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Asset plays to fade with alternate fuels: Danish Ship Finance

Danish Ship Finance has published its latest keenly awaited biannual shipping markets report, the reading of which may prove uncomfortable for smaller, traditional owners.

As shipping moves down its decarbonisation path, far more ships will be tied up in longer-term contracts to pay for all the new, more expensive green fuels with larger owners better placed to handle this transition, Danish Ship Finance is predicting.

Vessels that are committed to long-term contracts are less likely candidates to participate in a future asset game, the Copenhagen outfit suggests.

“These vessels will create value from the cash flow yield from operations rather than from the asset game,” Danish Ship Finance predicted, admitting that this may sound extremely unattractive to many, as the cash flow yield from operating vessels has been a weak driver of value across vessel segments and business models over the past 15 years.

The introduction of long-term fuel offtake agreements is likely to go hand in hand with long employment contracts

The average shipowner today has four to five vessels. This extreme fragmentation will change with the incoming alternative fuels, the report, helmed by Christopher Rex, forecasts.

“Few owners will have the balance sheet to secure long-term fuel offtake agreements with producers of alternative fuels,” Danish Ship Finance warned, adding: “The introduction of long-term fuel offtake agreements is likely to go hand in hand with long employment contracts to balance costs and income.”

The influential report, which tends to be read by thousands within the industry, also claimed that the first barrier to entry in shipping is about to disappear.

“The ability to offer a premium product at a low price with a market-leading low-emission footprint is likely to present the first real barrier to entry into an industry that has traditionally competed on cost,” the Danish report suggested.

To access the full 55-page report, which includes deep dives into the container, dry bulk, tanker, LNG and shipbuilding sectors, click here.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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