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1. Leasing and funds continue to plug the ship finance shortfall

Another $10bn has been knocked off the portfolios of the top 40 banks over the past year. Bearing in mind the previous year’s reduction was in the realm of $43bn, it would appear that the rate of decline is slowing, but bank lending to shipping is now at its lowest level in 11 years - a mere $345bn. Two Chinese banks — Bank of China and the Export-Import Bank of China — topped Petrofin’s annual survey of the biggest lenders to the shipping industry for the first time. But even at the top, times are tough. Eight of the top 10 lenders in this year’s survey appear to have reduced exposure compared with end-2016. The gap has primarily been filled by leasing firms, mainly in China, Japan and Korea, with their total financing for shipping last year reaching $47bn. That is a trend we fully expect to continue. While the western banks will eventually start to regain some of their lost competitiveness and appetite, the stronger trend will be the increasing importance of leasing companies and funds as sources of finance for shipping.

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Global shipping loan portfolios drop $345bn 

2. Why shipping is finding it tough to break IPO drought

A three-year drought for shipping IPOs in New York looks set to continue as the industry digests the fizzling out of the GoodBulk and now the Navios Maritime Containers deals. Both IPO attempts were keenly watched by shipowners and investment bankers as tests of whether Wall Street is in the mood to open its arms to shipping hopefuls again after a three-year drought of traditional IPOs in the sector. The record raises the question of whether good timing for shipping players may not be the right time for US investors, who continue to struggle with the industry’s counter-cyclicality mantra. Protectionism and trade war rhetoric likely didn’t help (the industry is bracing for impact after the US intensified its trade war with China by imposing new import tariffs of $200bn on Chinese goods this week), but the appetite just isn’t there right now. As our Greek correspondent put it in his very readable piece last week: “Trying to sell a counter-cyclical recovery story is like trying to get your date to go to a horror movie when they are mainly into rom-coms.”

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China retaliates after US imposes $200bn of new tariffs
Why shipping is finding it tough to break IPO drought

3. Expect higher insurance costs for shipping

Marine hull premiums have reached an “unsustainable” low after a further 2.3% fall to $6.9bn in 2017. That was the big news from the scene-setting International Union of Marine Insurance conference out in Cape Town this week. While there are tentative signs of hull rates hardening in recent months, largely on the back of developments in the Lloyd’s market, the disappointing outcome underlines the impasse faced by many hull underwriters. Things have now reached the point where the Corporation of Lloyd’s has ‘invited’ around half a dozen syndicates to stop writing hull lines. To most observers, that is a polite way of saying they will be forcefully shut down. So consider this — Lloyd’s controls about a fifth of the global marine insurance market and brokers say hull premiums may need to double to make them sustainable. If Lloyd’s moves to raise premiums, all competitors will do the same. That will create added problems for shipowners who will have to bear another extra cost. Shipping has effectively been getting a bargain for years, but that could all be about to change.

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IUMI: Hull rates now 'unsustainable'
IUMI: Lloyd's will 'invite' closure of unprofitable marine lines

Shipping industry 'lacks vision,' SMM told

4. IMO 2020: Maersk lights up the BAF signals as shipping braces for the big bunker buster

We’re starting to see some of the detailed strategy for 2020 emerging and it’s interesting to see how the big boys are mitigating risk. Maersk is seeking to protect itself from rising fuel prices by introducing a new formula (a new bunker adjustment surcharge factor, known as BAF, based on a sliding scale that rises with the price of fuel) to recover costs. And those costs are significant — Maersk expects its fuel bill to increase by up to $2bn when new rules requiring 0.5% sulphur fuel are introduced in 2020. Watch now as everyone else tries the same trick with varying degrees of success. “The 2020 sulphur cap is a game changer for the shipping industry,” said Maersk chief commercial officer Vincent Clerc. He’s not kidding!

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Maersk says low-sulphur fuel could push up costs by $2bn

5. Reasons to be cheerful: LNG

Spot rates for liquefied natural gas carriers have hit the highest level in five years, and we haven’t even reached the anticipated seasonal winter strengthening of the market. Most analysts hold a relatively consistent view that this winter and the next year will be relatively bullish for LNG trades. There are large volumes of LNG due onstream at a time when the industry is still relying on a relatively large vintage fleet. Much of the new demand is for larger cargoes on longer hauls, where some of the older ships would struggle to compete. But don’t expect this positive supply demand scenario to last forever. With an unprecedented wave of new LNG supply projects coming on stream, 33 new LNG ships have been ordered globally so far this year, compared with 19 in the whole of 2017 and just six in 2016. A recent report from the consultants Wood Mackenzie noted that LNG trade was growing strongly but their forecast of an 8.2% expansion in 2018 lags behind fleet capacity growth. More long-haul imports from the USA to Asia should see tonne-mile demand grow at a faster rate, leaving a delicate balance between supply and demand for LNG ships. And forecast trade growth of 13.7% in 2019 should tip the balance in favour of shipowners, for now...

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Cheniere signs 15-yea LNG supply deal with Vitol

 

Listen to the Lloyd's List Podcast: From Brexit to IUMI
This week Lloyd’s List Editor Richard Meade is joined by our jet-setting journalist David Osler, who has been in Rotterdam talking no-deal Brexit implications before heading off to Cape Town for the annual marine insurance pow-wow with IUMI

 

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