The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Overseas Ltd.

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

 

It is a strange feature of international shipping that its fortunes can be transformed, virtually overnight, by exterior factors such as geopolitical events and natural disasters. The closure of Suez, for example, proved a catalyst in the rapid development of VLCC trades round the Cape, whilst Iranian sanctions continue to keep one of the world’s largest sources of natural gas closed to most of the world. So far this year, we have seen the dire effects of floods in various regions, as well as a changing emphasis in Asian energy shipments as a result of the Fukushima disaster.

Now, as 2012 draws close, some are questioning the likely repercussions of the deepening debt crisis in Europe. It is banks in this region which are the principal lenders to much of the shipping industry. Sure, Chinese financial institutions are grabbing a bigger slice of the ship finance pie, but usually only when there is a Chinese connection in one way or another. There are prominent lenders in Japan too, and in Singapore and the US. But it is Europe’s banks who still feature as the single largest lending group.

A number of European financial institutions have recently indicated, some more publicly than others, that they plan to reduce their exposure to shipping. Banks’ credit committees get spooked by asset values which shoot up and down too much and can be directly influenced by uncontrollable events. And, as asset values continue to crash, loan covenants fall into technical default and become a growing headache for so-called “risk managers” who have to deal with problem loans.

The number of these is increasing across most shipping sectors. With a few small exceptions such as the LNG sector, and certain small niches in the bulk carrier and small tanker markets, there is widescale overtonnaging that has forced rates down below breakeven in some instances, causing ship values to crash and bank security packages to become virtually meaningless.

Yet very few shipowners are in a position to buy ships without the support of their bankers. And Clarkson estimates that the value of today’s orderbook is an eye-watering $364bn. “Nobody really knows how much of this … is financed,” the firm said recently in a weekly report. The analyst point out that shipyards are still working at close to capacity. “A year ago,” it stated, “it seemed likely that output would slump in 2011, but as the year end draws near, our statistics paint a different picture.”

In fact, Clarkson estimates that 2011 production will be similar to 2010 or even slightly higher, depending on whether it is measured in deadweight, gross tons or compensated gross tons, the measure of work content in a particular vessel type. In deadweight, the analyst estimates that output could rise slightly, by 2% to 154m dwt. In gross tons, deliveries will be down, but only by 1% whilst compensated gross tonnage output will fall by some 8%. Projections for 2012 indicate deadweight deliveries down by just 5%, gross ton output by 8% and compensated gross tons by around 9%. Even 2013, Clarkson says, looks busy, with compensated gross tonnage only down by 18%.

Overall, tonnage on order at the world’s shipyards equates to 27% of the world fleet today, according to the firm’s statistics. But in view of the rapid expansion in the fleet recently, that is a very large number. It disguises some alarming figures in sectors where rates and values have already plunged to disastrous levels – bulk carriers (38%), container ships (27%) and tankers (20%). But maybe, just maybe, a significant volume of this contracted tonnage is now impossible to finance.

This is not good news for everybody. Shipbuilders for one, and owners who have paid lumpy installments on contract signing. But for the industry as a whole, it could be that bankers, for once, can help to cut the surplus, unwittingly or otherwise.