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Tuesday, November 21, 2017

KfW IPEX-Bank Boosts its Presence at SMM

August 31, 2016

Holger Apel and Carsten Wiebers (copyright: KfW Bank / Gaby Gerster)

Holger Apel and Carsten Wiebers (copyright: KfW Bank / Gaby Gerster)

In an interview the departing head of the KfW IPEX-Bank Maritime Industries department, Dr. Carsten Wiebers offers insight into the facets of international ship finance as well as the challenges it currently faces. His successor Holger Apel casts a glance into the future.

 
Carsten, KfW IPEX-Bank is once more stepping up its presence at SMM. Why?
SMM is increasingly becoming a platform for topics beyond technology, such as environmental regulation or market intelligence. We meet with experts of the shipbuilding and manufacturing industry to discuss how to support their sales efforts. 
 
Also, the SMM conferences such as the Maritime Future Summit or the Global Maritime Environmental Congress are excellent opportunities for discussions with experts from around the world. We try to encourage information sharing among different industry stakeholders by offering a series of workshops on regions and markets, sales opportunities and, given our role as a leading maritime financier, ways we can support manufacturers.
 
During the last SMM, the German Maritime Export Initiative (GeMaX) presented itself as a new sales platform for suppliers. What is your contribution as a maritime financier to GeMaX?
Twenty-three GeMaX members – including ourselves – jointly create sales opportunities for newbuilding projects, refurbishments or retrofits. In a coordinated approach working hand in hand with suppliers and shipyards, our bank targets these projects trying to increase sales potential by bundling and supporting long-term financing.
 
GeMaX is supported by VSM, has highly skilled staff and offers professional advisory services to vessel owners and shipyards. Its aim is to maximize the German content in a maker’s list and, along the way, make the best possible use of the financing opportunities offered by us. Financing is scarce these days and access to it can impact procurement decisions.
 
Looking at the broader picture, we have been dealing with very challenging shipping markets for the past eight years, and there is no end in sight. What is your reasoning?
My brief formula for understanding the market is: There is only one global shipping market and it faces constant oversupply caused by cheap money. The single global shipping market is a fundamental aspect of this industry that is rooted in the global mobility of vessels. If this one global maritime market has a problem, it affects everybody. You cannot escape to another regional market. Nor can ocean transport increase its volume at the expense of other modes of transport. It already has a market share of some 95 percent of the entire international freight volume. Oversupply caused by newbuilds is the main problem.
 
Why in your opinion did owners keep ordering in recent years despite the existing oversupply?
I believe that the cost of capital or loans is a dominant driver of orders in this capital-intensive industry. If money is cheap as it has been since 2002 with a short exception around 2007, ordering activity tends to be high. The newbuilds of the past years were partly absorbed by China's historic economic expansion. However, now that China is slowing down the negative effect of cheap money is hitting the market hard. 
 
I am concerned that money will remain cheap, prompting ship owners to place orders when the first green shoots start showing in charter and freight rates. Politically supported shipyard capacity only adds fuel to the fire. Under these circumstances, shipping is undergoing not just a cyclical downturn but a structural change.
 
So, where do you put your money?
We finance strong owners across all markets and asset classes. However, we look for owners offering additional benefits in areas such as logistics, consumer services or innovation who add value to their investments by making sustainable environmental improvements. Providing such benefits to customers and society is more likely to achieve a premium. Personally, I believe in the gas markets for the years to come due to the environmental benefits of this source of energy and the large reserves under development. Last year we committed to 44 transactions in shipping and offshore production. In addition, we financed transactions for eight different cruise lines which accounted for 40 percent of our final hold and take of EUR 3.6 billion. We continue to be an active player in the cruise market.
 
Is the cruise market the next bubble?
Checking against the risk criteria I mentioned earlier, I don’t think so. Cruising is a consumer product which is heavily influenced by regional diversity due to language and cultural differences. To some degree you can escape one market and go to the next. Furthermore, on the demand side there are millions of customers who make their individual choices. Price is important, but the industry is maturing and cruisers are learning to differentiate quality. The potential to gain market share from land-based tourism is huge. Global cruise penetration is only 1.8 percent. Unlike other maritime markets the supply side is limited. Shipyard capacities are booked for the next five years at least.
 
Besides trying to reduce risk and make a profit, what is important for the bank to provide maritime finance?
We have secondary agendas, too. We already talked about our cooperation with GeMaX and about promoting sales and employment of European suppliers of maritime technology and German yards. Another part of KfW IPEX-Bank's mission is to favor ecologically sustainable projects. 
 
Together with DNVGL, in 2011 we developed an EEDI-based tool to analyze the CO2 emissions of every vessel we finance. We regularly benchmark our entire portfolio. An energy efficiency analysis is an integral element of our project due diligence. Over the last four years we have been able to significantly reduce the CO2 emissions per dollar lent. We put special effort into projects promoting employment and the environment.
 
Carsten, thank you for these insights. What will you personally miss leaving maritime industries after 18 years?
My new assignment as Global Head of our Aviation and Rail sector department is an exciting opportunity for me. However, I will miss the personal relationships I have built in the maritime industry over the last 18 years. The people in this industry are true global citizens dedicated to bringing the world closer together. Their global and interconnected thinking has made it so much fun to work together. This is something I will miss for sure.
 
Holger, your are taking over as new Global Head of Maritime Industries of the bank and we assume you already know what the ship finance department of KfW IPEX-Bank looks like and how many members it has?
Our maritime team at our headquarters and our representative offices in the regional financial centers around the world is about 50 strong. In addition, there are industry experts in our risk department with many years’ experience who analyze and assess the risk of our maritime portfolio and transactions. The bank is committed to this industry due to its importance for economies within Europe and abroad.
 
What are your expectations for your new role?
I have closely followed the main developments in the maritime industry in recent years. Still far from being an expert, I think I share with my colleagues like Carsten Wiebers the ability and the ambition to understand an industry from an entrepreneur's perspective. In the end, banks as well as investors and equipment suppliers face similar challenges and have to look for appropriate solutions for the mutual benefit of all. As I mentioned, we can build on a vast amount of knowledge and expertise that our team in the Maritime Industries department has developed over decades.
 
What can you bring to table?
I have been with KfW for over 25 years now in various functions and have been responsible for various industries. In my current position as Global Head of Basic Industries (which includes steel, mining, petrochemicals and onshore oil and gas) I definitely gained experience in cyclical industry sectors. Understanding global trade flows and the project finance approach to analyzing credit risks will also help me familiarize myself with the new environment. I am really looking forward to working with the team, our valued clients and our colleagues from the banking community and the ECAs involved in maritime industries.
 
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