Changing of Tactics

For financing a ship, conventional method is talking to a bank, putting collaterals up and asking for credit, if you are at the brim of investing in shipping.

One has to project the income, the cashflow and study the loan structure of the investment. Phases explained, the income is basically what the ship can earn dependant on the market conditions she is working in, that is the daily time charter rate. This earning is spent to cover the operating expenses, pay back the loan and its interest plus leave some money, preferably a positive net income, running the mile. Estimating the expenses of a voyage in itself is a different story. For the cashflow, you have to show your creditors that you have done the math which reflects the operating cash flow, setting "some" net income over the years while the capital expenditures and initial ship purchase cost are balanced well on the tables and the plans to pay back the loan looks good on paper. Loan structure is SOFR plus a few points for interest and preferably half of the ship under the age of 15, term of the loan say 7-8 years. The interest rate surely depends on how prepared you are and able to show your abilities in running the business.

This is still the route we follow. Old school. Calculate, negotiate, calculate, evaluate, calculate... until an agreement is reached. Sometimes it is difficult to reach a deal because the banks recently are not happy to join you in taking any risks in shipping.

When you exaggerate the price of the property/ship, a burst is inevitable. Since the bubble burst in 2008, there are alternative ways to finance. The popular alternatives are either private equities if they are still up or Chinese financiers or the blue chip shipowners that bankers prefer. Blue chip is an interesting term, explained in investopedia.com. In 1923, it was used to describe expensive stocks. The resemblance makes sense knowing the blue poker chips are worthier than the white and red ones in casinos.

If you have an established system your credit line is open. If you are just setting up the company, the far eastern leasing companies may answer your calls earlier. These creditors have good relations with the local shipyards, they can even arrange finance for your future voyages up-front payment needs.

Instead of a conclusion, the question is whether you would choose Chinese finance as a change of tactics or stick to the conventional sources of funding? We will happily help you to decide.

Wishing you a Merry Christmas and a Happy New Year!