How Quickly Circumstances Change

by John Newbold

Through knowledge of and access to a variety of capital sources, a shipowner can over time knock $1,000 per day or more off the fully loaded cost of operating a ship. The operative words are: over time.

Capital sources are dynamic; and they have an evolving nature which is and will continue to be advantageous for the world’s shipowners. Prior to the oil shock of 1973, most shipping debt came from banks, and was based on long-term charters from large, highly creditworthy public companies. So, early risks taken by the providers of capital were usually only on the operating capabilities of shipowners, and not on their financial capacity. The banks, which had been for all practical purposes the only providers of such capital up to that point, were faced in the 1970′s with two new elements. First, they had to look to the shipowners’ balance sheets to support the financing when long-term charters started becoming a thing of the past. (Cash flow became more variable and ships tended to be bought and sold more often.) Second, the ship finance market, led by the Japan Exim Bank, saw the advent of government supported credit at prices generally cheaper than could be provided by the commercial market.

This is only an excerpt of How Quickly Circumstances Change

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