Ship Finance: A New Era

The following is excerpted from a speech which was delivered by Dr. Helmut Sohmen of World-Wide Shipping Agency Ltd. at the Connecticut Maritime Association’s annual conference in March.

In talking about a new era, shipfinancing is one area where there has been some innovation of late, if one does not accept that the bulbous bow or the greater fuel efficiency of modern marine diesel engines are particularly spectacular breakthroughs. This has to do with the globalization of financial services generally, but also with more open financial markets and new instruments, the change in employment patterns for ships, taxation regimes, the gradual reduction in direct subsidies, and the relative lack of long-term equity capital for shipping ventures, for which shipowners however may only have themselves to blame. Continue Reading

Financing Leasing: A Jurisdictional Review

PART TWO

by Tim Budgett, Clifford Chance, Paris

Continuing our series on cross-border leasing, this article will look at the regime in Germany. The introduction to this subject was carried in Marine Money issues Vol. 11, Nos. 17 and 18; and Part One of this series, a review of the situation in the UK, appeared in the last issue, Vol. 12, No. 6.

Germany
Germany combines a long shipping tradition with economic stability, personal and corporate wealth and financial sophistication. Add to this a tax regime and a legislative framework which is modern and reliable, and one may imagine an environment in which tax-driven leasing products for the shipping industry could thrive. However, until recently, the use of tax-advantaged products by the German shipping industry had not been common. Indeed, such products are still regarded by some with a measure of suspicion. Continue Reading

Financing Leasing: A Jurisdictional Review

PART ONE

by Tim Budgett, Clifford Chance, Paris

A number of jurisdictions throughout the world provide a suitable tax and regulatory environment for cross-border leasing. Following the introduction to this subject in Marine Money issues Vol. 11 Nos. 17 and 18, this article will look more specifically at the current situation in the United Kingdom. A second article will deal with Germany.

The Growth of the Equipment Leasing Industry
It was the availability of capital allowances which led to the growth of the equipment (including ships) leasing industry in the UK. Capital allowances, which enable the cost of capital assets to be taken as a deduction in computing tax liabilities, were made available as a deliberate UK Government incentive to encourage investment. Continue Reading

Keppel Corp. Diversification and Growth Go Hand in Hand

Keppel Corporation Limited (Keppel) is a $2.4 billion diversified conglomerate incorporated in the Republic of Singapore.  Through its numerous subsidiaries, strategically located in 13 different countries, it is involved in six broadly-defined different industries (see Tables 1 & 2).

Historically, the Shiprepair & Shipbuilding segment was Keppel’s principal activity. In 1992, revenues from this industry segment represented 40% of Keppel’s total revenues of $1.6 billion. However, in the past three years, the greater growth in other industry segments, combined with a slowdown in shipyard activities, resulted in a decrease in the proportion of revenues from Shiprepair & Shipbuilding activities. In 1993 and 1994, Shiprepair & Shipbuilding revenues dropped to 32% and 28% of total revenues, respectively.  In 1995, the proportion of revenues coming from Shiprepair & Shipbuilding activities reached a low of 20%. For the first time, it was third to revenues from Offshore & Specialized Building activities that, at $600 million, represented 25% of total revenues and from Banking and Financial Services that, at $580 million, accounted for 24% of Keppel’s total revenues. Continue Reading

Far Eastern Maritime Trends

by Ernst G. Frankel, Massachusetts Institute of Technology

Recent crises in Japanese financial institutions, political problems in Korea, projected economic slowdowns in China, and the Chinese-Taiwanese confrontation have been observed with some glee by western maritime circles as a hopeful sign of decline in the increasing dominance of world shipping and shipbuilding by Far Eastern countries.

While Japan is truly immersed in a difficult banking crisis, suffers an economic slowdown, and is subject to an overvalued Yen, it is not in a crisis. Government, industry, business and society cooperate to resolve these problems in a disciplined, focused manner. Savings rates are up as is productivity and, as a result, credit is readily available at low costs, and industry, particularly shipbuilding, is maintaining its competitiveness. Japan continues to be the world’s premier shipbuilder, with about 40% of the market in GRT terms, though shipbuilding employment today is only half of that in 1987. Continue Reading

An Economic Overview of East Asia

As the growth and liberalization of many East Asian economies continues at a rapid rate, the region’s significance in world trade, and in shipping, also continues to increase dramatically.  The economic expansion of China, the Philippines and Vietnam has been impressive in recent years, and although the economic growth of Hong Kong, Singapore, South Korea, Taiwan, Thailand, Malaysia and Indonesia has slowed since the late 1980s, it is still extremely high on a world scale.

The economies of South East Asia, in particular, have exhibited remarkable growth in the past decade and now boast the highest GDP rates in the world, apart from China.  For seven consecutive years, GDP growth in the region has been at 7-8% per annum and the GDP is forecast to double to $1,200 billion within the next ten years.  Low labor costs, a focus on industrialization, and the development of new markets are all factors in South East Asia’s success.  The area is successfully replicating the export-led industrialization models of Hong Kong, Taiwan and South Korea, and will have a profound effect upon global trading patterns as it gains the competitive advantage.  Continue Reading

Bulk Shipping: From Where and To Where?

The following address was delivered on March 20 by Sverre Tidemand, Managing Director of Belships Co., at the Connecticut Maritime Association’s “Shipping 96″ Conference.

What is Bulk Shipping?
Bulk shipping as an industry is characterized by being extremely fragmented, with thousands of individual players, each of whom has none or very little market power.

The industry will, in any one year, carry around 1.6 billion tons of dry bulk goods and 2 billion tons of petroleum and its products. Of this enormous quantity, all but a small fraction of one percent is delivered safely and on time at its destination. Costwise, the almost perfectly competitive nature of bulk shipping will automatically insure cost effectiveness in the short term. In the long term, we know that people like myself tend to order new supply at the wrong time, ensuring the extremely cyclical behavior of the markets. Continue Reading

The Rise of the Asia Pacific Region – Impact on Shipping

This speech was delivered by Joseph Kwok of American Eagle Tankers at the Connecticut Maritime Association’s March conference, Shipping ’96.

It is my pleasure to be here today to discuss the impact of the rise of the Asia Pacific region in shipping.  Let me begin this session with a little introduction on Asia Pacific growth and the impact of this growth on maritime transport. Following this, I shall also be providing some examples to show what has been, and can be done to address the concerns arising from this region’s rapid growth.

Since the 1960s, the world has witnessed the growth of the Asia Pacific region at a rate so rapid that it outpaces that of the rest of the world. This was mainly contributed by the growth of South Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia and Indonesia, which reached their peak in the later half of the 1980s, and which have since maintained average growth rates of between 6-8%.  In recent years, other Asia Pacific countries such as China, the Philippines, India and Vietnam have also shown signs of remarkable expansion in their global economies. Continue Reading

What Do Owners Really Want?

It goes without saying that ships could not operate without crews, bankers, consumables and insurance. Even if an owner paid cash for his ships and thus did not have to name a bank or other financial institution as a named insured, he still cannot trade his vessels without Protection and Indemnity insurance.

The latter is much more than a necessary evil -not because the owner sleeps at night knowing that he is covered for a major accident, but because the owner can sleep at night knowing that all the minor claims which occur with regularity are dealt with in a prompt, professional manner. Continue Reading

Shipping Finance for Russia: How to Source It

by Paul Powell, Partner Moore Stephens London

I start with a very obvious statement. Shipowning is a capital intensive industry. Together with the airline industry, it probably has the highest single cost units needed to provide its revenue generating services than any other industry. Most manufacturers with large factories filled with costly machinery will have nowhere near the amount of capital investment that is tied up in one unit of a shipowner’s fleet.

What shipowners share with manufacturers is that their assets wear out despite what one can do to maintain, repair and renovate them. There is a finite life span after which the asset needs to be replaced.

There have been many forecasts of the newbuilding requirement to replace the world’s aging merchant fleet and the latest suggests that up to $300 billion of investment would be required. Where then will this capital come from? Traditionally, there are three source of finance for shipowners: their shareholders, the State, and the banks. Continue Reading