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Bankable Insights

Shipping Finance
December 2021
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Foreword
Foreword
Dear clients,
2021 has been one of the most exceptional years
that shipping has seen in recent times. Though
global uncertainty has not yet abated, freight
levels are at the highest they have ever been
since 2008, driven by a combination of a
reduction in vessel supply, and changes in supply
chain and transport networks, along with a
recovery in seaborne demand. With the
orderbook at historical lows, favourable supply
and demand fundamentals should ensure
healthy earnings for vessel owners in the next two
years as the global economic outlook improves.
Digital transformation is another significant trend
impacting the industry. Advancements in digital
technologies have given us unprecedented
abilities to collect, store and process large
amounts of data. New digital technologies are
constantly evolving to make the maritime
industry safer, cleaner, more secure, and efficient.
The final transformation is the shift towards We have collated a series of articles and
decarbonisation. In the world’s transition to a net videos that embody the positive momentum
zero future, the maritime industry has to in the maritime industry, and the role
innovate and shift towards cleaner and greener Standard Chartered is playing in it.
ships. Shipowners cannot do it alone and the
entire supply chain must transform. Stakeholders A big thank you to all who have partnered with
including governments, regulators, charterers, us to make a difference to maritime’s future.
owners and operators must collaborate to
establish a cohesive strategy that drives the Abhishek Pandey
research and development of zero carbon fuels Global Head, Shipping Finance
and technologies. Major funding is required to
speed up the development of alternative fuels
and emerging technologies which also need to
be implemented and adopted on a wider scale.
This is where finance and investment can play
an active role.
In this inaugural edition of Bankable Insights
for shipping finance we are celebrating the
maritime industry’s journey to transformation.
We have collated a series of articles and
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The future growth of Maritime Singapore

The future growth of Maritime Singapore
What must Singapore do to retain its status as the world’s busiest transshipment hub1 in the face of challenges posed
by COVID-19, and a changing global landscape?

At the Marine Money Week Asia 2021 conference in Singapore, Quah Ley Hoon, Chief Executive
of the Maritime and Port Authority of Singapore (MPA), shared insights with Abhishek Pandey,
Global Head of Shipping at Standard Chartered, on Maritime Singapore’s vision for achieving
this through a high-tech port ecosystem, and by accelerating decarbonisation.

The future of the port of Singapore

More than 80% of goods are transported by ship2; and Singapore is an important global node in
that process. Singapore is the world’s busiest container transhipment port, and has been ranked
as the world’s leading port and top maritime centre by the Xinhua-Baltic index for the past eight
years3. It receives many vessel calls annually4 and hosts some 5,000 maritime businesses5,
ranging from ship owners and operators to broking and chartering services, to port operations
agencies, to marine insurers and reinsurers6,7.

At the same time, Singapore’s maritime industry faces several challenges, and the pandemic has
exacerbated them. These include the need to improve intermodal connectivity8 - which affords
a range of transport alternatives that unconnected systems do not – to retain and enhance the
city’s share of global container traffic9; expedite the process of digitalisation across the sector;
and attract, retain and upskill talent in a rapidly changing industry10.
The MPA has had to deal with these issues as
part of its overarching mandate to develop
the country’s status as the gateway to Asia.
In turn, the agency sees its role as building a
strategic partnership with the maritime
ecosystem rather than simply setting rules for
businesses within it.
The MPA is one of the few agencies in
the world that acts as both a
regulator and a promoter. It is not
always easy to strike a balance
between the interests of different
parties.
Quah Ley Hoon
Chief Executive of the Maritime and Port Authority of
Singapore (MPA)
The ongoing pandemic, for example, has
required the MPA to straddle the conflicting
priorities of maintaining Singapore’s status as
a global shipping hub and shielding its
citizens from external sources of infection at
the same time. To this end, the government
has introduced the Sea Crew Vaccination
Initiative, whose aim is to work with shipping
companies and unions to vaccinate as many
seafarers as possible, including non-resident
ones11, while also putting in place safe crew
change procedures. Nevertheless, the
disruption to supply chains caused by the
pandemic has demonstrated why it is now so
important to remove friction points that slow
down the world’s trade.
Digital processes can minimise friction
Digital innovation is seen as central to the
effort to remove supply chain bottlenecks.
First, we need interoperability. We
actually see shipping in Singapore
not just as ‘shipping’ or ‘transporter’,
but as a key component of the global
supply chain, meaning therefore that
there must be integration and
interoperability with logistics
players.
Quah Ley Hoon
Chief Executive of the Maritime and Port Authority of
Singapore (MPA)
This interoperability requires different digital
platforms to be able to talk to one another,
for instance, between the platforms used by
shipping companies, shipping agents and
logistics operators. “I was once told that there
are 18 touchpoints across the entire global
are 18 touchpoints across the entire global
supply chain,” she said. “[We] can only
advance as fast as the weakest link, meaning
that everyone needs to level-up.”
The MPA’s strategy for driving this
interoperability revolves around
digitalOCEANS™, an initiative that facilitates
cross-border data exchange and automated
services between supply chain participants,
clearance authorities and other national
windows12. The idea is that digitalOCEANS™
will forge system-to-system interoperability
that forgoes the need for form-based
submissions so that when a ship or cargo
needs clearance, the system is as seamless
and paperless as it possibly can be.
“We are looking at how to enhance
connectivity all the time, and that includes
layering physical connectivity with digital
connectivity,” Ms Quah said.
Green finance to the rescue
However, this hyper-connectivity places
greater demand on the investments required
across the supply chain.
Most of the well-known European
shipping banks have either exited
shipping or curtailed their operations
and returned to their core markets,
leaving a gap.
Abhishek Pandey
Global Head of Shipping,
Standard Chartered
One way of filling this gap is the rapidly
expanding world of green finance.
Decarbonisation is now a significant priority
for the shipping industry, and many
companies have dedicated teams to
determine the best path forward. In August,
the MPA established the Global Centre of
Maritime Decarbonisation (GCMD) with
SGD120 million fund from MPA and six
founding partners. GCMD is dedicated to
collaborating with the industry to explore
ways to reduce emissions in the sector13.
Singapore is also leading efforts to promote
the use of greener fuels such as LNG and
funding research to develop zero-carbon
fuels14. In addition, the MPA is looking at
fuels14. In addition, the MPA is looking at
building waterfront facilities in Singapore to
support the Global Centre for Maritime
Decarbonisation’s research and testing of
green marine technologies.
The second strand of support is the MPA’s
Maritime GreenFuture Fund, an SGD40
million (USD30 million) pot of money that will
support this kind of R&D activity15. The
GreenFuture fund can be particularly helpful
to small and medium-cap firms who may find
it difficult to source affordable lending from a
bank. One example is electrified harbour
craft, with three consortia awarded funding
to research these low-carbon vessels16.
There is also potential for Singapore to
develop its capabilities in maritime green
financing, by leveraging the existing green
finance strengths of the nation. Parallels can
be drawn from how MPA grew Singapore’s
MarineTech ecosystem, where angel investors
and venture capitalists were brought in to be
matched with start-up companies based on
the unique suite of needs from each of the
organisations. The future Green Ship Finance
Hub in Singapore can potentially explore the
growth of these connectors and
intermediaries such that companies of all
sizes with project proposals can be linked
with financiers, thereby increasing financing
flows to our ecosystem of companies.
This article is based on themes discussed during a panel at the 2021 Marine Money Week Asia conference.
Standard Chartered, a signatory to the
Poseidon Principles, a global framework
aligned with the International Maritime
Organization's goal to reduce the shipping
industry's total annual GHG emissions by at
least 50% by 205017, is likewise working to
extend sustainable loans to shipping
companies that are investing in technologies
that reduce their carbon footprints18.
The need for multi-faceted solutions –
technological, financial, regulatory, cultural –
explains the importance of umbrella concepts
such as Maritime Singapore, which can unify
these different strands under a common
agenda, solving complex problems in the
process. This disciplined, coherent approach
has driven Singapore to its current status as a
world-class shipping hub, and is likely to form
the basis of its future success.
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Why decarbonisation remains shipping’s foremost

challenge – and opportunity in a changing world
Why decarbonisation remains shipping’s foremost
challenge – and opportunity in a changing world
From disruptions to supply chains caused by the pandemic, environmental regulations and increasing pressures to
decarbonise, what does the future of shipping look like?

Impact of global trade and supply chains

The cyclical nature of the shipping industry is
well known, but whether it is about to enjoy a
new “super cycle”, as major markets reopen
and demand recovers in the wake of the
Covid-19 pandemic, is less certain. What is
clear is that broad forecasts for a hugely
diverse industry are likely to obscure the
differing fortunes of various subsectors.
For instance, at the start of the pandemic, as
global energy demand fell, tanker operators
saw asset values suffer and then found a
silver lining in rising demand for offshore
storage. This year, tanker values and charter
rates have fared poorly compared to those
for container ships, operators of which have
reaped incredible gains as soaring demand
has combined with supply-chain bottlenecks
to send container rates into the stratosphere1.
A combination of unleashed pent-up
demand for consumer goods and a series of
supply constraints, including the closure of
major ports in China2 and backlogs in land
transport3, has seen unprecedented gains for
container operators. By the second week of
September, for instance, spot rates for
containers as measured by the Shanghai
Containerized Freight Index (SCFI) had risen
60% since the start of 20214 and had set
records for seventeen weeks in a row5.
notably rising demand for renewable energy
and a reshaping of the refining landscape,
are likely to affect long-term demand for
tankers – even if aviation recovers to pre-
Covid levels – while the prospects for dry bulk
cargo remain tied to longer-term movements
in commodities demand.
Against this complex backdrop,
decarbonisation remains perhaps
both the biggest long-term challenge
and opportunity facing shipowners
and operators.

Even so, uncertainty remains about the success

of the global vaccine rollout and whether
economies will continue to recover. And longer-
term macroeconomic trends are also likely to
play a role in moderating demand. These
include a pushback against globalisation that
is increasing calls for reshoring, diversifying and
de-risking supply chains.

Against such broader currents, the recent

bubble in container shipping is likely to be
unsustainable – even though analysts agree
that its profitability curve has likely shifted
upwards permanently. Similar megatrends,
notably rising demand for renewable energy
Increasing efforts to go green
While the need for shipping to decarbonise is
well understood – given the sector accounts
for around 3% of global greenhouse gas
emissions and runs predominantly on fossil
fuels – the industry hasn’t yet grappled with
the costs and means to do so. Further inaction
clearly isn’t an option: according to the IMO,
global shipping emissions could increase by
as much as 50 per cent in 2050 compared
with 2018 levels if nothing is done6.
As a result, regulators have started to take
more steps to drive change.
The landscape for ship owners has
changed drastically over the past 20
years. Shipping regulations used to
be implemented at a much slower
pace and at a much smaller scale.
However, in recent years: we have
witnessed large scale regulatory
changes which have been
implemented at breakneck speed.
This includes IMO 2020, Ballast
Water Management Convention,
IHM [Inventories of Hazardous
Materials], and looking ahead, EEXI
[Energy Efficiency Existing Ship Index]
regulations, as well as IMO 2030 and
2050 emissions targets.
Chih Chwen Heng
Director of Shipping Finance,
Standard Chartered
Shipping operators face an array of choices
when making decisions about which
technology will be most cost-effective in
helping them meet decarbonisation goals.
This includes retrofitting existing vessels for
lower-carbon fuels, optimising superstructure,
and propeller design in new ships, as well as
investing in data-gathering technology to
investing in data-gathering technology to
ensure accurate ship energy modelling.
Monitoring sustainability metrics will also be
increasingly crucial to accessing a range of
green financing innovations aimed at helping
the industry decarbonise.
Shipping companies must also act as calls
from end-users for greener transport grow
louder. Major shipping users like ecommerce
giants are increasingly going to demand
sustainable factory-to-customer supply
chains. Unless shipping companies adapt to
their clients’ demands, they will lose out.
Fuel change could favour first-movers

This means, too, that first-movers will be able It had previously also suggested that a tax of greener fuels9, while the company’s CEO later
to command a premium for delivering US$150 per tonne of CO2 emissions should be suggested that fossil-fuelled ships should be
energy-efficient, clean, and sustainable phased in to encourage the adoption of phased out altogether10.
service. While recent economic conditions greener fuels9, while the company’s CEO later
have made some steps towards
decarbonisation (such as scrapping older
vessels and slow steaming) unlikely, some
shipowners are taking immediate action on
fuels. This comes despite high adoption costs
and uncertainty about which fuel source –
from lower-carbon LNG, to carbon-neutral
biofuels, to zero-emissions hydrogen,
ammonia, or electricity – will ultimately
become the industry standard.

Maersk, the world’s largest container shipping

company by fleet capacity7, is one such prime
mover. In August 2021 it announced an order
of eight dual-fuel containerships that would
run on carbon-neutral methanol, allowing it
to be the first to offer customers carbon-
neutral shipping on mainline ocean trading
routes when the ships are delivered in 20248.
It had previously also suggested that a tax of
Green finance and the need for collective action
The problem of this approach is that
inevitably, smaller and medium-sized
operators, which play an important role in all
shipping subsectors, may struggle to make
similar investments in fuel-efficient new ships,
or to retrofit old ones, which in turn will make
them riskier for investors. This could lead to
sectoral consolidation, although given no
major player has yet successfully adopted
cutting-edge sustainability technology, the
opportunity remains for some SMEs to thrive
through taking such an approach.
Ultimately, it will require all stakeholders,
from government and multilateral agencies
to major and minor shipping companies, to
align to promote decarbonisation. The
financial sector has a crucial role to play here,
for instance through loan agreements that tie
shipowners to progress on sustainability goals
This article is based on themes discussed during a panel at the 2021 Marine Money Week Asia conference.
shipowners to progress on sustainability goals Initiatives like the Poseidon Principles12 and
(recent examples of which have been the Sea Cargo Charter13 are helping define
pioneered by Standard Chartered11.) the future of financing. But much remains to
be done, particularly on closer collaboration,
By aligning the cost of borrowing to to help shipping companies adapt to the
sustainability performance, banks can biggest challenge – and seize the biggest
incentivise the shipping industry to make opportunity – they currently face.
progress on their long-term decarbonisation
agenda. Alternative and innovative financing
that embeds sustainability targets into
funding deals can help companies escape a
vicious circle whereby they lack the funding to
invest in the technology to decarbonise, but
their lack of progress on doing so means they
are overlooked by investors.
Some imaginative funding tools have already
been proposed, including carbon taxes,
carbon trading schemes and offsets.
Initiatives like the Poseidon Principles12 and
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Can carbon trading help the shipping industry reach

net zero?
Can carbon trading help the shipping industry reach
net zero?
Shipping is seen as one of the most difficult industries to decarbonise, and
industry players blame the lack of commercially viable technologies. Can
carbon trading help?

With the world becoming more reliant on
maritime transport to send and receive the
materials that are crucial to companies’
operations, global CO2 emissions from the
shipping industry are projected to rise from
the current 2-3 per cent of the global total to
up to 17 per cent in 20501 if the increase
goes unchecked.
Switching from fossil fuels to cleaner
alternatives is easier said than done for long-
haul, ocean-going vessels. Although one of
the world’s biggest shipping companies has
announced plans to launch “carbon-neutral
vessels2”, sustainable fuels for maritime
transport are currently either unavailable at
transport are currently either unavailable at
scale or not commercially viable for industry-
wide adoption.
While 1,800 organisations have
made public sustainability
commitments, the technology is
unfortunately just not there for some
industries like steel manufacturing
and shipping.
John Chen
Head of Commodity Sales for ASEAN and Head of
Corporate Sales for Singapore,
Standard Chartered
Even though decarbonisation in the near-
term remains a distant goal for most shipping
firms, taking a watch-and-wait approach is
not the answer to the climate crisis. Instead,
encouraging widespread participation in the
carbon market is the best alternative,
according to panellists at the event.
Putting a price on carbon to plug
the gap
Broadly, two main types of carbon
markets exist today: mandatory, also
known as compliance, and voluntary.
In the compliance market, carbon emission
allowances are governed by a regulatory
framework. Examples include the EU
Emissions Trading System3 (ETS)– the world’s
largest and most liquid mandatory scheme –
and the California Cap-and-Trade Program,
which ranks as the fourth largest4. Voluntary
markets, which are primarily based in Asia,
markets, which are primarily based in Asia,
entail the use of carbon credits generated
from projects that reduce, avoid or remove
carbon dioxide to retire or offset emissions
generated by polluting sources.
Together, by putting a reasonable yet
meaningful price on carbon, these two schemes
work to incentivise companies to compensate
and increasingly neutralise emissions as they
try to meet their net zero targets.
However, experts at the session
acknowledged that a lot more work needs to
be done to bring shipping on board. For one,
the wild disparity in voluntary carbon credits
today – prices can range from US$2 to US$90
per tonne – needs to be addressed to level the
playing field for all parties in the shipping
industry. While high carbon prices in the
compliance market are a deliberate decision,
the huge price differential in the voluntary
market is driven by demand dynamics and the
quality of carbon credits.
Secondly, given the global and fragmented
nature of the shipping industry, trying to put
in place a uniform emissions trading scheme
could prove complex. Currently there is a lack
of consensus on how to address the industry’s
carbon emissions problem, especially when
for most companies shipping is considered a
cost centre, and cost reductions have often
cost centre, and cost reductions have often
taken priority over sustainability.
Solutions debated at the panel session
include implementing a hybrid carbon offset-
and-tax approach to overcome the lack of an
industry-wide, global system. Also discussed
was the setting up of a global exchange to
was the setting up of a global exchange to
enable the trading of high-quality voluntary
carbon credits– such as Climate Impact X
(CIX), a public-private entity based in
Singapore5 that aims to address the issues of
price discovery and the quality of voluntary
carbon credits.
Implications for the maritime industry

While carbon trading has yet to be widely
adopted in the shipping industry, panellists
agreed that for it to switch from emissions-
intensive fuel to cleaner energy, fuel costs
must increase, either relative to other fuels or
just in themselves.
Setting the right price for carbon credits is key. purchase carbon credits to pay their way
Priced too low, it can incentivise the wrong through the problem, rather than thinking
behaviour, such as shipping firms opting to about long-term mitigation measures.
purchase carbon credits to pay their way

Discussions at the session suggest that

among the various approaches to pricing
carbon, market-based mechanisms, such as
CIX, are far more efficient for the shipping
trade than simply adding to firms’ fuel costs. If
the goal is to increase fleet efficiency or fuel
savings with technology, the best approach is
to incentivise corporations through financing.
And companies that are unable or unwilling
to retrofit their fleet can do their part by
compensating those that proactively adopt
more sustainable options.

This article is based on themes discussed during a panel at the 2021 Marine Money Week Asia conference.
Despite critics’ concerns that carbon credit
schemes inhibit innovation and extend the
runway to net zero, they have already
demonstrated their effectiveness in some
industries, such as real estate, oil and gas,
and aviation.

There's a place for carbon credits, it

just needs to be priced correctly and
the quality needs to be assured. And
that means using technology for
monitoring and ensuring
transparency in the process.

John Chen
Head of Commodity Sales for ASEAN and Head of
Corporate Sales for Singapore,
Standard Chartered

With quality carbon credits, shipping

companies will be able to accelerate the
industry’s decarbonisation journey.
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How the shipping industry is preparing for the future

How the shipping industry is preparing for the future
Here’s how technological breakthroughs, greener fuel systems and more environmentally friendly vessels are defining
a new future for shipping.
Change has been a long time coming for the
shipping industry, but the past 18 months
have shown the need to be futureproof.
Seafarers have borne the brunt of pandemic
disruption, and this has highlighted the need
to address their unique challenges and
enhance resilience. Technological
breakthroughs are enabling new, greener fuel
systems that will power the next generation
of vessels towards a more environmentally
friendly future.
Empowering seafarers
For many, COVID-19 saw their homes become
their workplaces, but for seafarers aboard
merchant vessels, it was rather the opposite.
In October 2020, UN agencies described the
circumstances of some seafarers as a
circumstances of some seafarers as a technology will prevail, a fact which has
“humanitarian crisis”, amid cases of crew deterred some shipping companies from
being stranded aboard for far longer than placing orders for new ships, wishing to
the 11-month maximum permitted by IMO mitigate the risk that they could become
rules due to COVID-19 restrictions1,2. This has obsolete very quickly3. Nevertheless,
raised awareness of how greater alternative fuels are gaining traction, with
digitalisation is required in order to allow the data from Clarksons Research indicating that
industry to manage such crises better, to such vessels now represent 27% of the order
become more resilient and to minimise crew book by tonnage4.
hardship.
An outflux of skilled crew is something that
the industry needs to avoid if it is to future-
proof itself. Merchant fleets are in the process
of introducing new fuel technologies
designed to cut emissions, and operating
such vessels requires upskilling seafarers in
the new technologies. Complicating the
situation, it is not yet clear which fuel
technology will prevail, a fact which has
Transitioning to greener shipping
The IMO wants to reduce shipping’s emissions
by 40% by 2030, on a voluntary basis5.
In addition to low carbon fuels, several other
technologies are being explored to reduce
the industry’s carbon footprint, such as more
streamlined hulls, more efficient propeller
design, improved voyage planning to make
savings on fuels, better hull coatings and
even air cushions to reduce friction.
The shipping industry is also being
steered towards the carbon trading
markets.
The European Union, for example, is
considering proposals to add shipping to its
carbon-trading mechanism, and it is not clear
that any of the funds raised by that system
would be returned to the industry to finance
the transition to greener vessels6.
Carbon-trading is also coming to Asia, with
China launching its trading system in July7
and companies such as Braemar and
Clarksons setting up carbon-trading desks in
Singapore. The emergence of different
carbon-trading regimes in different regions
brings with it the potential for market
distortions. In an ideal world, a global system
would be preferable.
The role of financing

Future-proofing the industry requires sources
of finance to build the new ships. Fortunately,
environmental, social and governance (ESG)-
related investing is a rapidly growing trend,
and it can help with construction.
Standard Chartered, for example, has
been arranging loan facilities for
shipbuilding with the credit-margin
linked to the client’s progress against
their sustainability targets.8
company, has decided to focus on methanol
as its preferred low-carbon fuel, rather than
ammonia, LNG, LPG, hydrogen or even
nuclear. It is planning to reduce its CO2
footprint by 60% before 2030, and to net zero
by 2050, targets more ambitious than those
set by the IMO9.
Maersk already has engines that can run on
methanol, which is a relatively safe and
straightforward fuel to use, being non-toxic
and liquid at normal temperatures and
and liquid at normal temperatures and
pressure. Shipping analysts agree that the
main problem is sourcing: Maersk will require
far more methanol than is currently being
produced for the market. Where giants like
Maersk lead, however, smaller firms and fuel
suppliers are likely to follow, and this perhaps
offers some indication of how the energy
transition in shipping will shape up.

Kheng Sin Chu

Regional head of shipping finance
for ASEAN and South Asia,
Standard Chartered

The need for financing for new technologies

and fuels is likely to accelerate as industry
leaders take action. Maersk, for example, the
world’s largest shipping and logistics
company, has decided to focus on methanol
Finally, finding and retaining the seafarers to
crew the vessels of the future will require
better rewards for them, and greater support
for their mental health and wellbeing.
Already the industry has partnered with
regulators in major ports to establish
corridors of safe transport for crews amid the
corridors of safe transport for crews amid the
pandemic, while also endeavouring to
vaccinate seafarers where possible, but
greater efforts are needed if the industry is to
attract the talent needed for future success.
The fragility of supply chains exposed by the
pandemic has shown quite how important
their work is to many countries, and this
greater awareness should support greater
investment in them as people.

This article is based on themes discussed during a panel at the 2021 Marine Money Week Asia conference.
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Sustaining the rally for dry bulk carriers

Sustaining the rally for dry bulk carriers
What’s next for the dry bulk shipping industry rally?
The dry bulk shipping industry is experiencing
a banner year. Profits are at multi-year highs1
and expected to remain strong for the
foreseeable future. But at the same time,
carriers are coping with various challenges:
balancing their desire to reward shareholders
with long-awaited dividends with the need to
invest in sustainable technologies to conform
to increasingly stringent regulations aimed at
reducing emissions, while ensuring the
wellbeing of overworked crews in the midst of
a pandemic.
Full steam ahead
Dry bulk carriers, like their counterparts in the
container shipping business where freight
rates have nearly quadrupled in recent
months2, have enjoyed a bountiful year.
Driven by a post-pandemic economic
Driven by a post-pandemic economic
recovery, which has fueled demand around
the world for goods like iron ore and coal and
pushed global supply chains to breaking
point, the rates to charter dry bulk carriers of
all sizes have risen by nearly 2.5 times since
the start of 20213.
The Baltic Dry Index, an industry benchmark,
hit a 12-year high in September4. Going
forward, a shortage of dry bulk vessels5 is
expected to coincide with growing demand
for goods like coal6, iron ore7 and steel8 from
both emerging and developed markets. Flush
with government stimulus funds, they are
launching ambitious infrastructure
development plans9 that are likely to push
prices higher10.
It’s been an amazing ride for the
industry so far. And given the demand
and supply side pressures at play –
port congestion and its spill-over
effects, a limited supply of vessels,
coupled together with a firm rebound
in demand for iron ore, grains and
coal – the outlook remains firm.
Amy Chow
Executive Director,
Standard Chartered
Overcoming strategic challenges
Industry observers are keen to understand
how shipping companies plan to capitalise
on the newfound liquidity and deploy the
funds. Will they spend their record profits on
new vessels? Will they resume paying
dividends to shareholders? Or will they use
the cash to pay off debt and deleverage their
businesses? Or invest in new technologies to
make their fleets greener?
There appears to be some consensus among
the key industry players on all these points. For
one, owners are exceedingly wary of adding
capacity by commissioning new vessels11 - a
caution stemming from the severe downturn
experienced by the industry in the wake of the
experienced by the industry in the wake of the
global financial crisis as a result of adding
excess capacity in the preceding years12. At
the same time, dry bulk operators are being
crowded out of shipyards handling a surge in
fresh orders from companies operating
container vessels and tankers13.
For these reasons, carriers are choosing to
focus on enhancing the utilisation rates of
their current fleets and acquiring used ships,
especially in the capesize category, which
are seen as the most undervalued of all dry
bulk vessels.
There is also a growing emphasis on reducing debt and rewarding shareholders for their patience with dividend payouts,
which had dried out as the industry hit rough weather following the financial crisis14.
Planning for a sustainable future
Another critical factor driving the decision to
hold back on investing in new ships is the risk
of vessels becoming obsolete as the industry
moves rapidly towards adopting cleaner
propulsion technologies, in line with
shipping's goal to reduce carbon emissions.
Most bulk carriers are investing in retrofitting
their existing fleets with energy-saving
technologies to bring their fleets in line with
new regulations that require ships hauling dry
bulk to switch to low-sulphur fuels15. This
includes installing so-called scrubber devices
that clean the exhaust fumes emitted by
ocean-going vessels16.
Operators around the world are also turning
to acquiring vessels that use cleaner fuels
such as LNG, while pouring funds into
researching the potential of zero emission
fuels17. These efforts are aided by the
growing availability of sustainable finance
solutions, such as those arranged by
Standard Chartered, which has funded dry
bulk carriers around the world with loans tied
to sustainability targets in line with the UN’s
sustainable development goals (SDGs)18.
With dry bulk carriers being responsible for
large portions of global trade, innovations in
technology, alternative fuels and financing
will be critical to accommodate the
industry’s transition.
Last but not the least is concern for the safety
of ocean-going crews and the challenge of
getting them vaccinated. Since the early days
of the pandemic, workers on oceangoing
vessels have been prevented from coming
ashore at ports of call by various local
governments, in effect forcing them to spend
months at sea19. The carrier companies argue
that this is a violation of the Maritime Labor
Convention20 and urge signatory
governments to honour the agreement by
allowing crew members to come ashore and
This article is based on themes discussed during a panel at the 2021 Marine Money Week Asia conference.
allowing crew members to come ashore and
enable them to travel to visit their families
and get vaccinated. Failing which, industry
officials caution, experienced workers fearing
for their mental and physical wellbeing will
continue to exit the profession, worsening the
ongoing supply chain crunch21.
Undoubtedly, dry bulk carriers are looking to
the future from a position of strength. Yet there
is also a recognition of the issues that need to
be addressed before the industry can make
be addressed before the industry can make
the most of the opportunities presented to it by
the confluence of ongoing macro trends.
Despite these near-term challenges, the
overall outlook remains positive – with
industry insiders describing it as the perfect
storm. However, unlike most storms, seafarers
weather on the high seas, bulk carriers will not
want this one to blow over any time soon.
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