New fuels force ship owners to focus on services in stead of ship trading. ”The implementation of new fuels leaves us at a crossroads,” says chief analyst with Danish Ship Finance.
The green transition of shipping might kill off traditional ship owners, who are just as apt in dealing with ships as in moving cargo, expects chief analyst with Danish Ship Finance, Christoper Rex, because shipping – at least during the transitional phase – will focus more on procuring access to new fuels than on ships.
We are going from a short sighted asset game to something with more resemblance of infrastructure
Christopher Rex, chief analyst, Danish Ship Finance
”At some point in time, the new fuels will be a natural part of the equation, which leaves less room for the opportunistic ship owner,” Rex forecasts, referring to green fuels like methanol and ammonia not yet featured on the market.
During the transitional phase, while production and distribution of new fuels is built, it might force ship owners to commit to long-term investments in green fuel access than what is common today.
”The implementation of new fuels leaves us at a crossroads. Vessels are tied to the fuel during the construction of fuel supply chains and the establishment of a sport market. It will be a transitional period, obviously, and it won’t last forever,” says Rex.
Such a development might put an end to the buying and selling of ships depending on the fluctuations of the market.
”The need for long-term planning goes up if you are looking to tank up on new fuels as the spot market won’t be sustained. A more long-term investment horizon makes running asset games with buying and selling ships harder,” says the chief analyst.
Like infrastructure
He envisions shipping to bear resemblance to more asset heavy industries with an increased focus on services in stead of securing stable cash flow to pay interests on long-term investments to the production machinery.
That way of business may seem unfamiliar to many current ship owners, Rex expects.
”We are going from a short sighted asset game to something with more resemblance of infrastructure meaning that your way of making money might change fundamentally. Deep pockets and a business model based on profits from freight and not from selling ships will be decisive,” he says.
A possible outcome will be that ships and green fuels are sold in package deals where a ship owner commits to delivering green fuel for a 15 year time span in relations to a ship purchase.
Rex points to printer markets as a likely analogy to the future of shipping. On printer markets, the purchase of the actual printer is the least of your expenses. Producers’ profits stem from supplying ink throughout the printer’s life span.
Such a development is unlikely to appeal to ship owners of today, Rex predicts.
”That model won’t appeal to many existing players. In many ways, it demands a whole new way of going about shipping,” he says.
New players
According to Rex, the big changes facing shipping might very well break the sector in half with one part of ship owners committing to using green fuels, and another part waiting to see which way the wind blows.
In many ways, it demands a whole new way of going about shipping
Christopher Rex, chief analyst, Danish Ship Finance
From a business standpoint, the two groups will apply different approaches to shipping.
”It is my belief, that the players actively pursuing implementing new fuels will focus on other aspects of their businesses than those who wait,” Rex says.
However, the energy transition of shipping might very well kick the door in for new actors in the sector. Green fuel suppliers, for instance, might deliver ships and fuel as a package deal.
And if shipping is to be a more predictable industri with more stable earnings, it is likely the financial players could flush the market with products ranging from ship to fuel.
According to Rex, however, we won’t see any one size fits all solutions as certain vessels aren’t cut out for package deals tying down ship owners for several years.
