The Ukrainian war and increased geopolitical tensions signalled an abrupt change in energy prices. Natural gas and crude oil prices rose abruptly.
The same applied to coal. The above factors brought in a rise in inflation and interest rates by all of the Western central banks in an effort to reverse the previous lax monetary policy from the Covid era, via aggressive monetary tightening.
The GDP of the leading economies and especially China, were hit, but as the year progressed, most economies saw a return to modest growth.
Due to the effects of the Ukrainian war and international sanctions, a divergence arose between energy related trade, which rose by 4% in 2022, and non-energy related trade which fell by 3% in 2022 (Clarkson’s). As a result, the tanker market had a profit boost with abruptly rising vessel prices and freights due to longer hauls and higher ton miles. In 2022, the average tanker earnings reached $40,766p.d., the highest since 2008 (Clarkson’s).
2022 was a year in which the bulk carrier market earnings eased in the second half from multi year highs. With port congestion returning to pre Covid levels and a weaker China, demand fell, despite a restrained dry bulk fleet growth of 2.8% resulting in Average Bulker Earnings for 2022 falling from $20,478p.d. to only $8,170p.d. by January / February 2023. The Dry bulk vessel prices index which stood at 99 at start of 2021 rose to 169 by September 2022 and 158 by February 2023 displaying resiliency.
A riches to rags case applies to the Container shipping market, which saw all time highs in early 2022 due to demand pressures and lower port congestions, resulting in a softening market, especially in the second half, i.e. 80% from the peak.
By contrast, the LNG, LPG, Chemical and Offshore markets were firm, reflecting positive sector factors. Overall, 2022 was a year in which total seaborne trade fell by 0.5%, whilst fleet growth and port congestion resulted in weakening markets for Dry bulk and Containers.
Due to inflation and restricted newbuilding slots, newbuilding activity remained very moderate. The newbuilding price index continued to rise in 2022 to a 15 year high. The S&P market remained active in 2022 for all sectors and especially tankers, which enabled owners to adjust their fleets in line with their strategies including attitude towards eco vessels.
The Global finance industry was challenged by 2022 shipping market conditions, as well as the serious geopolitical issues and uncertain global economic conditions and prospects. However, bank competition, especially for the top tier private and public owners increased, as a number of banks wished to grow their loan portfolios and to combat loan prepayments due to rising interest rates. The Poseidon Principles banks account, according to Clarkson’s, for 50% of bank ship finance centring mainly on ‘green’ and sustainability loans. The challenges were in being able to identify loan transactions that fit their credit criteria. The rise of interest rate costs made this difficult.
The same applied, but to a lesser extent, to non ‘green’ focused banks involving mostly older vessels and lesser amounts.
Chinese leasing, which in the latter years has become an important source of capital, had a challenging year due to the numerous arrests of key leasing executives, as well as reduced requirements from increasingly liquid owners, rising vessel prices, high interest rates and regulatory constraints. Growth re-emerged towards the end of the year.
Japanese leasing and bank finance saw a resurgence in 2022 for a number of local factors, including the replenishment of the Japanese fleet through newbuilding orders.
Overall, conditions for the global ship finance industry in 2022 were challenging with notable shipping sector exceptions. However thus far, the loan portfolios credit quality of banks remained strong and supportive. Alternative finance has by now become established focusing on mid-tier owners and covering the space vacated by banks and leasing companies. To remain competitive, alternative finance offsets higher costs with greater flexibility and lower loan amortization schedules.
Our 2022 Petrofin Global banks research will be published shortly and will further expand on the above analysis.
Source: By Mr. Ted Petropoulos, Head of Petrofin