Global Ports Forum

Strait of Hormuz Attack Iran ‘Last Resort,’ Author Says

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Tanker Trackers Turn Bearish as IEA Trims Oil Forecast

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Buffett Railroad Beats Coal Slump With 75% Gain in Oil: Freight

Warren Buffett’s Burlington Northern Santa Fe railroad and Union Pacific Corp. (UNP) are combating a drop in coal cargoes by catering to the industry responsible: the hydraulic fracturing of shale formations.

BNSF, Union Pacific and their peers are hauling in energy producers’ gear to extract crude oil and gas from shale, then shipping out petroleum products. BNSF’s petroleum carloads rose 75 percent in the second quarter from a year earlier while Union Pacific saw a 12 percent gain in the unit where it groups fracking-related freight.

“This is a whole industry that just sprung up on all the rail properties,” Jeffrey Kauffman, an analyst at Sterne Agee & Leach Inc., said in a telephone interview. “It’s a new growth source that helps to mitigate what’s probably a temporary dislocation of an old energy source.”

The dislocation has come with a hefty cost, as many North American utilities stopped generating power from coal in favor of cheaper natural gas released by fracking. Coal cargoes at Class I railroads, North America’s largest, dropped 11 percent in the second quarter. Neither Union Pacific’s chemicals segment nor BNSF’s petroleum shipments rival their coal volumes.

“The shale opportunity has been a double-edged sword for the rails,” Ben Hartford, a Robert W. Baird & Co. analyst in Milwaukee, said in a telephone interview. “The abundance of natural gas domestically has pressured prices, and the resulting degradation to the coal demand has been palpable.”

‘Double-Edged Sword’

Union Pacific’s shale business will probably grow to almost 400,000 carloads in 2012, Chief Executive Officer Jack Koraleski said on a July 19 conference call. That’s roughly double the number of carloads the Omaha, Nebraska-based company moved from the Bakken shale formation in the northern U.S. in 2011.

“While the coal business, which is our largest book of business, has softened, we’ve been able to offset that with strength in crude oil, in frack sand, in automobiles, in pipes and domestic intermodal,” Koraleski said in a telephone interview last month.

BNSF and Union Pacific transport most of their Bakken region crude shipments to Oklahoma, California, Louisiana, New Mexico and Texas. The companies are more insulated from risk associated with the abundance of natural gas than eastern rails since coal in the Powder River Basin of Wyoming and Montana costs less to mine than in the Appalachian region.

Stock Performance

Union Pacific has climbed 15 percent this year, surpassing gains of 6.9 percent by CSX Corp. (CSX), the biggest eastern U.S. railroad, and 0.6 percent by Norfolk Southern Corp. (NSC) The Standard & Poor’s 500 Industrials Index rose 5.8 percent.

Union Pacific, the biggest North American railroad, lacks direct access to the Bakken shale oil field. It benefits from interchanges with traffic originated by BNSF and Canadian Pacific Railway Ltd. (CP) bound for Louisiana and Texas terminals.

The largest contiguous oil deposit in the continental U.S., the Bakken includes parts of North Dakota, South Dakota and Montana in the U.S. and Saskatchewan and Manitoba in Canada.

“People are just getting their heads around how large the opportunity will be for the next year or two,” David Vernon, a New York-based analyst with Sanford C. Bernstein & Co., said in a telephone interview.

BNSF is “seeing strong double-digit type growth” in all markets related to shale fracturing, CEO Matt Rose said in an interview in May. Buffett’s Berkshire Hathaway Inc. (BRK/A) spent $26.5 billion in 2010 to acquire the 77.5 percent of Fort Worth, Texas-based BNSF it didn’t already own in the billionaire investor’s biggest takeover.

‘It’s Phenomenal’

“Everything to do with drilling, horizontal drilling, frack sand, pipe, oil, it’s phenomenal,” Rose said.

Once more pipeline capacity comes online, in part through the reversal of the 150,000-barrel-a-day Seaway pipeline to carry crude south, rails will be hauling less out of the Bakken region.

“You are seeing a huge amount of growth right now, but as that pipeline capacity increases, the cost advantage of pipe to rail will take some of it back by 2014, 2015,” Vernon said.

Railroads should still see some growth from natural gas drilling, said Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey.

“The pipelines can take out oil but they can’t bring in sand and water,” he said.

To contact the reporter on this story: Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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TUI Appoints Vodafone’s Joussen to Succeed Frenzel as CEO (1)

July 30 (Bloomberg) — TUI AG, owner of Europe’s largest travel company, said it appointed the outgoing head of Vodafone Group Plc’s German operations, Friedrich Joussen, to succeed Michael Frenzel as chief executive officer.

Joussen, 49, will join TUI’s management board on Oct. 15, according to a statement from the Hanover-based company today. Frenzel will leave TUI at his own request after the company’s annual general meeting on Feb. 13, 2013, TUI said.

Under Frenzel’s leadership, TUI has been trying to sell a stake in its Hapag-Lloyd shipping unit to focus on tourism. The company postponed a planned initial public offering for Hapag- Lloyd last year because of turmoil in global equity markets. It is instead selling a 17.4 percent stake to investor group Albert Ballin for 475 million euros ($582 million), and it has retained the right to sell its remaining 22 percent holding in an IPO.

TUI said in June 2011 that its supervisory board had decided to extend Frenzel’s contract, which was set to expire in March 2012, until March 2014. Frenzel joined the board of Preussag AG, as TUI was called, in 1988. He became CEO in 1994.

Frenzel, 65, will remain chairman of TUI until September 2013, according to the release. Joussen was managing director of Vodafone in Germany from 2005 to 2012, the company said.

TUI shares gained 3.6 percent to 5.10 euros in Frankfurt trading today, the highest close since May 14.

To contact the reporters on this story: Julie Cruz in Frankfurt at

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Schaeuble to Tax Insurance on Idle Container Ships, FTD Says

July 30 (Bloomberg) — German Finance Minister Wolfgang Schaeuble has drawn the ire of his country’s shipowners after unveiling a plan to tax insurance paid on idle freighters, the Financial Times Deutschland reported.

Schaeuble wants to add a 19 percent levy on premiums paid to the Containership Association, which currently insures 150 lease ships that lack commissions, the newspaper said, without citing anyone. The move has angered shipowners struggling to find work for their freighters amid low leasing costs, the FTD said.

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first half of 2012- China shipping & ports are still in a recession

我国航运、港口仍处低迷状态

文汇报 交通运输部新闻发言人何建中26日在例行发布会上表示，受宏观经济影响，上半年，中国航运、港口仍然处于低迷状态，且仍将持续。总体仍表现为“需求放缓，运力增加，成本上涨，运价下降，亏损扩大”的态势，大批中小航运企业存在破产倒闭的风险。

(Due to the averse macroeconomic impact of the first half this year, shipping & ports are still in a recession, and will continue on quite sometime – briefing on the 26th of July 2012 – the china Ministry of Transport spokesman He Jianzhong said.

The overall performance is still weak as “the slowdown in demand, capacity increase, rising costs, tariffs decline, the loss widened” posture, a large number of small and medium-sized shipping companies in the risk of bankruptcy.)

航运、港口在一定程度上是一个国家经济特别是工业经济的“晴雨表”。经济下行、用电量下降必然导致煤炭压港，这是当前经济状况的真实反映。

上半年，中国规模以上港口完成货物吞吐量47.4亿吨，同比增长7.2%，增速较去年同期放慢了6.1个百分点。其中完成外贸货物吞吐量15.2亿吨，增长13.6%，较去年同期加快了5.5个百分点；完成内贸货物吞吐量32.3亿吨，增长4.4%，较去年同期放慢了11.3个百分点；规模以上港口完成集装箱吞吐量8459万标箱，增长8.8%，较去年同期放慢4.3个百分点。

分析中国北方几个主要煤炭大港压港的原因，主要有三个方面：一是受国内经济下行压力增大的影响，工业用电增幅回落，煤炭市场需求下降。据悉，上半年中国总体用煤量有所下降，库存有所上升。二是受市场价格因素的影响，今年外贸进口煤炭大幅增长，进一步减缓了对国内煤炭的需求。今年1到5月份，煤炭进口量达到1亿吨，同比增长65.1%，增速加快了77.5个百分点。三是今年中国南方降雨较多，水电发电量大幅增加，部分火电厂机组停机。据了解，火电机组负荷只有正常的70%。华东、华南主要电厂上半年煤炭平均库存可用天数保持在28天，甚至达到一个月左右。

针对严峻形势，何建中表示，煤炭压港不是单一的运输问题，跟整个经济运行有很大关系，涉及铁路、航运企业、港口等运输组织的各个环节。交通部门能做的，是主动加强与相关方面的联系，电煤企业、铁路部门、航运企业也要加强战略合作，积极主动联系，实现煤炭到港运输的合理化库存，发挥煤炭专线运输效应，实现船舶运输和货主需求的有效衔接。

translated for non- Chinese friends:

Shipping, ports to a certain extent a country’s economy, especially the “barometer” of the industrial economy. Economic downturn, the decrease in power consumption will inevitably lead to the coal to pressure Hong Kong, this is a true reflection of the current economic situation.

The first half of the Chinese scale above port cargo throughput of 4.74 billion tons, an increase of 7.2 percent growth rate slowed by 6.1 percentage points over the same period last year. Completion of the foreign trade cargo throughput of 1.52 billion tons, up 13.6 percent, 5.5 percentage points over the same period last year to speed up; complete the domestic trade cargo throughput of 3.23 billion tons, an increase of 4.4 percent, slowed down by 11.3 percentage points over the same period last year; ports above designated size The container throughput of 84.59 million TEUs, an increase of 8.8 percent, slowed down by 4.3 percentage points from a year earlier.

Analysis of northern China several major coal Dagang pressure port of the three main aspects: First, the domestic economy, the downward pressure on increased industrial use of electricity saw a drop of coal falling demand. It is reported that China’s overall coal consumption has declined, the stock has increased. Second, the market price factors, the foreign trade import coal this year, a substantial increase, further slowing the demand for domestic coal. 1-5 months, coal imports reached 100 million tons, an increase of 65.1%, growth accelerated 77.5 percent. Three more this year, China Southern rainfall, hydroelectric power generation increased significantly, part of the thermal power plant unit shut down. It is understood that the thermal power unit load only 70% of the normal. East, the main power plant in southern China in the first half of the average coal stocks available days remained at 28 days, or even a month or so.

Grim situation, said He Jianzhong, coal pressure in Hong Kong is not a single transportation problem with the economy as a whole is running a great relationship, involving railways, shipping companies, ports and other transport organizations. Transport sector can do is take the initiative to strengthen links with the relevant aspects of coal enterprises, railway authorities, shipping companies should strengthen strategic cooperation, proactive contact of coal to the rationalization of transport in Hong Kong stocks play the effect of coal green transport, to achieve shipping and shippers demand for effective convergence.

FedEx Fights UPS to Keep $1 Billion Postal Service Deal

July 17 (Bloomberg) — FedEx Corp. will have to fend off competition from United Parcel Service Inc. to keep a contract valued at more than $1 billion with its largest customer, the money-losing U.S. Postal Service.

The agreement generates more than 3 percent of FedEx’s sales, according to data compiled by Bloomberg, and covers shipping of first class, priority and express mail. UPS “definitely wants to bid” for that work when the Postal Service seeks proposals after the contract’s expiration in September 2013, said Norman Black, a company spokesman.

UPS, which already has a $100 million contract with the Postal Service, is the “most logical competitor,” said Ben Hartford, a Robert W. Baird & Co. analyst in Milwaukee. The agency is seeking new bids as it closes mail-processing plants and cuts its work force to save cash after a $3.2 billion loss in the quarter through March 31.

Just being the incumbent, FedEx is “the most likely to get the business going forward, but it would likely be under different terms,” Hartford said in a telephone interview.

During an 11-year relationship, FedEx has “raised the service levels and reliability of the Postal Service product,” Jess Bunn, a FedEx spokesman, said in a telephone interview. “That record of success will be an important consideration.”

FedEx warned in a regulatory filing this week that it may lose the contract or be able to negotiate less favorable terms for renewing it. Postal Service work generated about $1.4 billion for the Memphis, Tennessee-based company in its fiscal year through May 2012, Helane Becker, a Dahlman Rose & Co. analyst in New York, said in a note to clients.

Road Bump

The loss would “negatively impact FedEx and would cause a bump in the road as the company restructures its Express business,” she said.

FedEx fell 0.7 percent to $91.25 at the close in New York. The shares have gained 9.3 percent this year. UPS today rose 0.2 percent to $79.33.

FedEx last month predicted profit of $6.90 to $7.40 a share in the fiscal year through May, compared an average estimate of $7.33 from analysts and $6.41 last year.

The FedEx Express unit also has around 5,000 drop boxes at Postal Service locations that will be removed under an agreement that expired in June, the company said in the filing.

To contact the reporter on this story: Heather Perlberg in New York at

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Abu Dhabi Exports First Pipeline Oil Bypassing Hormuz

July 16 (Bloomberg) — Abu Dhabi started exporting its first crude from a pipeline that bypasses the Strait of Hormuz, shipping the fuel from the neighboring sheikhdom of Fujairah to a refinery in Pakistan.

The link, stretching from Abu Dhabi to Fujairah on the Gulf of Oman, began loading a shipment of about 500,000 barrels, Mohamed Al-Hamli, oil minister for the United Arab Emirates, said yesterday at the inauguration ceremony. International Petroleum Investment Co. spent $4.2 billion building the 423- kilometer (263-mile) link, Managing Director Khadem al-Qubaisi said at the ceremony in Fujairah.

Abu Dhabi, the U.A.E.’s capital and holder of more than 90 percent of its oil, built the export route for crude to avoid Hormuz, a narrow waterway carrying a fifth of the world’s traded oil that Iran has threatened to block in retaliation for sanctions targeting the country’s nuclear program. Construction costs were 27 percent higher than the $3.3 billion contract awarded to China Petroleum Engineering & Construction Corp. in 2008 and was delayed by 11 months.

“The pipeline will get used if they keep the price to load crude from Fujairah the same as loading from inside the Gulf,” said Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management. “It means that Abu Dhabi is just swallowing the cost of the pipeline, as it has been built for strategic reasons. If this was a commercial venture, they would have built it years ago.”

Political Maneuvering

An Iranian lawmaker, Mohammad-Hassan Asferi, said yesterday the pipeline’s limited capacity would keep it from obviating the need of regional suppliers to export most of their oil through the strait. The line is “propaganda and political maneuvering guided by the Western countries, especially the United States, which aims to reduce the strategic importance of the Strait of Hormuz,” according to state-run Press TV. Asferi serves on Iran’s national security and foreign policy committee.

The link can transport 1.5 million barrels a day of Murban crude from Habshan, a collection point for Abu Dhabi’s onshore oil fields, across a desert and mountains to Fujairah. The system can pump as much as 1.8 million barrels a day at periodic intervals, officials said yesterday. The U.A.E., the fifth- biggest oil producer in OPEC, pumped 2.61 million barrels a day in June, data compiled by Bloomberg showed.

The first oil exported from Fujairah is priced the same as Murban crude loaded inside the Gulf, three people with knowledge of the matter said this month. Abu Dhabi may later devise a separate formula including a premium to account for the cost of using the pipeline, said the people, declining to be identified because the matter is confidential. Abu Dhabi officials yesterday did not comment on pricing.

First Cargo

Abu Dhabi’s first export cargo from Fujairah is destined for Pak Arab Refinery Ltd., a joint venture between Pakistan’s government and IPIC, Al-Qubaisi said. IPIC owns a 40 percent stake in the plant, which regularly uses about 40,000 barrels a day of Abu Dhabi crude, of the 100,000 barrels it consumes daily, he said.

Abu Dhabi earlier shipped a test cargo from Fujairah to its own refinery at Ruwais, inside the Persian Gulf, said Abdul Munim Al-Kindi, general manager of Abu Dhabi Co. for Onshore Oil Operations. As the main oil producer at the emirate’s onshore fields, the company, known as Adco, will operate the pipeline and gradually ramp up capacity by year-end, he said. The network is designed to load tankers at three offshore buoys, he said. IPIC will likely charge Adco “a few cents per barrel” for use of the pipeline, Al-Qubaisi said.

Alternative Route

Al-Hamli, the oil minister, said the link gives buyers an alternative location from which to receive crude. It will allow them to fill very large crude carriers, or VLCCs, the largest class of tanker capable of carrying 2 million barrels of oil. Filling such vessels in the Gulf of Oman will reduce shipping traffic in Hormuz, he said.

“The pipeline is going to be beneficial because our clients will be able to lift bigger cargoes,” he said. “Currently you can only lift 1 million barrels a day from Ruwais. From Fujairah now our clients now can bring in VLCCs and lift more.”

IPIC’s al-Qubaisi said his company plans to $4 billion to $5 billion to build a refinery in Fujairah with a capacity of about 250,000 barrels a day to produce for local sale and export, further enhancing the port’s importance as a hub for the processing, storage and shipment of fuels. The company said in a bond prospectus in October the refinery would produce 200,000 barrels a day at a cost of about $3.5 billion.

IPIC is working with another state-owned investment fund, Mubadala Development Co., on a project for a terminal at the port for imports of liquefied natural gas. Fujairah is already among the world’s three biggest refueling ports for commercial ships, along with Singapore and Rotterdam. Fujairah is one of the U.A.E.’s seven sheikhdoms.

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The European Shippers Council has set out its opposition to the broad grouping of maritime interests that have called for the International Maritime Organization’s Safety of Life at Sea (Solas) regulations to be amended to require all containers to be weighed before loading at the export port to ensure to that the actual weights match the declared weight on the shipping documents.

The proposal – put forward by the Danish and Dutch governments in conjunction with shipping bodies the World Shipping Council, BIMCO and the International Chamber of Shipping – follows from what its proponents claim is mounting evidence that mis-declared container weights are a major cause of accidents in the container supply chain: from the series of collapsed container stacks that have occurred on box vessels over recent years, to the capsizing of the MSC Napoli in the English Channel in 2007, as well as to a series of truck rollovers.

However, Marco Wiesehahn, member of the ESC’s maritime transport committee, argued that there is already a Solas requirement for shippers to correctly declare weights, and the new proposals that make it the legal responsibility of the shipper to verify the declared weights will not make container shipping any safer.

In the case of the MSC Napoli, the Marine Accident Investigation Branch report found that although 20% of the boxes were heavier than their declared weights, it added that “the effect of the discrepancies alone would have been insufficient to cause hull failure”.

“It was bad maintenance of the vessel itself that was the cause of the accident,” said Mr Wiesehahn told The Loadstar. “Instead of just focusing on the container weights we have to get back to the core of the problem: firstly the lashing of the containers on the stack; secondly the maintenance procedures of the carriers; and thirdly the fact that it is common practice that around 10% of all containers loaded on a ship will end up on a stack different to that on the stowage plan.

“Even if a shipper correctly declares a weight, and verifies it, there is still a 10% chance that it will be put in the wrong stack and cause a collapse.”

He also argued that under the current regime carriers are already in position to refuse containers whose weight has been mis-declared.

“We already have the existing Solas regulations, but the execution of these isn’t being taken seriously. Carriers have the opportunity to say to shippers who they know regularly mis-declare weights that they will refuse their cargo, but they do not do that on commercial grounds.”

Further, he stated that the ESC has no opposition to containers being weighed at terminals, but said that terminal operators, most of whom have the ability to weigh boxes, oppose the notion that they be held legally responsible for verifying container weights

Although it advocates weighing containers within terminals as the most practical solution, the WSC-BIMCO-ICS proposal also outlines the possibility of weighing them outside ports, such as at shippers’ loading facilities, a prospect that Mr Weisehahn described as difficult to enforce: “In developed countries with well organised systems that may be feasible, but in other parts of the world you do wonder how that will be enforced.

“The IMO is also a maritime institution that has a right to define legislation for the sea, but container transport also takes place on land and inland waterways, where the IMO has no legal status, and what is needed for that regulation on land is expertise of land and inland waterway transport, and the IMO does not have that.”

He argued that it is actually the joint IMO-International Labour Organisation-UN Economic Commission for Europe working group into cargo transport units – which last met in April – that should take responsibility for setting new regulation because it represented a broader set of interests.

He admitted however that there was more shippers could do in terms of stowing and packing containers to make them safer to transport. “We are not running away from that. There is a need to increase the quality of container stowage, and we have a responsibility to do that.”

At last week’s TOC Container Supply Chain event, a seminar on the subject heard from BIMCO’s chief marine technical officer Aron Sorensen that it hopes that the proposal will be ratified IMO’s maritime safety committee and come into force in 2017.

As Maersk Line’s head of fleet management John Leach pointed out at the same session, it is absurd that “some 50 years into the container business we are still loading vessels where cargo weights are not really known”.

As a footnote, it is worth quoting recent TT Club research that shows that over the past six years, it has received a total of 357 accident claims costing $12.8m that were as a result of bad container stowage and handling. That equated to just over 10% of all supply chain claims made over that period, making it the largest single cause of accidents in the sector.

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Bank Retreat on Shipping Seen Filled by Private Equity
By Niklas Magnusson
May 22, 2012 6:00 PM EDT

The world’s shipping companies are turning to private equity to help fill a $249 billion funding gap left by European banks pulling out of ship financing.
About $65 billion is needed in new debt and equity this year alone to cover orders for new ships and sales and purchases of existing vessels, according to shipping fund manager Tufton Oceanic Ltd. In 2013 and 2014, the gap will be $101 billion and $83 billion respectively, managing director Andrew Hampson said in a Jan. 26 presentation in London.
Triton Partners and Oaktree Capital Group LLC, in anticipation of a future turnaround, are among private equity firms striking funding deals with shipping companies after European banks quit lending to the industry or scaled back operations. Insufficient financing may lead to a rise in insolvencies, causing higher credit losses at shipping banks already hurt by the crisis in the maritime transport industry and tighter capital rules for lenders.
“Capital will be scarce over the next couple of years, and that is a gap that needs to be bridged,” said Hans Christian Kjelsrud, head of shipping at Nordea Bank AB (NDA), the world’s No. 4 shipping lender. “Private equity funds want to position themselves for an upturn and a better market in a year or two.”
Germany’s HSH Nordbank AG and Commerzbank (CBK) AG, the world’s No. 1 and No. 3 ship financiers, respectively, are cutting the size of their shipping portfolios amid the industry crisis. In the first quarter, more than half of Commerzbank’s loan-loss provisions of 212 million euros ($270 million) were booked at its ship-finance unit. Provisions probably will rise this year, according to a May 9 conference call with the bank’s management. The lender’s shares are down 52 percent in the past 12 months.
Chemical Tankers
Triton Partners, an investment firm managing more than 4 billion euros, in March acquired the chemical tanker operations of Nordic Shipholding A/S (DTQ) for $30 million. Triton is now combining the activities with those of Herning Shipping A/S, which it acquired in August last year, to create a fleet of 122 chemical-product tankers under the name Nordic Tankers.
Triton, which has an investment horizon of as much as 10 years, estimates that it needs five to seven years to improve Nordic Tankers, Bjoern Nilsson, a partner at Triton, said in a phone interview from London. The firm targets a return of about 25 percent, similar to other private equity firms, he said.
“The dynamics in terms of supply and demand within the smaller chemical tanker segment were attractive, as demand is seemingly improving whereas the supply of ships is more limited than in other segments,” Nilsson said. “The small tanker segment is in need of consolidation as it is very fragmented.”
Crude Oil
Oaktree on November 17 agreed to invest $175 million in General Maritime Corp., owner of 30 crude oil and petroleum product tankers, and convert its senior secured debt into equity, as part of the shipping company’s restructuring.
Still, private equity investing in shipping has been slow to take off, partly because of a lack of knowledge and because there have been attractive deals elsewhere, Nilsson said.
“In many cases private equity funds know little about shipping but a lot about the structuring of financial deals and high returns of investments,” said Peter Sand, an analyst at the Bagsvaerd, Denmark-based Baltic and International Maritime Council, which represents 65 percent of the world’s ship owners.
They are being lured by a decline in ship valuations. The value of a new so-called VLCC, or very large crude carrier, dropped 44 percent to $90 million between 2008 and 2012, while the value of a five-year-old VLCC decreased 61 percent to $65 million in the same period, according to Norway’s DNB ASA (DNB), the world’s second-largest shipping financier.
Loan Losses
The slump in asset values has caused insolvencies among ship companies and an increase in loan losses at banks, after the decline made shipping loans a larger fraction of the value of the ship used as collateral. That caused many banks to raise interest rates on loans, leaving many smaller and medium-sized shipping lines unable to service their debt.
Net shipping loan losses at Stockholm-based Nordea, the world’s No. 4 shipping lender, tripled to 135 million euros last year because of “weak market conditions” and “a general decline in vessel values,” it said on Jan. 24. Loan losses more than quadrupled to 60 million euros in the first quarter of 2012, from 14 million euros a year earlier.
Any failure to bridge the financing gap is likely to further depress ship values, according to a presentation on Greek ship finance investment boutique Eurofin SA’s website. It will also leave even “top drawer” shipping lines struggling to renew and modernize their fleets, meaning older, unsafe vessels will continue operating beyond safe operating limits, it said.
Capital Adequacy
“Capital adequacy pressures on banks may mean they cannot continue to support owners through the cycle,” Eurofin said in the presentation. “More distressed, unfunded assets will increase and prolong downward pressure on ship values.”
In a survey by KPMG of German shipping firms representing 42 percent of vessels in the country’s fleet and published on May 3, about 17 percent of respondents said private equity would have “high” relevance as a financing model in the future, while 56 percent said it would have “medium” significance.
American private equity firms have showed interest in the container shipping industry in Germany, home to the world’s largest container fleet, KPMG said in its survey. Still, the prospect of “this alternative financing for German shipping companies may prove difficult to realize given the requirement for yields of up to 15 percent,” it said.
Rock Bottom?
Investments may also fail because investors are demanding too much of a discount. While KfW IPEX-Bank GmbH, the world’s No. 7 shipping lender, has been contacted by investors who want to buy ships, they are looking to pay “rock-bottom prices,” below the market value of the ships, said Christian K. Murach, head of transportation finance at the Frankfurt-based bank.
While lenders such as KfW, Nordea and ING Groep NV (INGA) have said they plan to keep the size of their shipping portfolios relatively intact, other European banks are scaling back their ship-finance operations.
Hamburg-based HSH Nordbank is cutting the size of its so- called core shipping portfolio to 15 billion euros by 2014 compared with 19 billion euros at the end of 2011 to comply with conditions set by the European Union for approval of state aid it received during the global financial crisis. Frankfurt-based Commerzbank reduced the size of its so-called shipping exposure at default by 6.6 percent to 21.2 billion euros last year.
“There definitely is a shift away from bank lending,” Rory Hussey, managing director at ING’s shipping finance division, which also plans to continue lending to the shipping industry, said in an interview. “Private equity will play far more of a part than it used to, as will the bond market.”
Triton’s most recent fund, Triton III, has 60 investors and capital of 2.4 billion euros. It plans to make more investments in shipping — seeing potential transactions also in container, oil tanker and dry bulk markets — as well as in consumer, industrial and business services companies, Nilsson said.
“Valuations are attractive from an historical point of view,” Nilsson said. “Our perspective is to bridge the funding gap a little.”
To contact the reporter on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net
To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net
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