⊗

With large owners laying the groundwork for what could be the new norm for ships in terms of fuel and possibly future energy transport, the question remains as to how small- and medium-sized (SME) shipowners with limited access to capital will stay competitive. Leading ship financiers have long warned SME owners will struggle to raise fresh finance in the future as the bank market shrinks and pressure builds to consolidate or sell. Prominent Greek shipowner Harry Vafias, president and CEO of StealthGas, sees the current finance market as three-tiered where the top owners raise funds easily from multiple banks, medium-sized owners with 12 to 25 ships can secure financing at a higher cost; and smaller owners of up to 10 vessels find financing a “problem”; and "only a handful of specialised finance boutiques exist but their cost is very high, sometimes charging margins of around 10% over Libor." New technology can be economically uncompetitive at first However, shipping is finally seeing green numbers again for most sectors, and now that the money is back, banks are not so unwilling to back owners. Smaller banks, as well as alternative financiers, are willing to pick up where traditional shipping banks left off, hoping for a higher return. So, even with top players leading the implementation of shipping’s green agenda and getting the thumbs up from the banking sector, especially those that stick to the Poseidon Principles, there is plenty of money for the little guys, but it will cost more. "Given the current market environment and availability of longer charters, it's actually not that difficult anymore to obtain financing as an SME shipowner," says Maximilian Otto, co-founder and managing partner of digital ship lending platform Oceanis. Why would finance not be available? asks Michael de Visser, global head of shipping for Dutch lender NIBC Bank. He claims that there is excess liquidity worldwide seeking a return, adding that it is more of a matter which pocket it will be in terms of price. "I believe that there will always be small- and medium-sized entrepreneurial owners, possibly in cooperation with co-investors or sale and leaseback types of structures,” he says. In order to achieve the International Maritime Organization‘s (IMO) 2050 decarbonisation goals, zero-emission ships will have to enter the waters in the 2030s. Hence, the idea of providing capital for green investments for shipowners, large or small, should be welcome, encouraging them to improve the environmental performance of their ships. 2050 seems a long way away Nevertheless, with the current increased geopolitical uncertainty, the big 2050 picture now appears to be so far into the future and many have switched their centres of interest given the low visibility of new ship types and how the future trades might impact smaller owners. "We are very much focused on what happens to the SMEs in the short run, well before 2050, and are looking to assist owners with acquiring assets that will be needed long before we see any new ship on the water," Nicolai Heidenreich, managing partner at Norway's NRP Maritime Asset Management (MAM) tells Splash Extra. For Jonathan Chappell, Evercore's shipping analyst, although financing for smaller owners is likely to become more difficult over time, the real risk is the cost of financing, not true availability. As long as the smaller owner is willing to lay out a higher cost of capital, there are always alternative sources available to finance new capacity, he argues. "I think it’s an extreme outcome to suggest that the small- and mid-sized owners will go away from new regulations, it will just be more expensive for them to compete," he says. Oceanis’s Otto suggests the whole debate comes down to what the attitude of charterers towards new ship types will be. "If charterers / supply routes do not back this segment with long charters, the vessels will have to be funded by more equity or owners with large balance sheets, which will reduce their attractiveness to SME owners," he says, going on to add that if trade routes mature quickly, making long term charters possible, SME owners will be able to obtain competitive financing for newbuilds and enjoy access to a new segment. Vafias reckons around 5,000 ships of all types in Greece are owned by small- and medium-sized family controlled shipping companies, and even though the industry is approaching a time when new fuels and new types of green ships will be introduced, SME owners will always find a way to adapt and continue their multigenerational businesses. "Despite their small size, these owners are flexible, quick to react and quick to learn, so I am not worried about their existence in the future," assures Vafias. Smaller equals more nimble and agile Alexander Saverys, the chief executive of Compagnie Maritime Belge (CMB), the top shareholder of Belgium's tanker giant Euronav, says he doesn't believe that small companies are at a disadvantage per se, adding that, from a risk perspective, large corporates can probably afford more. "I don’t think the new ships required will kill off the little guys,” Saverys says. “Smaller companies could actually become frontrunners as they have quicker decision-making lines and can be more agile than large corporations. There is plenty of finance available for green projects, it’s a matter of finding the right types of investors and banks.” Adding to the owners' perspective Markus Wenker, chief financial officer at Singapore's FSL Trust, estimates that the incremental future demand for certain vessel types such as CO2 or LH2 carriers and the composition of the world fleet is likely to change on the back of a global energy mix shift. Wenker believes these new vessel types may not be for all shipowners, but only those with the expertise and resources. However, he stresses that the majority of the world fleet will remain the standard "bread and butter" vessel types such as dry bulk carriers, oil and oil products tankers, and containerships and the emergence of new trades and new vessel types "will certainly not kill off small- to medium-sized shipowners." Similarly, Wenker tells Splash Extra that the transition to zero-emissions will not do it either, as there will be one to two vessel generations between now and 2050. Well-known ship financier Dagfinn Lunde, chairman of Oslo-based investment bank Cleaves Securities, also believes smaller players will remain in the game in the less expensive and more attractive sectors, highlighting the bulk market, the smaller containers and smaller offshore as the best place in the market for them. "Finance will always be available for good projects, although at a slightly higher price, because the unjustly low bank financing will not be there for them,” he says. Understanding how to decarbonise Dr Tristan Smith, associate professor at the UCL Energy Institute, believes a more relevant challenge to the sustained existence of owners of small numbers of ships is how they manage the technical and strategic decisions around decarbonisation. "Questions about which fuel and specification, but also relationships to secure supply of the preferred fuel, and questions of timing for fleet renewal, are all difficult judgments to make that smaller companies may find more difficult than larger companies," Smith reckons. FSL's Wenker agrees that the transition to zero-emissions will certainly be more challenging for smaller and medium-sized owners and is likely to lead to further consolidation in shipowning in the long run. He judges that the primary driver for this will not be the availability of financing per se but the risks that come with technological innovation and the availability of clean fuels. "Larger, well capitalised owners can more easily afford to make mistakes and investments in technologies that turn out not to be future-proof. This financial ability to experiment can give larger owners a head start and fore runner position when it comes to large-scale cooperations with industry stakeholders along the value chain, which can be an important advantage in the long run," explains Wenker. Another experienced shipping cycle commentator, Dr Roar Adland, a professor at the Norwegian School of Economics, suggests, however, that historically changes in ship technology in and of itself have never really led to consolidation or an increase in the average fleet size of owners. "It is true that large companies with better access to finance may lead in any transition, but there is little to suggest that there is any first-mover advantage in shipping - probably the opposite is true as new technology can be economically uncompetitive at first. Hence, once the fleet has transitioned to zero-carbon solutions, the cut-throat competition and fragmentation we have seen for the last few hundred years would manifest itself once again," asserts Adland.

The green financing gap facing smaller shipowners

Do you have to be a giant in the shipping world to make the decarbonisation leap? Splash Extra investigates.

⊗

To continue reading, please login below or subscribe here.

Read Next

Owners advised to cash in

Measuring shipping hubs

April 2024 Review

The on/off risk premium for tankers

Curse of the dry cargo optimist

Owners advised to cash in

Measuring shipping hubs

April 2024 Review

The on/off risk premium for tankers

Curse of the dry cargo optimist

Maritime CEO Forum Singapore

Maritime CEO Forum Monaco

Advertising

Press Releases

Splash

Splash Extra

Splash Special Reports