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Some segments of shipping industry showing signs of recovery

The shipping industry has had to navigate rough waters since the end of a boom in 2008. But industry watchers have said certain segments are starting to show signs of recovery, and as a result, more funding is flowing back into the industry.

In particular, private equity funds have been showing fresh interest.

Dry bulk carriers - which transport commodities such as iron ore, coal and grain - and tankers, which carry liquids or gases, are beginning to show an improvement in freight rates and value of newly-built vessels.

This is according to Standard Chartered Bank's shipping finance experts.

Standard Chartered Bank's shipping portfolio is worth approximately US$5.5 billion, comprising both loans and leases. About 75 per cent of its portfolio is made of up clients from Asia.

With prospects of a rebound after years of overcapacity, funds have been returning to the shipping sector.

After dropping to US$38 billion in 2010 from some US$93 billion prior to the financial crisis, new shipping finance has risen to as much as US$56 billion last year.

Growing finance comes as new players have been stepping in to fill the financing gap. They include Chinese policy banks, China Development Bank and China Exim Bank, and Chinese bank leasing subsidiaries. Regional and local banks in the Middle East, Malaysia, Singapore and Thailand have also been entering the market.

Nigel J Anton, global head of shipping finance at Standard Chartered Bank, said: "Whilst the US$56 billion comes from Chinese banks, leasing companies, the export credit agencies and the regional banks, we are seeing private equity as a new entrant to our industry - some US$9 billion in 2013. I think it will rise in 2014.

“I think they see interesting fundamentals in the industry. The dry and wet sectors of our industry have been going through difficult times. Now, as the market (rises), they see it as an opportunity to invest into it."

Closer to home, Singapore is expected to remain a shipping and financing hub.

That is despite concerns of potential disruption from the development of new deep sea ports in Myanmar.

Abishek Pandey, regional head (South and Southeast Asia) of shipping finance at Standard Chartered Bank, said: "Due to the geographic location, it is a very good corridor for India, ASEAN and China in terms of curtailing the distance, so yes, there will be a little bit of impact on the Malacca Strait trading route.

“But how quickly will these deep sea ports be up and running and what will Singapore do? Singapore has always led the pack, not only because of its geographical position but (also) making it more attractive for business purposes."

Analysts also said the emergence of potential new shipping routes such as the Arctic Circle is unlikely to impact traffic in the region in the near term.

They said the Arctic Circle route is less feasible than the traditional Suez Canal route.

Standard Chartered analysts said that last year, less than 50 ships moved through the North Sea Route, compared to more than 18,000 ships travelling through the Suez Canal.
Source: CNA