Buoyant Shipping Markets Will Be Better for Credit Squeeze

Shipping markets are likely to bring continuing rewards for prudent investors in 2008, on the back of record earnings and asset values and a continuing high in the world economy. But the current credit squeeze will serve to put a brake on some of the more speculative and ill-advised ship finance ventures, according to leading business adviser and accountant Moore Stephens.

Chris Chasty, head of the shipping industry group at Moore Stephens, says that, although the outlook for shipping remains bright, recent and current financial crises “will make banks more choosy about who they lend to, and stricter on their terms of lending. It will cut the number of banks in shipping, cut the number of syndicated deals, and crush any prospect of clever banks dreaming up new ways to slice and dice shipping debt. 2008 will begin with shipowners actually having to ask banks for money and having to justify why their project for a newbuilding deserves the bank’s backing. This new atmosphere in the ship finance market will be a welcome return to sanity.”

Writing in the winter issue of Moore Stephens’ shipping industry newsletter Bottom Line, Chasty says, “Shipping as a whole is still behaving as if the market cycle has been magically abolished, even though LNG carriers and container ships are going to lay up, and everyone can see massive newbuilding delivery schedules for the next two years. Five golden years of Chinese demand, helped along by port congestion and growing demand from India, have ensured that we enter 2008 with record dry bulk rates. And dry bulk is wagging shipping’s tail, attracting banks, money, and some owners who should know better.”

Admitting that nobody can be sure of what might happen to the market in 2008, Chasty says, “We can be sure of rising costs, however. Finance costs are rising as bank credit becomes harder to tap. P&I calls are soaring as clubs find investment income less healthy and calls expensive. Crew costs are set to climb even faster, as the world supply of skilled seafarers tightens further. The cost of crewing is not just the wages, it is the costs of mistakes, delays and damages from unskilled crews and the costs of training and retention to minimise those damaging costs. Wise owners are investing in skilled manpower, knowing that that will see them more able to attract business and finance, whatever the markets do. And a massive change in air emissions regulation is pending, which will certainly push up shipping’s costs further.”

On the subject of public equity, Chasty says, “The death of the US economy has been exaggerated, and the devalued dollar is likely to save it from a real crash. It may well drive a US export boom, helping balance container shipping trade flows. There is still cash there looking for a home, and despite the shelving of some shipping IPOs, shipping can still look attractive in a market where other options, especially those linked to domestic economies, look less attractive. So there will still be public deals, just as there will be bank deals, but on a more selective, and more sustainable, basis.”
 

• Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting networks, with 621 offices of independent member firms in 95 countries employing 19,279 people. Fee income increased in 2007 by US$340.3 million to US$1,884.0 million, a growth rate of 22%, doubling network turnover in the past three years.

For more information:
Chris Chasty, Moore Stephens LLP
Tel: +44 (0)20 7334 9191
email: [email protected]