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The distressed selling of vessels and the lack of capable buyers means second-hand vessel prices are at historical lows. Banks are under more pressure than ever to sell risky shipping investments. Only this past year did the ECB announce plans to focus on banks’ shipping loans.

FEEDER VESSEL MEANING FREE

The pressure on European lenders, especially German banks, to free up capital is likely to continue. Total European lending to the shipping industry dropped to $221 billion in 2016. The crash, combined with European Central Bank (ECB) capital requirements, meant lenders were pressured into quickly offloading as much capital-intensive investment as possible to comply with Basel III banking regulations. Then the shipping market crashed along with the rest of the global economy during 2008–2009.

At the time, Germany, the biggest lender in the shipping industry, had loaned $154.4 billion. In fact, European lenders had a total of $375 billion in shipping, according to Petrofin Research. At the same time, intra-regional container trades with high-demand feeder vessels are seeing strong trade volume growth.Ĭonsidering the healthy market expectations going forward, feeder vessels have never been cheaper.Įuropean banks were lending at record levels to the shipping industry before the global financial crisis. Liner companies have focused on building larger vessels instead of feeder vessels, and the industry has moved to scrap older, less-environmentally-friendly vessels. The high number of undervalued assets on the market for sale at low prices coincided with a market situation in which the feeder segment started its recovery because of low supply and high demand growth for these vessels. Many distressed sellers, mainly European banks with capital tied up in shipping that need to offload to comply with the regulatory capital rules under Basel III, provide the opportunity to acquire vessels at such attractive rates. Prices for second-hand vessels are at a significant discount to newbuilding parity - greater than 30 percent - meaning the price for a 10-year-old second-hand vessel is more than 30 percent below the implied value of a new ship after 10 years of depreciation. One niche sector within container shipping with a particularly attractive risk-return profile is the feeder container ship segment - smaller-scale vessels with a capacity of 1,000 to 3,000 TEUs, or 20-foot equivalent units. Catching the right window of opportunity, therefore, is key. It can take years for the shipping cycle to turn and for investors to see their money back. In particular, alternative-asset investors have had a difficult time selling container ships even at relatively low prices. Investors who have been burned in the past argue the sector is too distressed to be profitable due to oversupply and lack of demand for container and bulk vessels over the past few years.

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