“We have put together the best panel to talk about shipping investment in the capital markets” said Nicholas Borzonis, the President of Capital Link Shipping, opening the Capital Link Forum in London.  This turned out to be a highly useful barometer of where leading opinion is on the current and future position of the world shipping markets.  

Most obvious was the stark difference in analysis between the providers of money on the one side, and the spenders on the other; between the banks and the shipping companies.  Perhaps tellingly, one of the most veteran observers of them all, Martin Stopford, came down clearly on the side of the cautious and the pessimists.

A panel of heavy-weight bankers, whose banks fund a large chunk of the world’s fleet, made their present position unambiguously clear: “There is no reason to further lend to shipping in these troubled times. We have been tolerant, covenants have been relaxed, but we are now looking to go for the kill” they said.   Patience on the lending side has run out.  The foreclosures and Chapter 11 filings (to be followed by inevitable distressed sales) that have been expected so long are now likely to become a reality as the banks prepare to pull back from their long suffering support of a very depressed sector.  Many of them are now set to become the owners of shipping assets repossessed from serially defaulting owners.  The capital markets have finally accepted that they have to turn off the life support systems keeping loss making shipping companies artificially alive.  Only the LNG and offshore sectors can expect continued support as there are clearer short term signs that they stand to grow in real terms when they have passed through the current storm.

Not surprisingly, the ship owners came forward strongly with a rosily optimistic picture.  A representative of Braemar Seascope suggested that there may be some hope in the product tanker segment, though even she was not able to prophesy salvation for the stricken larger crude carrier segment where the supply-demand curves look like continuing to drifting apart until 2016, based on current projections.  After she had suggested some hope for at least part of the tanker market, a powerful Tanker panel, consisting of Nikolas Tsakos, Peter Evensen of Teekay and Marco Fiori of d'Amico took the stage.   To a man they all see opportunities in these difficult times, though they did admit that the current state of the industry is not ideal.   

Sadly, it is hard not to feel that there is something Quixotic about their cheerful positivism.  Owners from other sectors presented 'conclusive facts' and more graphs to suggest demand is strong for the longer term – it is extraordinary what can be done with econometrics.  But the general consensus remained that this optimism was not well grounded.  Martin Stopford was asked how he would invest a billion dollars in the shipping sector today.  Pointing out that we are very much in the collapse phase of the 4-phased shipping cycle, he expected the best returns would come from investing the money in a two year secured Caribbean vacation.

Another subject that received some heated discussion was the apparent shift of the heart of the maritime industry away from London to Asia, and to Singapore in particular.  Again the debate fell clearly on two sides – the traditionalists defending the ancient heart of shipping with historical arguments while the realists said what they always say: just look at the facts.  True the London Stock Exchange is still a prime choice of some blue-chip companies, but it is not known for its shipping traditions, and the very fact that more more finance is being raised through listing demonstrates a reduction, at least for the time being. of the traditional methods of ship finance.  It is not clear when they will return to centre stage.  With the possible exception of ship-broking, all the UK's claims to shipping pre-eminence – shipbuilding, the Baltic Exchange, the great imperial lines – are historical.

In conclusion, there was a general acceptance (reluctant in some places and resisted fiercely in others) that the dynamics of world shipping are seriously damaged and that recovery will be long and hard, with many casualties along the way.  Ship values are right down, all sectors are suffering high levels of overcapacity, world trade and hence demand for shipping, is struggling.  At best, with the economic centre of gravity of the world shifting inexorably eastwards, the industry as a whole is going through as radical a change as it ever has – and none of the tools available to us for interpreting it are any use any more.  So it is hard to see how it will pan out going forward.  At worst we are in for a period of sustained and prolonged suffering.

There was a fair amount of talk about Private Equity coming in, just like the Chinese banks, to bridge the gap in funding as the banks pull back.  Without doubt distressed asset investors are sniffing enthusiastically around the shipping industry.  Some delegates at the conference saw this as a possible source of salvation for existing players, but surely, while the circling of vultures in the sky can be seen to foreshadow a good clean up, they are much more commonly associated with more negative auguries?  Indeed, even if these new money players invest in existing operators and their assets, the rates of return they will demand will be punitive - private equity typically requires a 10% return.  When experienced and seasoned players like the traditional shipping banks are withdrawing from a situation, and new and ignorant investors eagerly moving in, there is only one way the wise will read what is happening.

Aside from what might be seen as ominous changes in the way particularly European shipping is funded, it was clear that the traditional sources of capital are withdrawing and that the new players coming in could bring more trouble with them.  The sixth sense that has kept Greek ship owners going through very poor markets and the innovation that has sustained the Norwegians may no longer be enough.  Greeks in particular have seasoned strategies for managing the volatility of the markets – they tend to pay down ship mortgages or conserve cash in good times so that in bad they either have room to borrow or reserves to draw on.  But the current downturn has gone on and is going on far longer than would have been predicted.  It is questionable whether reserves can last much longer, and with ship values falling, those who borrow to survive must be seeing their options narrowing.

There was no  doubt among delegates and speakers that shipping needs a radical clean up, but there were no really far sighted solutions on offer, apart from suggesting the introduction of a kind of built-in obsolescence into the ship building sector so that ships are cheaper and shorter lived, and noting that slow steaming still has a bright future.  The idiocy of some of the suggestions made simply highlights the desperation of the sector and its inability to see a positive way forward.

Certainly, despite its endemically volatile nature, shipping has over the past decade provided healthy returns for investors.  But right now it really looks as if the present downturn has some way to go – for how long no-one can predict.  There is a radical shake up going on in terms of trading, owing and financing ships, and the world centre of the industry is shifting – many would say it already has.  The maritime caterpillar is metamorphosing in the chrysalis now and who can say what kind of butterfly or moth will emerge, and when?  It might be time to follow Martin Stopford on his cruise.