karatzas marine advisors co. shipping finance advisory ship-brokerage four challenges for shipping...

Karatzas Marine Advisors & Co. Shipping Finance Advisory & Ship-brokerage

„Four Challenges for Shipping”

2nd Naftemporiki Shipping ConferenceAthens, January 26th, 2016

‘Safe Harbor’ Statements

‘And seas but join the regions they divide’ Alexander Pope

‘In Sea affairs, nothing is impossible, and nothing is improbable’

Admiral Lord Nelson, writing from HMS Victory in 1804

‘If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea’

Antoine de Saint-ExupéryKARATZAS MARINE ADVISORS & Co. / Web: www.BMKaratzas.com January 2016

http://www.bmkaratzas.com/


Agenda

Brief Shipping Market Overview

A Shipping Cycle Not

“A Crisis Is a Terrible Thing to Waste”

KARATZAS MARINE ADVISORS & Co. / Web: www.BMKaratzas.com January 2016



Shipping Market Overview

Anemic Freight MarketsWeaker than expected or foreseenGreat repercussions for a broader number of shipowning companies worldwideTiming is unfortunate

Many a shipowning company had believed in market recovery, post 2011, and had invested in growth (newbuildings)World economic growth is weak, while Chinese economic growth is decelerating

Precarious Financial MarketsHeightened uncertainty (interest rates, FX, commodities, etc)Emerging markets (BRICS no more)Most private equity investments in shipping are underwater

Exit risk, liquidation, etcMinimal additional interest to invest in the industry, especially for market related projects

Capital markets in de-risking modeRisk premium

Risk-offDefaults in related industries (drilling ashore, etc)

KARATZAS MARINE ADVISORS & Co. January 2016

KARATZAS MARINE ADVISORS & Co. / Web: www.BMKaratzas.com January 2016Page 4



Shipping Banking Market Overview

Shipping banks have been the industry’s most reliable source of capital throughout business cyclesA great deal of shipping banks have either left the industry (i.e. Lloyd’s TSB, etc or in the process of exiting the industry (i.e. RBS, etc) For shipping banks remaining in the industry, it’s a new seascape:

“Shipping” is not a core industry for banks any moreStrong focus on credit quality, corporate finance and strategically important clientsHeightened regulation (Basel III, etc) renders asset-backed financing (including ship mortgages) too costly for banksDespite low interest rates, banks still prefer to hoard cash instead of lendingA funding gap left by shipping banks, to be filled by “credit funds” and other “alternative funds” at a substantially higher cost of capitalShipowners will be forced to evolve financially by a) preparing consolidated statements and balance sheet, b) manage fleets of vessels with critical mass (>20 vessels), c) set proper governance and management structures and d) financial sophistication





Agenda








The “Typical” Business-cycle in Shipping

Shipping is notoriously volatile industry with average seven-year business cycleShipping is also a capital intense business, thus capital availability has always been a major driver / constraint for the industryShipping is often a proxy for other industries and market trends such as post-WWII world rebuilding, development of middle class & urbanization first in the western economies and mostly recently in China, etc Bad markets in shipping recur with metronomic regularity since trade records have been kept from the age of clipper ships; since the establishment of the Baltic Exchange indices (BIFFEX and BDI) in 1986, a typical shipping business cycle of strong freight is followed by increased wave of newbuildings, which due to time lapse delay of backlog and vessel construction, getting delivered past the peak of the freight marketWith the exception of the trough years of the 1980’s when trade had collapsed, shipping cycle troughs typically are induced by tonnage oversupply

KARATZAS MARINE ADVISORS & Co. October 2015




Why the Present “Crisis” is not just Another bad Market in Shipping ?

China, the main driver of the boom years, has also brought a huge expansion of shipbuilding capacity and credit liquidity, which will bring a permanent state of overhang over the market (tonnage oversupply), even during when the market recovers

China has become major shipowner and player in shipping markets, with the ability of ‘shaving peaks’ in any future market recoveryChine to be an active player in shipping (i.e. merger between Cosco & China Shipping Group, dwarfing Maersk; education lesson for Vale with Valemax fleet)

The market collapse post 2008 has brought too much money to the industry (institutional investors) with little vested interest in the industry and an eye for a quick exit; threat for tonnage oversupply and increased volatility cannot be ignored

Institutional investors will favor larger shipowners with strong balance sheets

Shipping banks will never be the same again; “relationship banking”, and spreads of fewer than 300 bps are foregone for the average shipowner

Shipping banks will favor larger shipowners with strong balance sheetsShipowners will ever increasingly look at the capital markets for financing

Capital markets will favor larger shipowners with strong balance sheetsRegulatory environment gets more challenging (and costlier) by the day, necessitating proper management and governance structures Charterers are getting bigger, more sophisticated and demanding better performance and better cargo damage control

KARATZAS MARINE ADVISORS & Co. October 2015KARATZAS MARINE ADVISORS & Co. / Web: www.BMKaratzas.com January 2016

Page 8



Agenda











Present business cycle is not an average market troughShipping markets are at “inflection point” when a new rulebook will be required Now it’s the time to think strategically and set forth a new game planShipowners will have to have BOTH shipping expertise to run vessels expertly AND ALSO financial expertise to access cost-competitive vessels

Fleets have to have critical mass (>20 vessels) to appeal to charterers and financiers and also allow for cost competitive managementThe financial department & Chief Financial Officer (CFO) of shipowner’s office will have to be as strong and knowledgeable as the chartering and technical departments and Chief Commercial Office / Port Captain and Port EngineerCapital markets likely will be the next big source of capital for shipping, but the IPOs of the past decade will never have another chanceIn time of greatest need, when BDI present below 300 points, it’s time to think broadly, big and with an eye for the next decade





Karatzas Marine Advisors & Co.

Shipping Finance Advisory & Ship-brokerage

One World Financial Center, 30th

Fl200 Liberty StreetNew York, NY 10821 USA

Switchboard: +1 212 380 3700 Mobile (US): +1 713 545 5990 Email: [email protected] Web: www.BMKaratzas.com

Karatzas Marine Advisors & Co.



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karatzas marine advisors co. shipping finance advisory ship-brokerage four challenges for shipping...

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