Energy News Beat
Tobias Backer, executive director of Pelagic Capital, writes for Splash today on shipping’s cash requirements in uncertain times.
The maritime industry is no stranger to volatility and uncertainty. However, shipping is currently experiencing a prolonged period of unrest from a myriad of geopolitical challenges that are having a significant impact on maritime markets. Ongoing conflict in Ukraine and Gaza continue to disrupt the maritime industry from a safety, supply, and operational perspective. At the same time, the industry is also having to adapt to increasingly more onerous regulatory frameworks designed to support shipping’s green transition. Furthermore, the recent emergence of a new wave of US protectionism is impacting established trade relationships, which has the potential to lead to a significant shift in traditional market dynamics.
In parallel with these dramatic challenges, maritime investment has significantly evolved within the last 20 years. Following the financial crash in 2008, traditional banks have been exercising more caution, whilst tightening regulations have made lending to shipping companies less attractive. The priorities of institutional banks have changed since the late 2000s, which has reduced their appetite for engaging with a typically high leverage, high risk investment approach that used to support the rapid growth of a shipowner’s fleet.
This trend is particularly challenging when considered within the context of a rapidly aging global fleet, that will see approximately 15,000 vessels reach the end of their economic life within the next ten years. As a result, there is an increasing capital requirement within the industry that is not being supported through traditional financial institutions.
The advent of more rigid lending practices has led to a rise in prominence of alternative credit institutions within the industry. Funds such as MareVia Credit Fund – that was launched in September 2024 by Pelagic Partners to address the increasing capital needs of the industry – hold the market insight, as well as flexibility, to effectively collaborate with traditional banking structures. This approach supports the development of more dynamic capital products that leverage the investment strength of larger financial institutions, alongside the versatility, market expertise, and sector knowledge of more specialist alternative lenders. These relationships are vital means in creating leasing products that are tailored to the requirements of the maritime sector.
For example, because of the deep knowledge, understanding and familiarity with the market that these lenders have developed in recent years, they are more attuned to the opportunities that exist within current market, which then makes them more willing to underwrite capital. With 10-12% equity IRR, combined with 3-4% margins bank leverage, shipowners are receiving alternative capital which would historically have been provided by a traditional banking institution.
As an uncorrelated asset class, shipping has historically demonstrated resilience in volatile times, continuing to attract investors that are seeking to capitalise on the significant opportunities these challenges create within the market.
As a shipowner and fund manager with extensive experience and heritage within the maritime industry, Pelagic Partners has built its reputation as a diverse specialist that invests in a range of maritime and offshore shipping segments. This approach has created flexibility in investment opportunities and enables the company to exit a market at the right time, providing consistency and stability of returns, as well as an adaptable framework that reduces the risk and optimises investor opportunity.
The current uncertainty that the maritime markets are experiencing shows no sign of abating. However, the shipping industry tends to perform well in periods of economic upheaval, and whilst the current market volatility is set to continue, it is only by remaining adaptable that investors can hope to capitalise on the various ebbs and flows of the market.
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