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Friday, November 24, 2017

DVB Bank Losses on Shipping

August 31, 2017

Photo: CMA CGM

Photo: CMA CGM

 DVB, the specialist in international shipping finance, reported a consolidated net loss before taxes of EUR 506.3 million in the first six months of 2017 (previous year: net income of EUR 14.1 million).

 
Ralf Bedranowsky, CEO and Chairman of DVB Bank SE's Board of Managing Directors, commented on the Bank's consolidated results: “The increase in allowance for credit losses was largely required for legacy exposures in the Shipping Finance portfolio, and for financings in the Offshore Finance portfolio."
 
These developments reflected the following market trends:
 
Given persistent oil price uncertainty, oil and gas companies have continued to reduce their exploration and production spending, which has further curtailed demand for offshore vessels and equipment. Shipowners remain under pressure from low charter rates and competition for employment. 
 
Against this background, owners of vessels and drilling rigs adjusted their capacities, through lay-ups, restructuring or consolidation.
 
Excess capacity remained a major challenge on shipping markets throughout the first half of 2017. Container carriers, bulk carriers and tankers are the three most important sectors for the maritime industry, in terms of transport volumes and services.
 
Especially in container shipping, persistently difficult market conditions have burdened performance amongst shipowners. In this context, increasing consolidation of shipping lines is set to intensify competition amongst shipowners chartering their vessels to line operators. 
 
Even though charter rates in container shipping showed some skip to main content improvement during the first half of 2017, whether this trend will in fact be sustainable is open to question, for two reasons. 
 
On the one hand, consolidation among shipping lines is accelerating, and on the other hand, charter rates are further burdened, given the continued delivery of a large number of 20,000 TEU container ships. Consequently, market values of container vessels have not been able to recover so far. 
 
Looking ahead, the cascading effect caused by substantial deliveries of large container carriers will mostly have a negative effect upon the development of charter rates and market values in the other size categories.
 
Bulk carriers enjoyed a strong increase in earnings during the first half of 2017. The Baltic Dry Index (BDI) was quoted at an average of 976 points during the first six months of the year – up 101% year-on year. Freight rates were supported by continued Chinese demand for iron ore and coal. The BDI reached its year-to-date high in April, albeit staying far away from the historical peak of more than 10,000 points in 2007/2008. 
 
A multi-year comparison shows that charter rates for bulk carriers have remained insufficient, given that a large number of vessels was bought and financed at record prices.
 
Following an improvement during the first quarter of 2017, which was driven by seasonal factors, tanker markets declined again during the second quarter, putting pressure on shipowners' earnings. The extension of OPEC members' agreement to reduce production volumes had a negative impact on tonne-mile demand in the crude oil tanker segment. Yet at the same time, the crude oil tanker fleet grew by 5.5% yearon-year.
 
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