There is a tendency to blame new entrants for providing fresh sources of funds that lead to “over-ordering” of tankers, but that has always been the case, Intertanko heard
Tanker owners and operators attending the first day of the Intertanko Tanker Event in Singapore were told by a traditional ship finance banker that despite popular opinion, hedge funds were not wholly to blame for tanker over-ordering.
He explained that hedge funds are now part of shipping and have made the same mistake as the traditional ship finance banks had in the past, and this is the same mistake the next wave of entrants into ship finance will make.
That fundamental mistake is to supply funds at the top of the market, leading to the financing of tankers at historical peak values, predicated on historical peak spot and charter rates. The market can only go downhill from that peak.
The solution, Intertanko members were told, was for fund providers, whoever they are, to apply robust testing of the financing model. In the long-term, this will be in the best interests of the tanker owner and operator.
This led to a discussion around the latest source of funds – Chinese leasing. This source of funds has become a major replacement for the traditional European ship finance banks which have had their ship financing activities curtailed through the application of higher capital requirements.
A Chinese leasing house reported to Intertanko that crude oil tankers are low on the list of the sectors that are financed. The Chinese leasing provider has around 250 vessels on its book, but there are only two crude oil tankers that have been financed. Therefore, it would seem that currently Chinese leasing is not a major source of financing for crude oil tankers, and may continue to be a low priority.
The ship finance session was followed by questions regarding the threats to total costs going forward.
The number one threat is rising interest rates, according to the panel of ship finance experts gathered by Intertanko.
Tanker owners and operators were strongly advised to review their interest rate strategy, especially if there is exposure to floating rate financial instruments and to lock in at the current low rates.
The financing of scrubbers was another focus of questions. One bank reported it had arranged the financing of scrubbers through a “green” scheme, but another fund provider opined that the green approach to providing funds for scrubbers was far more work, for relatively small increase in fees.
Will banks move to digital lending or a digitalised relationship? All the ship finance professionals present were of the opinion that the digitalisation of ship finance was well underway.
Banks, the tanker owners and operators present were told, have been required to build large compliance teams, at the general expense of the front office and relationship managers.
This function is being digitalised through the standardisation of documentation and this includes safety and management key performance indicators. It was noted by the ship finance panel that the younger generation are comfortable with this digital approach, as most have a digital personality, and a real one.