A long time ago in the late 1980s shipping analysts were worried about how the business would finance itself in the 1990s. Many shipyards had been closed, prices were rising fast, and 1970s bubble-built super tankers would need replacing. Calculations were made of how much this would cost and the consensus was that ship-ping would need $200 bn to finance investment in the 1990s. Where would the money come from?

Quite an Accurate Forecast

Although these forecasts were mainly made on the backs of envelopes, they turned out to be surprisingly accurate. Between 1990 and 2000 the shipping industry spent $219 bn on new ships, about $20 bn a year. And despite the worries, raising finance was never a problem. Syndication of shipping debt was re-established; ship finance banks expanded rapidly, especially in N. W. Europe, and there were even IPOs and some high-yield bond issues (better forgotten). So the financing crisis never happened.

New Financing Problems

Well, 20 years later they are still worrying about where the money will come from. According to World Fleet Monitor the industry spent $129.6 bn on ships in 2009. Newbuilding deliveries contracted for $113.1 bn were topped up by $16.5 bn of second-hand ships. To put that in context the portfolio of the top ten shipping banks is, according to Petrofin Bank Research, about $261 bn.

Who Needs Finance?

Our graph shows the top 10 countries which bought ships in 2009. Greece and Japan topped the bill, spending $16 bn each, followed by the USA spending $13.6 bn and Germany $10.6 bn. The high US Figure is due to the delivery of five large and expensive cruise ships and six large drill ships. By far the biggest share of the finance is in Europe, which accounts for about 50% of the total. Asia was well behind Europe with a requirement for $40 bn, accounting for 36% of the total. Although there were many difficulties, one way or another the industry seems to have found the $130 bn it needed last year.

What Comes Next?

In 2010 we expect a small increase in deliveries to 130m dwt (well down from the 156m dwt we were expect-ing six months ago). That would require about $128 bn for new vessels and maybe another $16 bn for second-hand, giving a total financing requirements of $142 bn. A challenging number, but if regional shares are steady, European banks would need to finance around $71 bn of new ships and Asian banks around $42 bn. In the context of overall portfolios, these numbers sound a little more manageable.

Money Box

So there you have it. The shipping industry needs to raise more money in just two years, 2009 and 2010, than it spent in the whole of the 1990s. Will it get it? Well history proves it generally gets there in the end, but this time it will be quite a struggle. Have a nice day.