The International Handbook of Shipping Finance is a one-stop resource, offering comprehensive reference to theory and practiceintheareaof shipping finance. In the multibillion dollar international shipping industry, it is importantto understand the various issues involved in the finance of the sector. This involves the identification and evaluation of the alternative sources of capital available for financing the ships, including the appraisal and budgeting ofshipping investment projects; legal and insurance aspects of ship finance; the financial analysis and modelling of investment projects; mergers and acquisitions; and the commercial and market risk management issues involved.
Edited by two leading academics in this area, and with contributions from 25 prominent market practitioners and academics over 16 chapters, this Handbook covers shipping finance and banking, maritime financial management andinvestments. As such, it includes: shipping markets; asset backed finance; shipbuilding finance; debt finance; public and private equity and debt markets; structured finance; legal aspects and key clauses of ship mortgages; marineinsurance; mechanisms for handling defaulted loans; investment appraisal and capital budgeting; financial analysis and investment modelling; business risk management and freight derivatives; and mergers and acquisitions. Thus, theHandbook offers a rigorous understanding of the different aspects of modern shipping finance and maritime financial management and investments, the various characteristics of the available products, the capital needs andrequirements, and a clear view on the different financial management strategies through a series of practical examples and applications. Technical where appropriate, but grounded in market reality, this is a "must-have" reference foranyone involved in shipping finance, from bank practitioners and commodity trading houses, toshipbrokers, lawyers and insurance houses as well as to university students studying shipping finance.
Table of Contents
Preface by Editors
Manolis Kavussanos, Professor, Director, MSc in International Shipping, Finance and Management, Athens University of Economics and Business, Greece
Ilias Visvikis, Professor, Director Executive Education and Professional Development, World Maritime University, Sweden
Chapter 1: Shipping Markets and their Economic Drivers
Jan-Henrik Huebner, Head of Shipping Advisory, DNV GL, Germany
Chapter 2: Asset Risk Assessment, Analysis and Forecasting in Asset Backed Finance
Henriette Brent Petersen, Head of Shipping & Offshore Research, DVB Bank SE, The Netherlands
Chapter 3: Overview of Ship Finance
Fotis Giannakoulis, Research Vice President, Morgan Stanley, USA
Chapter 4: Shipbuilding Finance
Charles Cushing, C.R. Cushing & Co. Inc., USA
Chapter 5: Debt Financing in Shipping
George Paleokrassas, Partner, Watson, Farley & Williams, Greece
Jeffrey Pribor, Global Head, Maritime Investment Banking, Jefferies LLC, USA
Cecilie Lind, Associate Investment Banking, Jefferies LLC, USA
Chapter 8: Structured Finance in Shipping
Contributor: Ioannis Alexopoulos, Director, Shipping Financier, Eurofin Group, Greece
Nikos Stratis, Managing Director of Augustea Group, UK
Chapter 9: Key Clauses of a Shipping Loan Agreement
Kyriakos Spoullos, Solicitor, Norton Rose Fulbright, Greece
Chapter 10: Legal Aspects of Ship Mortgages
Simon Norton, Lecturer, Cardiff Business School, UK
Claudio Chistè, Investec Bank Plc., UK
Chapter 11: Reasons and Mechanics of Handling Defaulted Shipping Loans and Methods of Recovery
Dimitris Anagnostopoulos, Board Member & Director, Aegean Baltic Bank, Greece
Philippos Tsamanis, VP - Head of Shipping, Aegean Baltic Bank, Greece
Chapter 12: Marine Insurance
Marc Huybrechts, Professor, University of Antwerp, Belgium
Theodora Nikaki, Associate Professor, Swansea University, UK
Chapter 13: Maritime Investment Appraisal and Budgeting
Wolfgang Drobetz, Professor, University of Hamburg, Germany
Stefan Albertijn, CEO, HAMANT Beratungs-und Investitions GmbH, Germany
Max Johns, Managing Director, German Shipowners' Association, Germany
Chapter 14: Financial Analysis and Modelling of Ship Investments
Lars Patterson, Shipping Investment Analyst, Pacomarine Limited, UK
Chapter 15: Maritime Business Risk Management
Manolis Kavussanos, Professor, Director, MSc in International Shipping, Finance and Management, Athens University of Economics and Business, Greece
Ilias Visvikis, Professor, Director Executive Education and Professional Development, World Maritime University, Sweden
Chapter 16: Mergers and Acquisitions in Shipping
George Alexandridis, Associate Professor, ICMA Centre, University of Reading, UK
Manish Singh, Manish Singh, Group Director - Strategy and M&A, V. Group Limited, UK
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Before diving into the drivers of shipping markets and looking at their performance, a short introduction will be given into the maritime value chain, the various shipping segments and the types of shipping markets. An overview of the cost structures will also help to provide an understanding of the conduct of shipping markets.
1.1.1 The Maritime Value Chain
Numerous types of economic participants with specific functions constitute the maritime value chain. From a shipping finance perspective, the yard, the owner, the charterer and of course the capital are obviously the most important ones. A broader view of shipping markets, however, requires attention also be given to ship managers, freight forwarders, cargo owners, brokers and all types of other market participants. Depending on the shipping segment, these functions are typically combined (integrated) to a different degree. In general, everything between a single purpose company and a fully integrated shipping division or a larger corporate structure is feasible. For an overview see Fig. 1.1.
Fig. 1.1
The maritime value chain (Source: Own graph)
1.1.1.1 Ship Owner
The ship owner is a person, a company or an investment fund which acquires a vessel from a yard or from the second-hand market to hire it out to a charterer. The ownerâs earnings are the difference between the charter rate and the sum of the costs incurred by owning the vessel (interest and repayments, potentially subject to exchange rate fluctuations, are the capital expensesâCAPEX) and making it available (maintenance and repair, including docking, stores and lubricants, crewing, insurance as well as management and administration are the operating expensesâOPEX). The owner mandates a ship manager to run the vessel with crew, maintenance and so on (technical ship management) and to market the vessel to charterers (commercial ship management). The latter can be facilitated via a ship broker. On the income side, the ownerâs risks lie in the charter rate, employment and the lifetime of the vessel with regard to the second-hand value (for ongoing employment or scrapping). On the cost side, both OPEX and CAPEX bear risks for the earnings. The risk with regard to the earnings potential of other voyage related costs (which are primarily fuel and costs of port and passage (canal fees)) can lie with the owner or with the charterer/operator (for more details see Figs. 1.3 and 1.4).
1.1.1.2 Shipyards
Vessels are built, maintained, repaired and eventually scrapped (recycled) in shipyards. Traditionally, yards offered all three services (newbuilding, maintenance and repair) but further specialization has taken place during recent decades. Scrapping in yards, as opposed to beaching vessels (dismantling of vessels purposely run aground), develops with increasing environmental regulations. With respect to shipping finance, yards mainly interact with shipowners during the newbuilding stage, and with ship managers who take care of maintenance and repair of the vessel during docking on behalf of the owner.
1.1.1.3 Charterers
The chartererâs business is to hire a vessel from the shipowner and sell transport services to a cargo owner or freight forwarder. In some segments, the charterer may also be called the operator. He or she may provide this transport service on fixed routes and schedules doing âlinerâ business, as is typical in container shipping, or employ the vessel based on a single (or trip-by-trip varying) cargo ownerâs requirements, as is typical in bulk shipping for example. The chartererâs business risk lies in the spread between the existing charter contract and the freight rate development, and in his or her ability to utilize (fill) the vessel efficiently. The charterer may use brokers to charter the vessel and sell transport services.
1.1.1.4 Cargo Owners
Cargo owners want their raw materials or goods to be supplied to an intended destination. Depending on their annual transport needs and volumes, they either buy transport services directly from the owner, acting as a charterer themselves (common e.g. in the iron ore and crude oil business), from the charterer/operator (common e.g. for large consumer goods customers or in project cargo) or from a freight forwarding company (common e.g. for smaller volumes of containerized cargo). The cargo ownerâs commercial risk lies in the development of freight rates.
1.1.1.5 Freight Forwarders
Freight forwarders provide transport and related services to cargo owners, whose limited regular demand for transport does not justify a logistics department of their own with all the required functions and expertise. Rather, they buy transport services from the vesselâs charterer/operator and sell it on to cargo owners. In container shipping, freight forwarders are among the biggest customers of container liners. As freight forwarders typically pass on the actual costs of the transport service and gain their earnings from a fairly stable mark-up for their services, their exposure to freight market rate volatility is rather moderate. Their risk lies rather in the variability of demand for their services.
1.1.1.6 Ship Managers
A ship manager is mandated by the shipowner to run and maintain the vessel (technical management, crewing) and market it to charterers (commercial management). All the operating expenses of the vessel are borne by the owner, based on pre-agreed crewing and the OPEX budget. The ship manager typically receives a fixed annual fee to administer the vessel. Hence, he or she is not directly exposed to charter rate volatility. Only a limited share of ship management contracts is related to the charter rate earned or to performance indicators.
1.1.1.7 Brokers
Brokers with various specializations act as intermediaries in shipping markets. Yard brokers facilitate contracts between yards and shipowners, especially in newbuilding, but also for repair and regular docking. Shipbrokers support the S&P of second-hand tonnage as well as the chartering of vessels (linked to commercial management). Freight brokers can facilitate larger freight contracts, for example in bulk and project cargo.
1.1.2 The Shipping Segments
According to Clarkson Research Services Limited (2014), the global merchant fleet comprised about 88,000 vessels above 100 GT (gross tons, a measure for a shipâs volume), worth about USD900 billion in spring 2014. The main segments are bulkers (36% of GT at 10,046 vessels), crude and product tankers (23% of GT at 9,243 vessels) and container vessels (17% of GT at 5,087 vessels). Significant by number but small in terms of gross tonnage are also tugs (<1% of GT at 16,297 vessels), general cargo (âother dryâ, 6% of GT at 15,837 vessels), offshore vessels (4% of GT at 10,199 vessels). For more details, see Fig. 1.2. Looking at the distribution from vessel value or value of goods shipped, container vessels gain share compared with tankers and especially bulk carriers.
Fig. 1.2
Overview of the global merchant fleet (Source: Clarksons)
1.1.3 The Various Shipping Markets
A single vessel is subject to various shipping markets. The newbuilding market, the S&P market and the demolition market look at the ownership of the vessel, while the freight market (time charter and voyage charter, amongst other forms of charterparties) looks at the transport service of the vessel. Another differentiation of shipping markets has also been provided by Stopford (2009). The key markets will be introduced briefly in the following, while a more detailed explanation of the market drivers can be found in Chap. 2.
1.1.3.1 The Newbuilding Market
Usually buyers of vessels enter the newbuilding market as they either want to employ the vessel on their own, assuming future employment on the freight market, or plan to charter it out either based on a long term contract they have already agreed or on speculation of a good spot (voyage) market. They will accept about two years of waiting time for a newbuild, as opposed to purchasing existing tonnage, if no suitable vessels (size, efficiency, etc.) are available on the second-hand market. When shipping markets are booming and yard slots are scarce, yards show a limited willingness to change specifications relative to their standard designs. When markets are low, buyers can tender their newbuilding order amongst several qualified yards, especially if they are looking at a series of vessels. Typically, newbuilding prices of different segments of vessels develop largely in parallel (see Sects. 1.4, 1.5 and 1.6 and Figs. 1.11, 1.18 and 1.26), as many yards are flexible.
1.1.3.2 The S&P Market
The S&P market structure and conduct depend on the phase of the shipping cycle. At advanced recovery and peak times, the S&P of vessels is typically a very simple private transaction between seller and buyer, facilitated by one or two shipbrokers. The banks of the seller and buyer are involved but donât play a major role in the transaction. Second-hand prices are based o...
Table of contents
Cover
Frontmatter
1. Shipping Markets and Their Economic Drivers
2. Asset Risk Assessment, Analysis and Forecasting in Asset Backed Finance
3. Overview of Shipping Finance
4. Shipbuilding Finance
5. Debt Financing in Shipping
6. Public Debt Markets for Shipping
7. Public and Private Equity Markets
8. Structured Finance in Shipping
9. Key Clauses of a Shipping Loan Agreement
10. Legal Aspects of Ship Mortgages
11. Mechanics of Handling Defaulted Shipping Loans and the Methods of Recovery
12. Marine Insurance
13. Maritime Investment Appraisal and Budgeting
14. Financial Analysis and the Modeling of Ship Investment
