2007

Times they are a-changing. As vessel values continue to hit new highs the current market is typically held out as the explanation, with medium-term timecharters offering quick amortization of apparently inflated values. Financial factors are sometimes over-looked. For example, the dollar’s steep fall means that inflation in dollar terms may not be as severe as it looks in real terms. Meanwhile the time required to pay off a vessel is notably impacted by the cost of the capital required to obtain it.

So, while the credit crunch may not be devastating for ship values, it is sure to have an impact. Consider that, according to Petrofin, 75% of the current orderbook remains to be financed. This of course makes perfect sense, as the orderbook stretches through 2011 and there is a little need to finance a vessel that has not yet begun to be built, but it also demonstrates that the anticipated stream of new vessels is dependent on ample access to affordable credit. Unsubstantiated reports indicate that dozens of newbuilding deals are suddenly hard-pressed to find the financing necessary to make their economics work. To help compensate some of these newbuildings will inevitably end up in the resale market, increasing available supply and theoretically beginning to compress prices.

This could have a wide range of impacts, not least of which is rationalizing the newbuilding market. It could even help the environment – Blaine Collins of DNV pointed out at a World Maritime Day celebration today that “To see measurable reduction in emission levels from ships will take 10 to 20 years as shipyards full today building with current technology will deliver ships which will trade for 20 to 25 years.”

This is only an excerpt of The Week in Review – 10/25/2007

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