Ahead of his turn at the Monaco Maritime CEO Forum today, our ship finance columnist runs the rule over the still buoyant shipping markets.
Banks are very much back into shipping, and my guess is they will be for the following few years as markets are good – the ClarkSea Index still at more than double the 10-year average. It’s hard to recall a year where so many different sectors of our industry have registered all-time high freights rates, whether it’s containers, car carriers or LNG – and we’ve still got a couple of months left for VLCCs to pull something extraordinary out of the bag.
The Petrofin Index for Global Ship Finance, a key barometer for the sector, showed its first uptick in 11 years, in an annual report issued from Athens last month. The top 40 banks’ lending to shipping was higher thanks to the growth of Greek, Asian and Australian banks.
The one thing I would add though is that when banks come back in to shipping I tend to be a bit careful, they do have a history of mistiming the markets.
I do not see a global recession happening in terms of global production
Banks want to keep their balance sheets so if they want to keep up in shipping finance they will need to seek new business to justify the set-up, because these days the shipping companies are cash rich and do quicker paybacks and refinancings so it will be hard for the banks to keep the preferred size of their books.
Then there’s the debt market. Slowly, slowly the capital markets are coming back, there’s a lot of Norwegian projects recently, and I’ve hardly seen an IRR for these projects under 20%. These are fantastic terms. Investors are clearly doing well at the moment. The question is whether the German capital market will come back or not – and do the shipping companies actually need it?
Many headlines have been written recently about the declining container market. Renegotiations on chartered-in tonnage are ongoing, with tonnage providers exposed. At some stage there will be a natural clean-out of tonnage, especially in the 3,000 to 10,000 teu range. We might see some 15-year-old ships being scrapped within a year I predict. Nevertheless, investors need to bear in mind the container market is completely different from any other sector.
In general, aside from the fizzling-out container sector, I am very bullish on the shipping markets despite the jittery global economy. Personally I do not see a global recession happening in terms of global production. Sure, there might be a change of trading patterns, but volumes will remain high. I don’t see tonne-miles going down. With the growth in population and global GDP you will not have a reduction in shipped volumes – but then I have always been an optimist.
Dagfinn’s column appears in the latest issue of Maritime CEO magazine, which launches today. Splash readers can access the full magazine for free by clicking here.