7th Annual Marine Money Geneve
Managing Partner Mr. Fredrik Larsen of EMF- European Maritime Finance, was invited to share his opinions on the shipping- market outlook at the 7th annual Marine Money Conference in Geneva earlier in May this year. Holding the tanker market as the favorite and most bullish of options moving into the 2020´s, Mr. Larsen discussed the favorable entrance of placing private equity into the shipping industry today. Leading a company with a broad portfolio of successful shipping- investments to show for, he gave the audience interesting insight as to what he believes are the most favorable forthcoming trends ahead of us.
The panel consisted of Moderator Dr.Clemens Hilmer from Watson Farley & Williams LLP, Mr. Larsen of EMF and Mr. Jesper Droscher, Senior Advisor of Nordische Frachtcontor. The fundament of the discussion was to debate why equity investing in shipping is attractive to investors today as well as identifying the most interesting sector. The key factors driving equity investments and lending in shipping at present, regardless the sector, are favourable ship values, strong market outlook and access to capital. The banks have traditionally been the main source of funding in the shipping industry, but started slowly to pull out of the market after the financial crisis. With the banks being reluctant to provide debt and the shipowners are short on cash, any player (private or institutional) should have good chances entering the market on favorable terms. The ship values within several segments today are low, and with several shipowners still low on cash, any ambitious newbuilding programs are put on hold, especially within the tanker sector. Therefore shipowners have started focusing on the secondhand market to position themselves for the upcoming growth to generate earnings. In these market conditions, investors will be met by shipowners who wants to do business while providing the opportunity of good returns on a relatively short period of time to the investors.
When asked by the panel moderator Dr. Hilmer whether it is any particular shipping sector Mr. Larsen could recommend to his investors, he replied confidently: ´Equity, as we see the market now, we believe that the tanker market is best positioned for rapid growth the upcoming years. With IMO2020 regulation entering into force from 1st of January, we believe the whole tanker sector will come out as winners. The Aframax segment is of our interest, with record high scrapping in 2018 tightening the supply side and with an orderbook representing currently 7.7% of the fleet. With the growth coming from the U.S., the Aframaxes are well positioned to take advantage of the increased activity, because of their flexibility towards American refineries. With even higher exports from the United States and refineries to run on full throttle after the summer months, the tanker vessels are in pole position to generate the best returns on invested capital.
With the United States to be self sufficient of energy by 2021 and a net exporter of oil, taking the geopolitical tensions of today into consideration the export from U.S. is necessary due to the fact that export of other countries are declining. U.S. exports will reach 5 mbd in 2021, with the demand coming from the far east. Moving forward we expect ton- demand to increase given the substantially longer trade routes especially from the Gulf of Mexico to the Far East. Combining the operational ability of the Aframax in and out from US- ports, her favorable economics combined with high income, is what will help victor the Aframax- segment in particular.