How Finance Has Helped to Change the Marine Market

Bank of Scotland has been a facilitator for leisure marine finance since 1981 and has often acted as an industry trend setter in the finance arena. During July 2004, the company entered the small commercial vessel market providing finance for tugs, barges, work boats, dredgers, ferries, passenger pleasure craft, hire boat fleets and coastal ships. Now, this kind of investment is a successful industry in its own right.

Paul Ratcliffe explains, ‘Looking back 20 years at the marine market you suddenly realise just how far the industry has come, and a visit to Seawork 2008 will demonstrate this fact. Twenty years ago an alternative method of security would have been a requirement to assist with funding a small commercial vessel. This commitment was often too great for most people, as the thought of offering a home as security to purchase a workboat was not ideal.

‘Nowadays banks take the vessel as security on a marine mortgage, making it a more accessible addition to business capital. This normally takes the form of a mortgage over the vessel and will include an assignment of the earnings and insurances. So, in the event of a problem with payments on a marine mortgage, the earnings from a time charter can be assigned to the Bank.

‘Demand for commercial vessel finance has also risen because of environmental factors. The advent of alternative energy sources such as wind farms have required survey vessels and workboats to support the build process of these schemes, as well as the ongoing maintenance of the turbines. This increase in renewable energy sources is set to continue as per Government directives and while the sector has grown rapidly, it will continue to rise, requiring full banking support.

‘With leisure habits now leaning towards sea pursuits and the ever increasing tourism on the coast, we have seen harbours and ports get busier, with a bigger requirement for dredging. Record numbers of ship movements in our busy ports require tug services, leading to a rise in commercial vessel activity in the marine sector and a shortage of tugs throughout the UK.

‘Most vessels funded in this sector are Part 1 British Registered which enables a bank to register their mortgage charges. With the ability to write up to £10 million on a single vessel, you can clearly see just how advanced the market is now. The largest vessels in the sector tend to be 5,000 dwt dry bulk carriers compared to 1,400 dwt 20 years ago. The sheer size and scale of an arrangement now is testament to the fact that the industry has seen huge growth over the last 20 years.

‘Although this small commercial vessel sector within Bank of Scotland only provides finance to UK based companies, we have a wealth of customers from both inland waterways and the larger vessel markets. Commercial vessels provide strong security and residual values remain firm. Typical terms are between five and ten years and require deposits of around 30% as standard. (Finance will be subject to status. Applicants must be 18+ and UK resident.) Our large shipping transactions are handled by specialist teams based in London and Edinburgh and cater for the world wide market.

‘All Bank of Scotland deals are bespoke, taking in the considerations of the individual, their business and its situation. Mortgage amounts are available from £25,001 for small commercial vessels and are mostly variable rate with various payment options.

‘The next 20 years will need to see lenders working closer with their clients in this sector, taking a more individual approach to each relationship no matter how small the finance package requirement. We will see an increase in joint venture deals with manufacturers and will witness these builders offering finance facilities similar to a modern car showroom.

‘In the future we will see a requirement for many new vessels, and options on funding facilities will be equally important. As commercial vessels get older they become less attractive as assets that a bank would wish to finance.

‘The demand in the sector is seen to remain very strong, which is why it is more important for lenders to have expertise in the individual markets such as commercial vessels. Having specialist advisors who know the industry, who have seen it evolve and can predict the trends of the future is vital for the customer. Prior to joining Bank of Scotland in 1987 my background was in the Merchant Navy. I served my apprenticeship and sailed as a Second Officer with Bibby Line, Liverpool.’

The commercial vessel market is moving forward but will always require support from the Government, Banks and Financial Institutions. The 2012 Olympics will require substantial support from this sector and CO2 emission issues would suggest that more cargo should be transported by sea and inland waterways. The UK has the infrastructure in place for this to happen and Banks should look to support replacement tonnage. Many UK ports remain underutilised but are capable of accommodating small dry bulk coastal vessels.

Paul Ratcliffe is Associate Director Commercial Vessels, within Bank of Scotland Corporate.