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Slater bemoans 'reckless owners' and 'totally overwhelming' orderbook

Slater bemoans 'reckless owners' and 'totally overwhelming' orderbook

Athens: Asian shipyards can now rebuild the world fleet once every nine years, and this fleet is already 25% larger than is needed, veteran ship financier Paul Slater told conference delegates in Athens yesterday. Speaking at a Lloyd's Shipping Economist ship finance gathering, he described the present orderbook as "totally overwhelming", noting that "contractual cancellations have been minimal". Although deferrals are being widely negotiated in all ship types, he said, this will only spread the deliveries over three or four more years. Around $750bn had been spent by "reckless owners" on new ships in the five years prior to 2008, with $500bn still on order "and due to be delivered into markets that have evaporated or never even existed", he said.
 
But yard capacity shows no sign of declining and China is already filling deferred spaces with new ships for Chinese owners with cargo contracts to Chinese industrial groups. Warning that this could have an "enormous negative effect on the dry cargo markets and delay any recovery by years", he noted that the moves are in line with China's central government edict in 2005 that set an objective for 75% of all China's imports to be carried in Chinese ships by 2020. It is also a major part of the Chinese Government's $1bn stimulus package for shipyards, announced two months ago.
 
A disturbing feature of a number of bank rescue packages was that various governments were now requiring new lending to be focused on businesses in their own country, Slater noted. But independent shipping is effectively "stateless" and might well need to consider relocation to obtain finance in future. Meanwhile, the fundamentals of ship finance in future will change significantly, Slater suggested. More equity will be needed, together with strong revenue streams from quality charterers. Long-term charters will really mean "long-term", not the recent US IPO definition of more than 12 months; covenants will be stronger and more rigidly enforces, cash retentions will play a part and dividend restrictions will be enforced.  [20/05/09]

 

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