China’s rise to the top

China’s rise to the top

Across Marintec China in Shanghai today the latest issue of Maritime CEO magazine launches. Dagfinn Lunde reacts to news that Splash readers have voted China’s rise as the shipping story of the decade, beating out liner consolidation, green developments and digitalisation in the process.

Well, well, despite the hectares of column inches expounded in this title and others on environmental and digital matters of late, you, dear reader, have voted for the rise of China as the most important shipping story of the decade.

Were this magazine to be older than its youthful six years of age, then I’d be pretty sure that China’s ascent would have been voted as the most important trend of the first decade of this century too.

The China maritime story this decade has been all about expansion, influence and hammering home the foundations laid down earlier. Where others have exited the scene, China has cleaned up.

According to the latest annual survey from Greece’s Petrofin Bank Research, ship financing may well be at its lowest level since the global financial crisis of 2008, but the global merchant fleet continues to expand (+30%), in no small part thanks to canny Chinese financial institutions.

The top 40 banks’ lending to shipping now stands at $300.7bn, the lowest level since Petrofin started monitoring the global portfolio in 2008. $44.3bn has been knocked off the portfolios of the top 40 banks just over the last year.

“The growth of the global fleet continues to be funded from non-banking sources,” Petrofin noted in a release, citing the continued rise of Chinese leasing companies.

“The decline of Western bank ship finance has assumed dramatic proportions. In just 11 years and despite the rise in the global fleet, about $160bn has been shed via natural repayments, provisions or loan portfolio sales,” Petrofin stated.

Ship leasing – pre-global financial crisis – was a rarity. Back in my DVB days, we financed a few ship leases, always questioning why shipping was so extremely different from aviation where 50% of the equipment is leased. Shipping never took leasing to heart back then because bank finance was too lowly priced. This changed in the years following the collapse of Lehman Brothers. Not a lot of people will remember that actually in the three years after the start of the global financial crisis, bank lending actually rose, peaking in 2011, thanks to ill-timed private equity entries as both lenders and investors.

From 2011 to 2018, however, bank lending slumped from $450bn to $300bn a year and this trend has continued this year.

The biggest reduction came from the German banks, followed by UK and Scandinavian banks.

When these European entities faded from view it was the export credit agencies and Chinese lessors who stepped in, ensuring overcapacity had time to settle and making for this most miserable of decades in shipowning history.

Where European banks have disappeared, their counterparts in Asia, like water over rocks, have rushed in to keep the capital flow moving. Asian banks, at the last time of checking, account for some 35% of the ship finance market today. Their focus however on newbuilds makes it increasingly difficult to refinance older ships these days.

What has not aided the situation during this ‘Chinese decade’ has been how negative the capital markets have been for shipping, even the bond markets, and as for IPOs, they have sunk without trace for the second half of the decade.

Credit where it is due, the Chinese saw a fantastic opportunity to become a shipping and shipbuilding powerhouse around 11 years ago. As the old maxim goes, whenever everybody leaves it tends to be time to enter the market.

The other trend to appreciate is the self-confidence and sophistication of the Chinese banks in recent years. Back in 2011 or 2012, the average Western shipowner railed against the slow, timid and overly bureaucratic Chinese ship finance process. No longer!

The flip side of the coin, however, is that as every facet of Chinese maritime has grown in size and maturity so the opportunity for us Westerners to make a buck or two in the People’s Republic has actually diminished.

I’d argue that today it’s harder for Westerners to make money out of the growth of Chinese shipping than 10 years ago – essentially it has become more of a closed market as the local industry has become more adept at handling its own business, with a locked in pricing advantage to boot. Nevertheless, that gripe is not to argue with you, dear reader, and your selection of shipping’s most important trend of the past few years – something that I imagine will be borne out across the busy halls of Marintec China in Shanghai.

Dagfinn Lunde

Dagfinn Lunde, previously head of DnB New York (90-95), Head of INTERTANKO (95-00), and on the board of DVB responsible for the shipping and offshore division from 2000 until end of 2013. He is now a board member of Advantage Tankers, Dynamic Drilling and Maxi Shipping and co-founder of DagMar Navigation Ltd.

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