He is a visiting professor at the ICMA Centre—Henley Business School of the University of Reading (UK). She is a graduate of the Aristotle University of Th essalonica (LLB and LLM in commercial and economic law, with distinction).
An Introduction to Shipping
The Maritime Value Chain
Shipping Markets and Their Economic Drivers
Ship Owner
The owner gives a shipmaster a mandate to operate the ship with crew, maintenance and so on (technical ship management) and market the ship to charterers (commercial ship management). On the income side, the owner's risks lie in the charter rate, the employment and the life of the ship with regard to the used value (in the case of ongoing employment or scrapping).
Shipyards
The owner's earnings are the difference between the charter rate and the sum of the costs of owning the vessel (interest and repayments, potentially subject to exchange rate fluctuations, are the capital expenditure - CAPEX) and providing it (maintenance). and repair, including docking, stocks and lubricants, staffing, insurance, and management and administration are the operating expenses—OPEX). The risk with respect to the earning potential of other voyage-related costs (which are primarily fuel and port and passage costs (canal charges)) may lie with the owner or with the charterer/operator (for more details see Fig. 1.3 and 1.4.
Charterers
Cargo Owners
Freight Forwarders
Ship Managers
All operating costs of the vessel are borne by the owner, based on pre-agreed crew and the OPEX budget. Only a limited part of the ship management contracts is related to the charter rate earned or to performance indicators.
Brokers
The Shipping Segments
The Various Shipping Markets
- Th e Newbuilding Market
- Th e S&P Market
- Th e Demolition Market
- Th e Charter Market
- Th e Freight Spot Market
- Forward Freight Agreements
The structure and behavior of the S&P market depends on the phase of the shipping cycle. The charterer may dispose of the vessel during the charter period, potentially also performing voyage charter voyages for other cargo owners.
Cost Structures in Shipping
The higher fuel cost breakdowns and some OPEX items for a VLCC compared to a container ship may be surprising at first glance. However, parts of the cost in container shipping are significantly reduced by high terminal costs, with each container movement accounting for around USD 250.
The Drivers of Shipping Markets
- Demand for Transport Capacity
- The Supply of Transport Capacity
The development of the world economy, measured in gross domestic product (GDP), is the first and most important driver for shipping markets. During the crisis, congestion peaked at almost 600 vessels, which is five times more than today (Alphaliner 2015.
Shipping Market Performance
Stopford (2009) analyzed that cycle lengths averaged seven to even ten years peak-to-peak, but discovered a fairly high volatility of the cycle length. An average annual increase of the ClarkSea index of 3.1% (the slope of the linear regression from 1965 to 2013) can be compared to an average USD inflation rate of 4.2% in the same time frame.
The Bulk Shipping Market
- The Structure of the Bulk Shipping Market
- The Drivers of the Bulk Shipping Market
- Bulk Shipping Market Development .1 Th e Demand Side
- Th e Supply Side
- Earnings
- Prices
Other important recent developments in the dry bulk markets include two agreements between Vale and two Chinese state-owned companies to coordinate shipments of iron ore. The explanation lies in the shorter remaining life (and therefore investment horizon) of second-hand ships compared to new-build.
The Tanker Shipping Market
- Structure of the Tanker Shipping Market
- Drivers of the Tanker Shipping Market
- Tanker Shipping Market Development .1 Th e Demand Side
- Th e Supply Side
- Earnings
- Prices
It is assumed that these trends will lead to a sharp increase in the trade of crude oil from the Middle East to China and other Asian countries (Fang et al. 2013. The speed and extent of this development also depends on the development of the price of crude oil.
The Container Shipping Market
- Structure of the Container Shipping Market
- The Drivers of the Container Shipping Market
- Container Shipping Market Development .1 Th e Demand Side
- Th e Supply Side
- Earnings
- Prices
This growth will mainly come from the new Panamax and ULCVs as shown in the figure. It seems that many owners (or their banks) were not willing to sell at below market prices as shown in the picture.
The Offshore Market
- Structure of the Offshore Market
- Drivers of the Offshore Market
- Offshore Market Development .1 Th e Demand Side
- Th e Supply Side
- Earnings
- Prices
A very detailed overview of the market is provided for example by the Foreign Intelligence Monthly report of Clarkson Research Services (Clarkson Research Services Limited 2015a. The earnings in the foreign segment can be expressed in one-year time charter. rates (see Fig. 1.32.
Summary
MOU newbuild prices, especially drillships, fell sharply after the financial crisis of 2008 and into 2010, but recovered somewhat in 2012 and remained fairly stable. Rates are fairly stable for OSVs, but have fallen for MOUs since the drop in oil prices in the first half of 2014.
Bibliography
Introduction
In asset backed financing structures, security for repayment of the loan is primarily based on the asset as collateral. The structuring of the financing is therefore largely dependent on the assessment of the asset's current and future value and liquidity.
Asset Risk Assessment, Analysis and Forecasting in Asset Backed Finance
Global Demand and China: Cyclicality, Super Cycles, Sector Cycles and Counter-Cyclicality
- Global Economic Development and China as the Key Driver of Shipping Sectors
- Cyclicality and Variables Affecting Cyclicality
Meanwhile, local governments were motivated to encourage new shipbuilding capacity (some even contrary to central government guidance) to take advantage of the tax-sharing system. It is also important to note that these 51 yards account for the majority of Chinese shipbuilding capacity, which is expected to continue as is.
The Shipping Sector Market Outlook
- The Container Shipping Sector
- The Dry–Bulk Shipping Sector
This also leads to longer trade distances and therefore to stronger growth in the total demand for dry bulk tonnage, when adding up the ton-mile effect. It is calculated as the evolution of the difference (or ratio) between the predicted fleet capacity and the forecasted total demand.
The Asset: Importance of Asset Specifi cations
Vessels built in Tier I shipyards are also expected to have longer economic lives, compared to units built in Tier II yards, ceteris paribus. The combination of a longer useful life and higher charter rates could justify their FMV premium being higher than comparable units built in Tier II shipyards.
Mitigation of Risks
In fact, the fair market value (FMV) of a ship built at a Tier I yard 23 will have a premium of 5-20%. Furthermore, when a large number of ships are available for selection, charterers prefer ships built at Tier I shipyards, which can lead to a premium in charter rates for these ships as well as less risk of unemployment.
Conclusion
Container ships are getting bigger at a faster rate than ever before in any other segment. There is enough capacity in the shipyard to deliver the required capacity quickly enough to stop the upswing in any sector before it actually occurs.
Notes
Introduction
Over the past decade, newbuilding orders have averaged more than $130 billion a year, rising to $266 billion at the peak of 2007. According to Clarksons, more than 1,000 ships have changed hands on average over the past decade and the total annual Transaction value between 2004 and 2014 exceeded $25 billion and peaked at $47 billion in 2007.
Sources of Ship Financing
- Financing from Banks
- Mortgaged-Backed Bank Loans
- Newbuilding Financing
- Mezzanine Financing
- Corporate Loans
- Leasing Financing
- Financing from Capital Markets
- Corporate Bonds
- Public Equity Off erings
- High Payout Structures and Master Limited Partnerships Th e structures of the shipping companies that access the public markets have
- Special Purpose Acquisition Companies
- Private Equity
The repayment profile of the loan depends mainly on the age of the vessel. In the wake of the 2008 financial crash, capital markets managed to close the funding.
Conclusion
During this course, shipping companies and capital providers must face the risks of highly volatile operating cash flows and ship prices, making risk management a central consideration in any investment decision. While bank debt financing is likely to remain the most important source of capital for the industry, today there is a wide range of alternatives available to shipping companies.
Introduction
- Reasons for Vessel Acquisition
- Alternatives to New Construction
- Reasons for an Orderly Approach to Vessel Acquisition and Project Financing
- What Can Go Wrong in Ship Acquisition Projects?
- What Is Project Management?
- Strategic Planning
- Forecasting
- Plans
- Mission Statement
- Vessel Design
- Sources of Ship Finance
- Ship Finance
- Choosing a Source of Funds for Ship Construction Th ere are many sources of funds available to a shipowner planning new con-
- Debt Financing
- Loans Syndication
- Mezzanine Financing
- Bonds
- High Yield (“Junk”) Financing
- Shipyard Credit
- Leasing
- Interest Rates
- Ship Mortgages and Other Loan Security
- Export Credit Agencies (ECA)
- Hybrid Financing Schemes
- Islamic Bank Finance
- Government Grants
- Equity Financing
- Public Offerings
- Private Placement
- Venture Capital
- Master Limited Partnership (MLP)
- Financial Aspects of the Shipbuilding Contract
- Progress Payments
- Performance or Surety Bond
- Refund Guarantees
Examples of strategic planning date back thousands of years: Sun Tzu's Art of War (2,400 years ago), Miyamoto Musashi's Book of Five Rings, and Napoleon's campaigns. The charterer owns the vessel and essentially “rents” the vessel to the shipowner.
Conclusion
The ship owner is the obligor, the shipyard is the principal and the bond issuer is the surety. The usual procedure is for the shipyard to arrange with his or her bank to provide a guarantee for the reimbursement of the ship owner.
Introduction
In an increasingly cautious climate, banks must ensure that the loans they make do not contravene international or local laws or regulations relating to sanctions, tax evasion and share ownership, and also that they comply with the capital requirements to which they are subject. The underlying principle of ship debt financing is that a lender advances a debt facility and that the ship and other such collateral provided by the borrower secures the repayment of the facility through the ship's earnings, backed by that collateral.
Types of Debt Financing
- Standard Loan Facility
- Th e Lender
- Syndication
- Th e Borrower
- Th e Financed Ship: Newbuildings and Second-hand Vessels
- Facility Amount
- Conditions Precedent
- Currency
- Tenor and Repayment of Loan Facility
- Interest
- Representations and Warranties
- Covenants
- Governing Law and Jurisdiction
- Events of Default
- Fees
- Leasing
- Bonds
- Mezzanine Financing
- Export Credit Agencies
The Borrower will reaffirm these representations at the time of the utilization of the Facility (or each part thereof). One of the commercial lenders will arrange the facility and collect the ECA(s).
Security Package
- The Ship Mortgage
- The Assignment of Earnings, Charter Hire, Insurances and Requisition Compensation
- The Charge or Pledge Over Accounts
- The Shares Charge or Pledge
- The Pre-delivery Security Assignment
Ship mortgages are usually governed by the law of the ship's flag state and fall into two categories, statutory mortgages and "preferred" mortgages. Statutory bonds are usually short, summarizing the particulars of the ship and the basis of the secured debt.
Conclusion
Another way in which the lender controls the ship's earnings is through a levy or pledge of amounts to the credit of the account to which the earnings are paid, from which the lender can also request that the borrower make regular payments to an escrow. retention account. Although rarely used, such fees or commitments enable the lender to sell the ship-owning company on the borrower's default, thereby allowing a beneficial charter of the ship to remain in place (as such a charter may have to be terminated upon the sale of a ship or after its arrest).
Introduction
Basic Concepts of Bonds
When market conditions deteriorate or the borrower's creditworthiness deteriorates, the value of the bonds falls (they are known to trade at a discount); in such a case, the yield increases (the coupon remains constant, so the same coupon payment is received for a smaller investment) and so on. The annual interest payment divided by the bond's current market value is called the "current yield" or "current yield."
Bond Issuing Example
Likewise, bonds that trade above their face value are said to trade at a premium and their yields fall accordingly. Taking into account all future coupon payments over the life of the bond, and the amount of principal to be repaid at maturity, divided by the current market value of the bond, is called the "yield to maturity" or "yield to redemption ". , which reflects the bond's internal rate of return.
Bond Pricing in the Secondary Market Example
Nothing else has changed with the terms of the bonds themselves, and Mr Big Ship is still responsible for paying an 8% coupon on an annual basis, despite his improved fortune. There is no material impact on Mr Big Ship's cash outflows, but now he has the pleasure of having a new "benchmark" and can theoretically now issue new bonds at more competitive terms (at 6.5%).
Issuing of a Shipping Bond
Filing a Prospectus
A private offering can offer more flexibility in structuring terms and covenants than a public bond offering or ship loan, but typically private debt offerings are best suited for smaller amounts borrowed and are very limited when it comes to selling the loan on the secondary market. For private debt investments, lenders must be qualified or accredited investors (in effect, high net worth individuals or professional investors), so placements cannot be offered to retail investors in the broad market; also, private debt investments may require a special license in some jurisdictions (such as Germany) where lending activities are more closely monitored by regulators.
Obtaining a Credit Rating
For private debt placements, the lenders must be qualified or accredited investors (in effect, high net worth individuals or professional investors) so that the placement cannot be offered to broad market retail investors; Also, private debt placements may require special licensing in certain jurisdictions (such as Germany) where lending activities are more tightly controlled by regulators. oil companies, steel mills), trading houses or importers and exporters with high credit standing; additional characteristics are bond issuers that enjoy strategic advantages such as access to ports and port facilities and niche or protected markets such as companies with ships involved in coastal or cabotage or liner shipping. The rating of bonds for shipping companies with their activities mainly in commodity shipping (especially in the volatile dry cargo and crude oil tanker markets, especially when the ships are involved in tramp shipping and fully exposed to the spot market) is invariable. of non-investment grade.
Selecting an Underwriter
An obligation rated 'B' is more sensitive to default than an obligation rated 'BB', but the obligor is currently able to meet its financial obligation with respect to the obligation. An obligation rated "CCC" is currently sensitive to default and is dependent on favorable business, financial and economic conditions for the obligors to meet their financial obligations with respect to the obligation.
Timing of Issuing Shipping Bonds
KS funds and sale and leaseback transactions)—offer a natural prospect for buying shipping bonds. Choosing the best underwriter is a decision that needs to be carefully considered and by considering many parameters such as expertise in the shipping market, the ability to successfully access investors with the right risk profile, a track record, commitment and professionalism.
Shipping Bonds and Interest Rate Cost
For established shipping companies, such as AP Moeller Maersk, MOL, NYK and other companies of similar caliber, the bond markets are generally available throughout the phases of the cycle, subject to prevailing market conditions in terms of interest expense (bon) of course. For smaller shipping companies and asset-backed shipping bonds, the opportunities are incidental and relatively small, and should coincide with when risk appetite allows investors to be satisfied with relatively low coupons for the relatively risky shipping business. but also that the coupon is competitively low enough not to burden the company with unpayable debt during the phases of the business cycle.
Considerations for the Cost of Shipping Bonds
Difference from Shipping Loans
Given that shipping loans (a) can be facilitated by personal circumstances and ancillary considerations, (b) do not require public disclosure, and (c) are both time and cost efficient, one might be tempted to say that shipping bonds should be a resource of last resort resort in Mr Big Ship's financial arsenal. In the event of debt default, who the creditors are can have a major impact on the options the borrower has.
Classifi cation of Shipping Bonds Based on Collateral
The creditors thus have, in the event of default (to the extent that it is practically possible), a legal right to compulsory auction the actual named ships listed in the prospectus. The shipping company's banks may choose to issue bonds based on shipping bonds they hold to raise their own capital from the public capital markets; in the go-go days of financial engineering before.
Covenants and Special Conditions
A special case was the Schiff spfandbriefgesetz (Pfandbrief Act or “Covered Bond Law”) in Germany with its special provisions to allow shipping banks to issue bonds secured by shipping mortgage loans. Post-Lehman Brothers selected more German banks to issue shipping bonds based on the Pfandbrief Act, such as Commerzbank AG 4 and HSH Nordbank AG.
Types of Shipping Bonds
- Types of Bonds Based on Maturity
- Origin of Issuer or Currency
