Marine Equipment Finance Market
Executive Summary
After several years of rampant growth and investment, the marine industry is currently standing by and waiting out the 2008-09 economic slowdown.
- The current credit crunch could prove beneficial to the marine industry by preventing an oversupply situation. Ship owners and operators will have the opportunity to right-size fleets after several years of frenzied expansion activity.
- The collective flight to safety in the current uncertain marketplace, coupled with massive previous losses stemming from the financial fallout, has made lenders very resistant to issuing new financing and letters of credit.
- With capital scarce, lenders are in a position to dictate more restrictive terms and higher rates than borrowers are accustomed to seeing.
- The number of financial institutions to which the marine industry can turn for additional funding has shrunk, given major consolidation in the banking industry and higher capital reserve requirements at lending institutions.
- International shipping has been hurt the most from the global recession. Worldwide consumer demand is declining, and shippers are hard-pressed to obtain letters of credit to move cargo from origin to destination.
- Shippers raced to scrap their older vessels while iron and steel prices were on the rise in 2007 and most of 2008. Now, when traffic has slowed and the industry is suffering from excess capacity, ship breakers have a full inventory.
- Heading into 2009, the U.S. and world economies are in steep decline in what is the most severe synchronized downturn in recent times. Monetary and fiscal policies are loosening around the world, but they are battling extremely tight credit and will take some time to become effective.
- Overall, U.S. real GDP is expected to contract 2.5 percent in 2009. The first half of the year will be see negative growth and the second half only anemic positive growth, which would put the length of the current recession between 18 and 24 months.
- Declining consumer, housing and export demand, coupled with tighter credit, will make businesses retrench on capital spending. In 2009, equipment spending is projected to drop 14.6 percent.
- Private nonresidential construction had helped to cushion the blow from the rapidly deteriorating residential construction market. However, the availability of financing for commercial real estate has tightened sharply, and the final buttress for the construction sector will collapse in 2009. The segment's decline will be a further drag on transport of steel, nonmetallic minerals, and other construction materials.
- According to the latest 2007 estimates by the U.S. Department of Transportation Maritime Administration, total U.S. waterborne commerce is estimated to be 2.3 billion metric tons per year, of which approximately 40 percent is domestic freight. Coastwise freight carriage amounts to roughly 185 million metric tons, or 7.9 percent of total waterborne tonnage.
- Domestic waterborne tonnage is estimated to have to fallen 2.8 percent in 2008, with petroleum, industrial and construction commodities, and manufactured goods experiencing the worst declines.
- Coal production and exports, construction materials, petroleum, chemicals, and industrial commodities are expected to encounter rough water in 2009, and domestic waterborne tonnage will fall another 3.2 percent before rebounding to 0.7 percent in 2010 and 2.5 percent per year from 2011-2013.
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