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DVB sees risk costs in shipping & offshore finances to remain high in 2017

In the wake of persistent crisis in the shipping and offshore sectors, international ship financing bank, DVB expects risk costs in its Shipping Finance and Offshore Finance portfolios to remain high throughout the financial year 2017. Accordingly, risk management in these two divisions will continue to command particular attention, as well as proactive restructuring measures. The bank will keep supporting their shipping clients in a market environment characterised by less liquidity supply, on a selective basis – yet with markedly lower volumes of new business, says a bank note on the uncertain ship finance scenario. DVB will continue to analyse the business environment in the markets they cover, in great detail – to focus on business opportunities which allow DVB to return to adequate profitability, and to sustainably stabilise for the future, it added.

Reviewing the first-half of 2017 financial year, Ralf Bedranowsky, CEO & Chairman of DVB said, ‘Given persistent oil price uncertainty, oil and gas companies have continued to reduce their exploration and production spending, which has further curtailed demand for offshore vessels and equipment. Shipowners remain under pressure from low charter rates and competition for employment. Against this background, owners of vessels and drilling rigs adjusted their capacities, through lay-ups, restructuring or consolidation. Excess capacity remained a major challenge on shipping markets throughout the first half of 2017. Container carriers, bulk carriers and tankers are the three most important sectors for the maritime industry, in terms of transport volumes and services’.

Container shipping in a quandry

Persistently difficult market conditions have burdened performance amongst container shipowners . In this context, increasing consolidation of shipping lines is set to intensify competition amongst shipowners chartering their vessels to line operators. Even though charter rates in container shipping showed some improvement during the first half of 2017, whether this trend will in fact be sustainable is open to question, for two reasons. On the one hand, consolidation among shipping lines is accelerating, and on the other hand, charter rates are further burdened, given the continued delivery of a large number of 20,000 TEU container ships. Consequently, market values of container vessels have not been able to recover so far. Looking ahead, the cascading effect caused by substantial deliveries of large container carriers will mostly have a negative effect upon the development of charter rates and market values in the other size categories, he observed.

Bulk carriers buck the trend

Bulk carriers enjoyed a strong increase in earnings during the first half of 2017. The Baltic Dry Index (BDI) was quoted at an average of 976 points during the first six months of the year – up 101% year-on year. Freight rates were supported by continued Chinese demand for iron ore and coal. The BDI reached its year-to-date high in April, albeit staying far away from the historical peak of more than 10,000 points in 2007/2008. A multi-year comparison shows that charter rates for bulk carriers have remained insufficient, given that a large number of vessels was bought and financed at record prices, he said.

Tanker markets tumble down

Following an improvement during the first quarter of 2017, which was driven by seasonal factors, tanker markets declined again during the second quarter, putting pressure on shipowners' earnings. The extension of OPEC members' agreement to reduce production volumes had a negative impact on tonnemile demand in the crude oil tanker segment. Yet at the same time, the crude oil tanker fleet grew by 5.5% year-on-year. The significant volume of new tonnage on order – which rose further year-to-date – created an additional burden.  Excess capacity was accompanied by escalating liquidity shortages faced by shipowners. These described challenging market conditions triggered numerous new restructuring measures, thus influencing the performance amongst many market participants, DVB Chairman said.


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