Impact on Shipping Markets Supply & Demand
“The Global Financial Crisis & the Shipping Markets”
Teddy H Tsai – Head of Research
CLSA Capital Partners, Pacific Transportation Asia Pte Ltd.
November 18, 2008
Table of Contents
Current Conditions in Financial Markets
Share price performance
Debt market conditions
Impacts on Shipping Markets
Debt Market Conditions – Current Status
Drawn Margins Syndicated Loan Volumes (All Industries)
Shipping banks are focused on existing loans, clients.
Clear signs of a lending slowdown since the start of the crisis in 3Q08.
LIBOR has fallen since peak in Oct 2008, but margins have widen significantly.
Gearing levels have fallen from 80-90% to now 50-60%.
Source: Reuters Loan Connector
• More than US$327 billion in debt and US$218 billion in equity required over the next few years
to finance the existing order book.
2005 2006 2007 2008 2009 2010 2011
Assuming 60% debt, 40% equity. Orderbook investment total from Clarkson’s
Baltic Dry Index
Baltic Dry Index Baltic Panamax Baltic Capesize
The BDI is down 91% since the start of the year.
China Iron ore Inventories remains at high levels, while miners are cutting production.
Is the commodities cycle coming to an end? Or this supply-driven?
• Dry Bulk
– Sharp increase in 2009 orders may not be realized as vessels gets canceled
– Supply has been expected, and smart shipowners have not over-ordered.
– Demand likely will weaken, as inventories need to be worked down. Government policy
may help, but actual spending and impact on demand remains to be seen.
– Rates will likely remain weak and average down.
• Container ships
– Incremental supply in 2008 has been moderate, but lots of large vessels previously
ordered. KG-funded post-Panamax container ships may face pressures.
– Key driver will be the slowdown in US and Europe growth, due to the financial/housing
crisis, and the impact on the real economy, particularly consumer consumption.
– T/C rates may come down, but focus should be on counter-party risk, and whether
existing contracts will be renegotiated.
– Oil prices and the phase out remains the key drivers for tankers.
– Cancellations due to the crisis is less likely in this sector, as supply has been in
anticipation of the phase out.
– Scrapping or conversions will be needed to ease oversupply.
– Oil prices and demand will continue to be influenced by seasonality and economic
• The global financial crisis will make funding more difficult, but this isn't
something shipowners haven't seen before. There are options – Sale &
leaseback, more equity, renegotiation of contracts, etc.
• Shipping is cyclical, and will remain so. Over-ordering of vessels and slowing
economic conditions is resulting in lower freight rates.
• BUT, this also means that asset prices will likely come down, making better
investment opportunities for the next up-cycle.
• CLSA/Pacific Transportation is in a position to help build sustainable
companies for the next up-cycle.