The elephant in the room is what is the insurance companies position re these massive claims? I've no doubt they'll be evaluating the viability of underwriting an industry where the likelihood of such an event recurring in the same area is reasonably high- which has implications long term for the charter boat industry.

[Kentm]

Maybe the price of bareboat chartering goes up? Maybe, the price of hurricane season goes up? Maybe, the price of insurance makes the boat as a business very difficult position? Many many moving parts here. The charter companies will need a lot of capital to buy all of these new catamarans to rebuild the fleet. Will people be willing, and at a higher price?

[SecondBase]

What hurricanes in the Carib, truly shareholders, we had no idea ??

It'd be one foolish underwriter who hadn't factored this sort of event into their Caribbean risk model - to include a gradual acceleration curve. That would be such a miss that it'd likely lower the confidence they enjoy in the public markets and dip their stock price.

If prices go up after this year, due to the two storms, a lot of insurance execs will be looking for new places to apply their modeling "skills".

Getting caught out like that doesn't sound like a path to career growth.

I'd be more worried for charter co's who went high deductible per hull or self-insured to some degree and their ability to ride this mess out. We may lose some smaller charter co's which only helps the big boys. Moorings being publicly traded we should have financial analysis on their coverage situation in the next 10Q.

[SV Coronado]

I would not be surprised if in three years or more the supply starts to outpace demand. At some point the yacht manufacturers will have met the demand and the supply/demand curve could go the other way. It's not easy for manufacturers to slow production and lay-off works, especially in France. Obviously, at this point it would be a good time to buy a new buy boat.

[geoff326]

Originally Posted by SecondBase

What hurricanes in the Carib, truly shareholders, we had no idea ??

It'd be one foolish underwriter who hadn't factored this sort of event into their Caribbean risk model - to include a gradual acceleration curve. That would be such a miss that it'd likely lower the confidence they enjoy in the public markets and dip their stock price.

If prices go up after this year, due to the two storms, a lot of insurance execs will be looking for new places to apply their modeling "skills".

Getting caught out like that doesn't sound like a path to career growth.

I'd be more worried for charter co's who went high deductible per hull or self-insured to some degree and their ability to ride this mess out. We may lose some smaller charter co's which only helps the big boys. Moorings being publicly traded we should have financial analysis on their coverage situation in the next 10Q.

Yeah,
Well, where I live, New Zealand, try telling that to the average Kiwi. Since the devastating Christchurch earthquake household insurance has increased considerably. The insurance companies have stated unequivocally the above was the reason.
I'm not aware of any insurance executives losing their jobs simply because they failed to factor it into their premiums.

[tuskie]

Originally Posted by geoff326

Yeah,
Well, where I live, New Zealand, try telling that to the average Kiwi. Since the devastating Christchurch earthquake household insurance has increased considerably. The insurance companies have stated unequivocally the above was the reason.
I'm not aware of any insurance executives losing their jobs simply because they failed to factor it into their premiums.

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.

[svlamorocha]

Originally Posted by SecondBase

Moorings being publicly traded we should have financial analysis on their coverage situation in the next 10Q.

Moorings is privately held now. I understand that it was part of the Travelopia business that TUI sold to private equity player KKR earlier this year. The deal was announced in about February; it must have closed by now. Those folks at KKR are not used to losing money!

[svlamorocha]

Originally Posted by Red Herring

This might help...

Steve

The video says that Moorings is (part of) a public company, but that is not true. Moorings USED to be part of a public company (TUI) but has since been acquired by private equity giant KKR (the one of "Barbarians at the Gate"), nice book by the way.