Shipping Banker Survey

By Nora Huvane

It can be a treacherous thing to be a shipping banker during good times.

After all, ship finance is a much more complex science than shipowning. In shipowning, when the market is strong, owners make money and when the market is weak, many of them blow up. It is life in the food chain in its simplest form.

At least anecdotally, ship finance is influenced by a unique set of fundamentals. When the shipping markets are strong for a prolonged period, shipowners don’t need their bankers. When this is coupled with the fact that all kinds of new money is floods into the industry at a high point in the cycle, loan margins go down and covenants loosen – all at a time when cash flows are at or near peaking, asset values are inflated and the risk is higher. Just like the high interest rates charged to companies in default, it seems the cost of debt is lowest when borrowers are in the best position to pay.

So life is good for the shipowners; 2004 logged in as one of the most profitable years ever, and the future looks pretty good also. Charter rates are high, interest rates are low and the fundamentals support continued prosperity and profitability, though perhaps in a slightly more sober environment.

This is only an excerpt of Shipping Banker Survey

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