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Regulatory purgatory is heaven for rates

Well, what a wonderful position shipowners find themselves thanks to regulatory purgatory.

The waiting for confirmation of the next stage of environmental regulations has put an incredible clamp on ordering new ships – the markets are set to reap lovely returns this year and next from the minuscule orderbooks – though I do concede liners have shot the golden goose and will once again rue their ordering binge over the last eight months, come 2023.

The lack of newbuildings in dry bulk is especially glorious. After so many false dawns since 2008, this does look like a solid upcycle.

Bear in mind too, the best thing owners can do now to lower pollution is a retrofit, not opt for a newbuild – ship repair yards ought to be highly busy for the coming years.

Retrofits seem to make the most sense to me as you then also avoid building new ships immediately with the environmental negative effects.

Slot methanol instead of heavy fuel and it’s job done, no? Some very smart owners are cottoning onto this simple fact this year – others will surely follow suit.

This brings me neatly onto one of this year’s topics du jour, the International Maritime Organization’s Energy Efficiency Existing Ship Index (EEXI), which is looking like it will give scrubbers a run for their money in terms of wasted column inches deliberating every possible scenario this new rule might bring to bear on the business of shipping. EEXI works on a per ton per mile basis, but not on how much of the time the ships are laden, which seems a crazy omission to me.

Instead of demanding mechanical, technical changes to the global merchant fleet, just slap a charge on fuel. Put a $250 a tonne levy on fuel and watch ships slow down and alternative fuels gain immediate traction. Pollution from shipping would reduce dramatically within a year, I reckon, but what do I know, I’m just an economist not an engineer.

Banking is my metier and what I can tell you is Basel III, due to come into effect in 2023 – the same year as EEXI funnily enough – this will have a simply enormous effect on the shipping industry. Basel III aims to strengthen the regulation, supervision and risk management of banks. Loans from banks will become super expensive as a result. Banks will be expected to have a credit loss scheme in place. Loans from banks will naturally become less attractive. Big banks today have priced down loans while trying to get other business from clients. I do wonder if they can afford continuing dishing out all these cheap loans. Shipping’s traditional finance landscape will be changed dramatically by Basel III.

Definitely time for other capital sources to pour into ship financing – of which I guess we have only seen the beginning.

This article first appeared in Maritime CEO magazine, published this week. Splash readers can access the full magazine by clicking here.

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.

Comments

  1. Good one, Dagfinn.

    Yes, the liners are being silly, with irrational exuberance amongst the less responsible; the foolish virgins will live to regret it as much, but no more than, the wise ones.

    Yes, the IMO are about to do it yet again. With GMDSS, with electronic charts, with training, with ballast water pollution, the IMO went for overly prescriptive detail rather than for clear principles which promote elegant solutions.

    A simple fuel duty, universally enforced (by port state control, who else) will promote the transition much better than twenty years of horse trading over details.

    1. Thanks Andrew – yes, we totally agree here. But how to get these obvious simplistic and certainly effective views through to the right people???

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