Ship Finance Forum Debates Boom or Bust

Discussion among more than 30 speakers and 150 delegates underlined that future earnings potential is mixed depending on trade sector and the impact of new capacity coming on stream.

There was general agreement that tanker rates were likely to stay in downturn but that trade with China would continue to boost dry bulk and container shipping although the jury was out on whether even these trades could justify a massive newbuildings order book in the longer term.

Conference chairman Philip Bailey, managing director of Theisen Securities, opened proceedings by declaring, ‘I’ve been involved in shipping for 25 years and have never seen so much of an up, certainly not for so long. What worries me is the ability of the industry to sow the seeds of its own destruction through over-optimistic expansion.’

After two days of debate, his concluding summary of expert opinion confirmed the dilemma, ‘Strong growth in the emerging economies supports a positive view of prospects until at least 2009, especially in dry bulk trades. Despite some concerns about the tanker sector and about ships being over-valued, generally we can be optimistic about where the market is going, but we need to be cautious about the number of ships due for delivery.’

From a ship financier’s perspective, he also pointed out that, ‘Banks are quite concerned about their ability to finance the amount of debt required by the market. On the other hand, we’ve heard that a wall of equity is waiting to fill any gap.’

A delegate opinion poll on shipping’s financial outlook for the next 12 months likewise pinpointed the industry’s challenge in balancing supply and demand. Bankers and financiers made up 47% of the respondents, analysts and shipowners/operators 20% each, lawyers 7%, shipbrokers 4% and other professionals 2%.

Asked to predict the industry’s financial performance over the coming year in relation to the last 12 months, 52% thought it would be about the same, 11% better and 3% much better compared with 34% who said it would be worse.

Ranking the main factors likely to affect performance, 30% headlined oversupply of tonnage. The global economy attracted 27% of the vote, demand trends 20%, availability of finance 13% and oil price 8%.

A decisive 70% considered that the availability of investment funds would be somewhat tighter and 10% said it would be much tighter. Factors affecting fund availability included bank lending restrictions (63%), shipping investment returns (25%) and demand for newbuild finance (8%).

Assessing the recent inter-bank loan problems prompted by the US sub-prime lending crisis, 47% thought shipping loans would be affected into 2008 and a further 14% indicated that the impact would be major. In contrast, 25% said there would be no effect and 14% thought the only effect would be on some syndicated loans.

According to 45% of the poll, less finance would be raised through public equity in the next 12 months, although 37% foresaw little change and 18% predicted an increase.

Summing up the findings, Lloyd’s Shipping Economist editor Steve Matthews noted, ‘There is an overall sentiment of caution that things may start to deteriorate over the next 12 months, but that’s not necessarily terrible considering how good things have been.