For anyone tracking shipbuilding it has been a funny few years. When the bubble burst in 2009, many thought the enormous orderbook would be disbursed by cancellations, bankruptcies and slippage, leading to a decline in shipbuilding output. Hopefully that would limit the over-supply, especially in the vastly over ordered bulk carrier market. You Didn't Expect That But things turned out differently. Although there was slippage and cancellation, it did little to stem the flow of new ships. In 2009 the yards delivered 77m GT, followed by 97m GT in 2010, and a record 101m GT in 2011. Another surprise was that, despite the crisis, 2010 saw 90m GT of orders. With European banks “on the ropes” (only this week a major German bank announced it was pulling out of shipping) who is funding all this investment?
Megabucks
Over the last five years surging deliveries have doubled the funding requirement from $78bn in 2007 to $142.7bn in 2011. In 2007 the banks were in an expansive phase, so there was no problem. But since the turn of the decade shipping investors have taken delivery of over $400bn worth of new ships, an enormous increase in the industry’s funding requirement, just as the traditional finance source was looking shaky.
Over the Top
The quick answer is, “wish we knew”. But there are a few clues which might help to put things into perspective. The first is the regional split of deliveries. In 2011, deliveries to European owners totalled almost $60bn, 42% of the total (see the inset pie chart). Another $43bn worth of ships was delivered to owners in Asia, including Japan, China, Korea, Taiwan etc. Although these areas are not without financing problems, their local banks do not face the same balance sheet problems. Another $10bn went to North American owners, and the balance of $29bn to "others". Assuming these other regions can look after themselves that still left European owners with $60bn worth of ships to finance.
Whittling Down
A slice of this would come from owner equity, and plenty of European owners are sitting on a cash pile. With a leveraged rate of 60%, that would reduce the external funding requirement in 2011 of $36bn. Some companies are corporate and raised funds on the public markets. Others had locked in finance when the vessels were ordered. And, finally, banks may, for a variety of reasons, find themselves "on the hook" and obliged to come up with the post delivery finance.
No Easy Answers
So there you have it. Ships are being delivered in record quantities, and somehow owners are still finding finance. The bottom line of this analysis is that European banking may be under pressure but, one way or another, someone out there is surprisingly active. Have a nice day.