A Remarkable Triple Play in the Leasing Market

“Leasing doesn’t make any sense for the shipping industry.” At least that’s what one banker told me when I started working for Marine Money ten years ago.

He also said that shipowners will never do deals where they are restricted from selling the asset at an opportune time in the cycle because, “they lose all the optionality – and that’s where the juice is.” Moreover, although there are some exceptions, “most shipowners operate in tax neutral offshore jurisdictions so there isn’t much appeal to depreciation benefits.”

Although my banker friend’s observation was historically accurate, in the last few years the market for vessel leasing has been on the rise around the world. As we look over our data in the waning days of 2005, there appear to be several reasons for the increase in leasing activity. Following are some of the trends we saw in the ship leasing business last year:

1. Since the freight market began its dizzying climb in late 2002, asset prices have risen to never before seen levels, and the most significant factor driving the increase in vessel leasing is that it is a structure that offers 100% financing. Although the cash flows were often there to justify the high prices, the reality is that asset prices have been so high that owners have used leasing as a way to raise equity or unlock the equity embedded in highly valued assets that they still wish to control – at least for the term of the lease. Moreover, as the tanker industry consolidates and becomes more corporate, the way the liner industry did years ago, companies are now more willing to commit to assets for a longer period of time.

This is only an excerpt of A Remarkable Triple Play in the Leasing Market

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