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Banking crises lead inexorably to shipping crises

Andrew Craig-Bennett makes his return with some timely advice for owners.

There might be a problem with banks, or there might not be. All we can say for sure, today, is that UBS has acquired the Greek private client business that used to be such a prized possession of Credit Suisse; so UBS has accidentally become a shipping bank, and that Deutsche Bank, which accidentally became a shipping bank a few years ago, is once more the subject of rumours, which, of course, is the default condition of Deutsche Bank. Move along, please, nothing to see here.

American smaller banks, of which there are lots, most of which we have never heard of (be honest – had you heard of Silicon Valley Bank, last Christmas?) seem to have become rather less exciting than they were last week, so the Fed’s careful attention to that important bit of the US economy seems to be paying off.

What this really tells us is that the denizens of the world of money are easily spooked at the moment. The big thing that has happened is that interest rates are no longer boring, hence much revaluing of bond holdings, and “socialising losses whilst privatising gains”, the main hobby of the powerful for the past 16 years now takes the form of marking bond holdings at face value rather than at the NPV of their miniscule coupons, replacing “quantitative easing” as the way on which to leave the losses with the Have Nots and showering pelf on the Haves.

From the shipping point of view, there are two consequences of interest rates becoming actual numbers once more. One is definitely good news for us – insurance premiums and calls, which had been rising as the return on investments dwindled, may start to ease off again, though – and this is just my own inexpert view – we probably will not see the wall of cheap, inexperienced, money that hit the world insurance market over the last twenty years will not be back in full force, as an awful lot of that money got wasted.

Bonds matter for insurers because the traditional wisdom has long been that whilst an insurer can do what it likes with its free reserves, and buy gold, or land, or paintings, or even equities, committed reserves ought to be in something sensible like government bonds, and in longer tail insurance, like P&I, the vast majority of reserves are committed reserves.

The other thing to keep in mind is that if we do find ourselves in a banking crisis – and if I understand what people have been telling me it is that the new thing with Silicon Valley Bank was not the rather elementary banking mistakes that were made but the sheer speed at which the run developed and took place – because, of course, of the wonderful Internet which allows you to read this – if we do find ourselves in a banking crisis the very next thing that always happens is a shipping crisis, because people who want to sell stuff internationally need letters of credit and letters of credit come from banks.

There is a twist here too. It’s possible that liner operators may be less hard hit than the tramp wet and dry sectors, in the unfortunate event of an accident to the banking sector, because whilst almost all the cargo in bulkers and tankers moves on bills of lading, an awful lot – by some estimates, as much as half – of containers are carrying stuff that is moving on waybills, because it isn’t changing hands as it crosses the seas.

This is good news for the liner business. Some sailings that have been blanked are getting un-blanked, and intra-Asian business is brisk. No doubt the same might be said of north Europe and North America, once the excess of stock already in those places has been cleared…

I think the best advice that I can offer is – if you are thinking of a new ship, and the case for replacing an old one isn’t overwhelming on environmental grounds (slow down!), I’d suggest that you keep thinking for a little longer.

Andrew Craig-Bennett

Andrew Craig-Bennett works for a well known Asian shipowner. Previous employers include Wallem, China Navigation, Charles Taylor Consulting and Swire Pacific Offshore. Andrew was also a columnist for Lloyd's List for a decade.

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