The global newbuild ship orderbook has fallen to a historical low of 10% but the global shipping industry’s US$231 Billion CAPEX requirements remain enormous and far exceeds the combined US$191 Billion market capitalisation of all the world’s listed shipping firms.
In 2018 alone, the global shipping industry will need US$114B capital to fund the newbuild ship deliveries. Asian countries are the largest ship buyers and will need to fork out nearly 40% of this CAPEX. However, we expect equity financing to form only a small part of the global ship financing pool as investors remain cautious on the sector given the volatile freight rates and the shipping firms’ low profitability and high financial leverage. As such, shipowners will still need to rely heavily on debt and lease financing plus their internal cash flows to fund their future capital expenditure.
US$231B CAPITAL REQUIRED TO FUND EXISTING NEWBUILD SHIP ORDERS
Globally, there are 3,036 newbuild vessels on order which will require US$231B to finance in the coming years. In 2018 alone, the capital expenditure for the global shipping industry is expected to amount to US$114B. This will halve to US$52B in 2019 with the remaining US$58B in 2020 and beyond.
ASIA NEEDS THE LARGEST AMOUNT OF NEWBUILD SHIP FINANCING IN 2018
Asia has the largest capital expenditure requirements for newbuild ship deliveries in 2018, amounting to US$43B or 38% of the global shipping industry’s capex needs for newbuild ship deliveries in 2018. Among the Asian countries, the ship buyers in Japan, China and Singapore will require the largest amount of newbuild ship financing.
European ship buyers will require US$40B to fund their newbuild ship deliveries, accounting for 35% of the global shipping industry’s capex needs in 2018. The ship buyers in Greece, Norway and Netherlands need the largest amount of ship financing among the European nations.
US ship investors also have substantial ship financing needs, accounting for 10% of the global shipping industry’s capex needs in 2018.
Chart: A CAPEX chart shows the slices of CAPEX on delivery by country (2018)
TANKER SHIPPING SEGMENT ACCOUNTS FOR THE LARGEST SHARE OF NEWBUILD SHIP DELIVERIES IN 2018, FOLLOWED BY DRY BULK
Crude, product, chemical and other specialised tankers will make up 38% of the global newbuild ship deliveries in 2018.
Dry bulk carriers will drive 31% of the total newbuild ship deliveries while containerships account for 19% in 2018.
LNG and LPG carriers constitute 6% and 1% of the global newbuild ship deliveries while Offshore vessels will account for 3% of the global ship deliveries in 2018.
Chart: Breakdown of newbuild vessel deliveries by shipping segment (2018)
EQUITY FINANCING LIKELY TO FORM ONLY A SMALL PART OF OVERALL SHIP FINANCING
Apart from Maersk which has a current market capitalization of US$34B, the equity market valuation of the listed global shipping lines is small, averaging only US$0.7B.
The combined market capitalization of all the listed shipping companies in the world stands at only US$191B. This falls short of the global shipping industry’s US$231 Billion CAPEX requirements.
In the past 12 months, the global shipping industry has only managed to raise US$8.2B in the equity markets. 61% of the equity funding was raised by Asian shipping companies, 38% by European shipping firms and 1% by North American shipping firms.
We expect equity financing to form only a small part of the global ship funding pool as investors remain cautious on the sector given the volatile freight rates and the shipping firms’ low profitability and high financial leverage. As such, shipowners will still need to rely heavily on debt and lease financing plus their internal cash flows to fund their future capital expenditure.
Chart: Current market capitalization of top 30 shipping firms in the world (2017)
Chart: Global shipping industry equity issuance in the past 12 months (Total: US$8.2B)
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Source: Crucial Perspective
