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'There is still a risk of another crisis’: Martin Stopford

'There is still a risk of another crisis’: Martin Stopford
Warning of the risk of another crisis Clarkson Research president Martin Stopford analysed the "lopsided way" the financial system is currently operating in a presentation at the International Chamber of Shipping's (ICS) conference. 

"Since 2009, interest rates have been almost nothing…The banks were able to kick the can down the road because the interest levels were so low that most owners, during the last three or four years, could scrape up enough cash to pay the interest and that enabled the shipping companies to keep the act together."

Making comparisons with the state of the market in the aftermath of the oil crisis in 1973, Stopford accepted that the industry is on "starvation wages," but found some light in the situation.

"What we haven't got is this massive foreclosure of assets by the banks also, trade has been favourable this time. In 2009 we had the worst downturn in sea trade since 1973 and I think that was a very bad time for the shipping industry, but it came back. Thanks to financial easing, thanks to a heroic effort by the Chinese government and the enormous recovery programme it put in place, we actually have seen sea trade recover very strongly in 2010, growing at about 4% for the past two years."

Stopford estimated that the ordering binge at the top of the market has left a fleet with a current oversupply of around 25%, and that to get back to a sound financial base for shipping, balance will need to be re-struck. 

As for steps to take for the future, Stopford called for a closer relationship with banks. "They [the banks] are a vital, sustainable part going forwards, we're relying on a lot of shipbuilding credit at the moment and I think that responsible finance is crucial for the dynamic and sustainable shipping industry that the IMO is looking for. There has to be a better way of doing it.

"The financial crisis has had a few consequences. Financial easing has propped up sea trade, that story is not over yet. There is still a risk of another crisis." 

Another important consideration for sustainable finance was one of greater risk management "Let's not just stick to [the assumption of] 4% growth of sea trade, it may not happen. It might."

"We've got stable asset prices, which help us to preserve a problem without actually resolving it.’ He noted despite the relatively young, oversupplied fleet, there has not been the luxury of relaxing ship orders and paying down debts. "At the same time we have the problem that we really do need a new generation of better ships.

"I think the industry needs to pay more attention to what's going on with the financial community and how it's going to get through this problem of a large and probably ultimately unsustainable financial situation, to a healthy financing base for a new fleet of eco-ships as and when required."