At the inaugural UK Shipping Summit, hosted by the UK Chamber of Shipping on September 20, 2016, shipping finance dominated the agenda.
Well-known consultant, marine finance and investment professional, Alan McCarthy reflected upon how there were previously around 50-60 banks in the world, but today these banks, in short, do simply not have a lot of money left for the shipping industry.
McCarthy also highlighted that in 2007, 80-90% of banks were lending to shipping assets but today the industry is seen as too risky and this kind of investment is just not happening. Restrictions on bank loan capitals to small and medium sized companies is a real problem, he said. McCarthy asked: “how can you build a shipping company without finance?” This shipping finance expert believes that it takes modification and adaptation in order to attract limited bank financing. Corporatisation is one method, says McCarthy. Producing independent accounts and taking small companies and merging them with other smaller ones to make a medium size company is one way of attracting finance, he stated.
However, a critical issue that remains for shipping investment is cash flow. McCarthy spoke about the need for certainty in cash flow to acquire the right investment, but highlighted that the volatile nature of the shipping industry means that this is a near impossibility. Private equity is an option, he says, but it should not be relied upon for long-term funding and it also has the potential to generate management issues with control over the company. For instance, if an organisation gives 80% of the funding, this also means they will have this sum of ownership share and can therefore make decisions that may not be in line with the original company’s own framework.
Richard Greiner, a Partner at Moore Stephens addressed these challenges by stating that the industry needs to be realistic about financial expectations. Historically, the shipping industry has not been good at aligning its business to the financial industry, but this needs to change in order to move its position into one that is better placed for financing he said. “Whatever is in your control you need to be looking to manage,” Greiner reiterated.
One way of doing this is to first make yourselves and your operations transparent. Transparency is fundamental, stated Dimitrios V. Lyridis, Associate Professor, School of Naval Architecture & Marine Engineering, NTUA. Lyridis holds the belief that more funding needs to go into green shipping and the environment but this can only be done with transparency.
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