The Last 30 Years in Shipping Investment - What Have We Learned? - Marine Money, New York 20th June 2017
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Marine Money, New York 20th June 2017 The Last 30 Years in Shipping Investment – What Have We Learned? Martin Stopford, President CRSL 20 June 2017
I gave “shipping
Fitzcorraldo
cycles” a whole
new meaning
Directed by Werner Herzog
An inspirational film for all shipping
Starring
Fitzcorraldo investors
John SweeneywhoFitrzgerald
are in search
- KlausofKinsky
the
true meaning
Molly McGuire – ClaudiaofCardinale
Takes ship over a “the Featuring
shipping -investment
The Molly Aidacycle”.
mountain to get to
the rubber trade See your shipping investment climb
to the heights then crash into the
Gets up OK but when
trough.
he comes down the
other side the ship
goes into the rapids Share the euphoria of success and
the pain of the collapse
Martin Stopford, President CRSL 20 June 2017
1. The shipping investment cycle
2. Seatrade International Ship
Finance Forum 1987
AGENDA 3. Investment 1986-2016
4. A word about investment cycle
economics
5. The investment cycle 2017-2046
Idemitsu Maru 209,413, delivered Nov 1966 DHT Jaguar 299,000 dwt delivered Nov 2015
1. The Shipping Investment cycle
Two ship investment cycles that lasted 30 years
Martin Stopford, President CRSL 20 June 2017
Two shipping Investment cycle mountains to climb
Twenty four Sir, our fleet ofOh
40 Sh**t. Lucky
Who needs TCs
35% VLCCs please!! new Supramaxes isLIBOR’s
a .5%.
when you can
borrow 105% unique
Mr Investor Sir, opportunity
Lets order some
30% against the asset? sorry about the more for the
Newbuilding contracts % fleet (dwt)
There’s easy Past the
upturn
bond. Is 30
25% Hey guys, oil money on Wall trough? No
cents/$ OK?
companies Sorry Mr Street guys cash? Time to
20% are offering Banker, sir I
eek… I’ve invest,
Lucky shipmates
time charters can’t pay a
still got a
15% few TCs cent!
10%
5%
0% 1957 1987 2017
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Martin Stopford, President CRSL 20 June 2017
Recap: Investment Supercycle 1 1956-1986
35% Contracts placed as % world fleet (dwt) 1973
peak
30%
1974/5
25%
Very
20% rapid
collapse
15%
1986
10%
trough
5%
0%
1952 1957 1962 1967 1972 1977 1982 1987
Martin Stopford, President CRSL 20 June 2017
Recap: Shipping Supercycle 2 1986-2016 – different shape
2007
35%Contracts placed as % world fleet (dwt)
peak
30% Much more
ordering in trough
25%
than previous
20% cycle
15% Supercycle 1 Supercycle 2
2016
10% Trough?
5%
0%
Cycle 2 1986 1991 1996 2001 2006 2011 2016 2021
Cycle 1 1952 1957 1962 1967 1972 1977 1982 1987
Martin Stopford, President CRSL 20 June 2017
Interest rates had a big impact on the two supercycles
LIBOR interest on new Panamax bulker
THIS CHART SHOWS THAT
120% SUPER-RECESSION 1
HIGH interest rates INTEREST AS % EARNINGS (NEW 2
SYPER-RECESSION
LOW interest
VERY rates
Interest (LIBOR on 80% of new
100% discouraged PANAMAX BULKER) WAS
investment and encouraged
DIFFERENT IN THE TWOinvestment
SUPER- &
price) as % Earnings
80% encouraged
foreclosure RECESSIONS discouraged
foreclosure
60%
40% Recession 2
Starts 2009
20% Recession 1
Starts 1974
0%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Martin Stopford, President CRSL 20 June 20172. The Seatrade International Ship Finance Forum ..December 1987 What bankers thought at the trough of SUPERCYCLE 1
Seatrade 1987 Forum Seatrade International Ship Finance Forum
Delegates included:-
• Bankers Trust Smeatons Vaults, The Brewery, City of London 10 December 1987
• Marine Midland PROGRAMME
• Bank of America 9.30am Introduction: Christopher Hayman, Seatrade
• Chase Manhattan Chairman: Douglas Hamilton, Norton Rose Botterell & Roche
• Den-Norske Creditbank Session 1- A market diagnosis: What went wrong and why?
• Australia & New Zealand Bank Discussion leaders: Boris Nachamkin
• Bergen Bank Bankers Trust
• Chemical Bank Olaf Peters
• Citibank Schiffshypothekenbank Zu Lubeck
• Commerzbank Michael Revell
Retired. Formerly Marine Midland Bank
• Deutsche Bank
Bernard Kruyne
• Deutsche Schiffahrtsbank Bank of America
• Hong Kong & Shanghai bank Session 2 - Worldwide Demand for Ship Finance 1988-2000
• J P Morgan Speaker: Dr Martin Stopford
• National Westminster Bank British Shipbuilders
Martin Stopford, President CRSL 20 June 2017A market diagnosis – what went wrong?
The same problems were mentioned repeatedly: –
1. Too much shipbuilding capacity!
2. Too much government intervention!
3. Too many owners ordering too many ships!
4. Too many overage and substandard ships!
5. Too many charterers/shippers eager for short-
term gain at the expense of the industry's future!
6. Too many banks, lending too much money. Boris Nachamkin
7. Too much support for speculators. Bankers Trust gave
His view on what
8. Charters only as good as shipper & owner. went wrong
Martin Stopford, President CRSL 20 June 2017Reasons why “things went wrong"
1. Inadequate collateral and not recognising the
distinction between a loan to a business and the
industry risk.
2. Inadequate information about the operators of
the company - "if all the facts have been known,
much of the business should not have been
done".
3. The industry should pay more attention to
statistics "it takes a strong character to turn Bernard L Kruyne
down business". Bank of America
4. “Banks too interested in marketing and neglect gave his views
the basic disciplines. People acted hastily.”
Martin Stopford, President CRSL 20 June 2017What to do about it (consensus view)
1. Banks and other financial institutions should not finance
speculative newbuildings and insist on a larger equity
participation by the owner (50%).
2. Shipowners should not order vessels except where a clear
commercial need is established and take positive action to
accelerate scrapping of uneconomic tonnage.
3. Shipbuilders should bring capacity in line with existing
requirements.
4. Governments should eliminate subsidies.
5. Underwriters should refuse to insure substandard ships. Jim Davis, Chairman of IMIF
6. Classification societies should not permit any lowering of
standards for competitive reasons. Jim Davis, banker and
7. Charterers and shippers should recognize that whatever President of IMIF
the short-term benefits, uneconomic freight rates cannot Was a member of the
be in the long-term interests of efficient transport. afternoon panel
Martin Stopford, President CRSL 20 June 2017Conclusions - where the banks were in Dec 1987
1. “In 1979 to 1981, a period viewed by many as a
permanent recovery, between 200 and 250 banks were
involved in ship financing. Can 200 to 250 banks all
have mature and qualified ship finance units? “
2. By 1985 the number of shipping banks had dropped
below 50 and in 1986 no more than a handful, say 12 to
15 banks, were actively looking for new business.”
3. “With pockets of optimism in, many banks were back in
the hunt. They talk about lending only 40 to 50%
instead of 80 to 90%. This is an important 1st step, but
the jury is still out.” Basel I, issued in 1988,
4. "It's the banks not here that really matter“ aimed to create a bank
asset classification system.
Martin Stopford, President CRSL 20 June 20173. The Investment cycle
1987-2016
This was the mother of all cycles. Some
investors made a killing, others got killed.
Just a matter of timing
Martin Stopford, President CRSL 20 June 2017In1988 the press said“the speculative element has gone”
• A 1988 Euromoney
article spoke of
“stringent financing
terms”
• But analysts were
predicting a shortage of
shipbuilding capacity
• And where would the
industry find the $10-
$14 billion a year to
finance fleet
replacement?
Martin Stopford, President CRSL 20 June 2017By 1992 investors & commercial banks were at it again By 1990 the lenders were back to their old ways and by 1992 the markets were slipping back into recession with too many deliveries. Source : Daily Express 1992 Martin Stopford, President CRSL 20 June 2017
Investment 1987-2017 :– 2009-2016
1992-7 1997 Shipbuilding credit
300 Several IPOs in Oslo, & Asian leasing
IPOs Wall Street & 262 companies active
250 funds active 2009-2016
Very active lending up to 80%
1994 Low interest rates &
200 German KG high levels of
177
market takes off 170
investment continue
150 1990 1996-8 133
Commercial Many companies 111 111 104 115
100 banks lending issuing Junk bonds 91 90 89
70
up to 80%
50
50 32 33 31 34 32 36
39 33
32 32 32
42
30
19
0
0
1990 1995 2000 2005 2010 2015
Martin Stopford, President CRSL 20 June 2017Investors do what they want, but they
do it within an economic framework
and must have some sort of rationale
Why am I a
shipping
4. A word on investor?
investment cycle
economics
Martin Stopford, President CRSL 20 June 2017External investment should add value
• Between 2000 and 2017 the Cumulative earnings &
industry ordered for about $1.7 orders placed 2000-2017
2,000
trillion of new ships.
$ Billion 2000-2017
• Net earnings of roughly $1.6 trillion 1,500 $1.4 trillion
could have covered this investment. Orders could
1,000 have been
$1,711
• External investors/lenders must
$1,595
funded from
know HOW THEY ARE ADING VALUE
500 cashflow
- funding speculation just reduces
returns. $303
-
• Maybe new technology companies? Earnings New Excess
(less OPEX) orders orders
Martin Stopford, President CRSL 20 June 20175. The investment As we head into Supercycle
How do you find the best
investments? Here are some
cycle 2017-2047?
Martin Stopford, President CRSL 20 June 2017
suggestionsHeading into Supercycle 3 It’s time we faced
1. Fewer banks, low interest rates reality my friends,
We’re not exactly
2. KG system in collapse (it financed half rocket scientists
container fleet so what now?)
3. Tougher banking regulations
4. World economy recovering But…
5. About 23% surplus ship capacity
6. Lots of shipbuilding capacity and
support programs very busy
7. Massive pool of investor funds looking
for any half plausible investment
8. Asian leasing companies very active
The forecast? I’m still working on my
supercycle forecasting model ….
Martin Stopford, President CRSL 20 June 2017It’s the goal of I built my opera
investment house in the end
that matters and got Enrico
Caruso to sing
there.
Fitzcorraldo
Takes ship over a
mountain to get to
the rubber trade
Gets up OK but when
he comes down the
The lesson is that, in Supercycle 3,
other side the ship shipping will need investors who can
goes into the rapids
lead sea transport into new territory.
Martin Stopford, President CRSL 20 June 2017The End
In 2047 will investors be pushing ships up hills in the Brazilian jungle?
Or moving shipping into the digital age? It’s your decision. Enjoy!
Martin Stopford, President CRSL 20 June 2017You can also read
