[28 NOV 2019] Capital markets have not been overly enthusiastic about shipping in recent years, this past year being no exception, but, according to more than a few finance professionals, this is prime time for a turnaround in fortunes with smart money poised to see solid returns. This is also the opinion of Erik Helberg, CEO of Clarksons Platou Securities, who held a convincing presentation in Hamburg at the 23rd annual HANSA Forum for Shipping Finance. “Conditions are ripe for a turnaround,” Helberg said, indicating multiple reasons for investors to reassess a market that has weathered one of its toughest periods in recent memory. Equity has done surprisingly well in 2019, said Helberg, with the possible exception of LNG carriers, which saw their general performance fall by some 29% year-on-year. But this was the exception that proves the rule, so to speak, with equity returns in the majority of other shipping sectors having shown respectable-to-incredible returns in the year-to-date (indeed, shipping as a total entity, rose by 13% over the year). Container equity grew by a modest 5% this year, Helberg showed in a slide, followed by dry bulk with 11% growth and ship leasing companies with 30%. The highest end growth was in tankers, however, with handsome gains of 42%, 73% and 99% in 2019 in the equity areas of product tankers, crude tankers and mix tankers.
Cargo demand growth will finally outstrip tonnage growth in the coming few years with demand growth having already averaged 3.2% over the past two years while newbuilding deliveries should only grow by 2.9% in the coming three years (versus 4.6% on average in the past three years). Dry bulk demand growth amounted to 2.6% in the 2016-2018 period, which would also indication some convergence in supply-demand growth in 2020-2021. Equity, leasing and alternative finance is well-positioned to take advantage of the general decline in shipyard capacity (down 62% between 2008 and 2018) and simultaneous reduction in maritime bank lending (down 25% between 2010 and 2017). Indeed, Helberg said, shipping is set to see the best period in recent history in 2020-2022, especially with the “favourable supply disruption” in tonnage coinciding with IMO 2020 and its limitations on operating tonnage. Capital is no longer available for “speculative craziness”, in his words, with capital likely moving up the ladder to larger, consolidated companies, which could lead to an “extremely bifurcated market” between the haves and have-nots. With shipping valuations already set to increase in the next few years, nonetheless, with investors increasingly considering both the size and liquidity of shipping companies, smaller companies would be well-advised to either “team up with smart money and go private” or bite the bullet and consolidate with a larger shipping entity.
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