Home Associations Shipping and banks are under pressure from slump in vessel values, IUMI conference is reminded

Shipping and banks are under pressure from slump in vessel values, IUMI conference is reminded

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Dr. Martin Stopford

Falling ship values have exerted a serious squeeze on the business, shipping economist Martin Stopford told the annual conference of the International Union of Marine Insurance.

Dr Stopford, non executive president of Clarkson Research Services, said: “The whole business has been turned on its head in the last six years.” He gave the example of ships ordered in earlier years at around $55m to $60m that were being delivered with a value of perhaps $32m. “That is putting enormous pressure on the banking industry.”

He said: “The whole question of what the asset value is today is quite a complex one. There is a very big cash squeeze on ships [of the main types] across the market, that are on the water.” On the question of slow steaming to economise on fuel, Dr Stopford cautioned against over-using the strategy as it would “devalue the asset in some ways.”

Dr Stopford said that after the slump of 2009, China had been a big factor in reviving the freight market the following year. Despite China’s current slower economic growth, it would remain at around 7.5% a year going forward, “so the outlook for trade is not bad, unless we have another financial crisis.”  The global demand side “does not look so bad.”

The conference earlier heard that global marine insurance premiums totalled $33bn in 2012, an increase of just under 5% on the previous year.

Patrizia Kern, of Swiss Re Corporate Solutions and chair of IUMI’s facts and figures committee, said that the gross direct premium income was being driven by a gradual recovery of the wider international economy.

Emerging economies continued to grow, but at a lower rate because demand was hit by recession in Europe.

Developing economies remained crucial for global trade and also had an impact on marine insurance, said Ms Kern. An increase in global trade was expected to maintain stability for marine premiums despite challenging conditions for the shipping market, Ms Kern told delegates.

Profitability of the global shipping market was expected to decline because of over-capacity, but demand for marine insurance would benefit from growing trade.

Astrid Seltmann, analyst at Scandinavia’s Central Union of Marine Underwriters (Cefor), said that almost half of reported global premium income came from Europe, with Asia providing a significant share. The offshore energy market in, particular, showed increased growth over the past year.

Ms Seltmann said that major hull losses account for an increased share of the total loss figure. Individual losses exceeding $100m have risen to 5% from 2% of the overall total in recent years.“There is an increased risk of extreme losses, ” Ms Seltmann warned.

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