GERMANY: Distressed asset investors and hedge funds chasing ship buying opportunities could be bitterly disappointed even if freight and second-hand markets pick up over the coming years.

Double-digit returns per annum, as targeted by many private equity investors, are likely to remain an absolute exception, according to Germany's Ernst Russ Shipbroker.

Current second-hand price levels for bulk carriers appear to be based on a much less bullish but probably more realistic earnings expectation in the mid single-digit range, the dry cargo and container ship broker points out in its latest monthly Maritime Overview report.

Average prices for five-year old Capesize and Panamax vessels are assuming a return of no more than 5-5.5% per annum even if spot earnings for both ship types recover to their past 5-year averages, Ernst Russ explains. A Panamax bulker purchased at today's market value of $21.4M would yield 5.5% return to its buyer if the 5-year earnings average (2009-2014) of $13,121 can be reached and maintained, while a five-year old capesize valued today at $41.4M. would offer 5% return based on the 5-year average rate of $17,749 per day.

"This is today's return expectation in shipping and it is a new conservative approach," the broker opines. However, compared with the realistic returns in other asset classes like equities and bonds going forward, "5-6% per annum [in shipping] does look reasonable and attractive," Ernst Russ said.