Rise of Chinese And Japanese Lessors Cements Competitive Leasing Models

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The shipping industry is undergoing significant changes, influenced by global events, supply chain disruptions, and market dynamics. Chinese and Japanese leasing companies have become major players in ship finance, especially as traditional Western banks have pulled back over the past decade. These lessors have shifted their focus from new builds to the second-hand market, offering competitive sale and leaseback structures (SLBs) as an attractive alternative to traditional bank loans, reports Baltic Exchange.

Leasing provides a solution for shipowners to finance vessel acquisitions and fleet expansions without depleting capital reserves. Through SLBs, shipowners can free up cash for new acquisitions or build while retaining operational control of their vessels. This flexibility is valuable in a dynamic industry.

The influx of lessors has led to competitive pricing and a wider variety of leasing structures, allowing shipowners to tailor financing arrangements to their needs. However, shipowners must weigh both the pros and cons of leasing.

Pros of Leasing:

  • Alternative Capital Source: Provides financing beyond traditional bank loans.
  • Working Capital Preservation: Frees up capital for strategic investments.
  • Flexibility: Customizable lease terms and structures.
  • Financing Older Tonnage: Willingness to finance older vessels.
  • Faster Deal Completion: Streamlined processes with quicker completion.
  • Repair and Maintenance: Some lessors provide maintenance services.

Cons of Leasing:

  • Limited Control: Lessors retain ownership, limiting lessee control.
  • “Hell or High Water” Clauses: Prevent early lease termination, with penalties.
  • Market Sensitivity: Lease rates are influenced by market conditions.
  • Complex Documentation: Involves intricate legal documents.
  • Asset Disposal Restrictions: Limits on selling the vessel.
  • Inflexibility in Changing Markets: Fixed SLB terms offer limited adaptability.
  • Compliance with Lessor Policies: Adherence to state-owned lessor policies can be complex.

Additionally, Greek banks are re-entering the market with competitive pricing and improved credit ratings, offering more options for shipowners and potentially driving better terms. This resurgence adds another layer of competition to the landscape.

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Source: Baltic Exchange