Providing for the Replacement of the Shortsea Fleet

6/17/2015 1

Financing the Replacement of the

EU Short Sea Fleet

By Dr A.J.Corres

6/17/2015 2

Ladies and Gentlemen,

I request your understanding as at the time of

accepting the invitation to speak I was

unaware of the 10 minutes time limit on

presentations.

So, please hold your breaths, here we go - nose

first - into an overview of a very complex

techno-financial policy question.

6/17/2015 3

Description of the problem

1. The Short Sea fleet of the EU according to

Prof. Wijnolst stood at approximately 10,000

ships from 500 to 10,000 GT in 2003.

2. 3,800 or so were the “over 25” years

vessels.

3. My estimate today is that they stand at

4,200 ships over 25 years.

4. “Years” is only one letter away from “tears”.

6/17/2015 4

These ships spend their entire lives

trading in the coasts of Europe.

A large number of these consists of single

skin tankers,

The biggest category by far are the cargo

ships, but

Virtually all vessels possess single skinned

fuel tanks located along their bottoms.

I need not delve in the consequences of even

minor grounding incidents.

6/17/2015 5

Why these ships have stayed around

for so long ?One reason is the shipbuilding Directives which have

disallowed shipbuilding aids.

Another reason is that dozens of EU shipyards specialising in small ships have vanished (maybe as a result of the above).

A third reason is that the profit margins of coastal ships are less than fat.

A fourth reason is that the construction cost of these ships on a per ton basis is four times the cost of building a panamax sized ship.

There may be other reasons too.

6/17/2015 6

Has financing played a part in this

situation?

You can probably answer this question better than I can.

The truth of the matter is that banks do not go overboard when you start talking about building small ships.

Financing, rumor has it, is allergic to small loans, small ships, small companies.

6/17/2015 7

Let me stop here to count what we

have in hand so far..

We have too many old Short Sea Ships in

Europe.The situation worsens every year.

We have too few shipyards left.

These ships are not cheap to build.

Operating margins are comparatively thin,

financing is imperative,

Financial institutions are less than keen to

become involved.

6/17/2015 8

It is evident that if we decide to deal with the

problem, we need to attack it on several fronts

simultaneously.

Ships must be built quickly and cheaply. This calls for serial/modular construction arrangements using standard parts.

Construction can be concentrated to fewer yards which will benefit from scale economies.

Banks must be made to feel comfortable financing their construction.

Scrapping should assist building.

Charterers should step in to help, or else they will have to build their own ships (as it has recently happened with a big oil company in Greece).

6/17/2015 9

How do we build quickly and cheaply?

Standard parts (bows, sterns, accommodation quarters, enginerooms) for similar size ships irrespective of type can bring cost down by 18%.

Standard sizes will allow this. E.g. serially produced hulls at :

3,000 – 5,000 -7,500 – 12,000 – 16,000 dw which become tankers, freighters, containerships. All double skinned, with M/E redundancy arrangements and double skinned fuel tanks.

Model testing in ICEPRONAV has proven that this concept works fine.

6/17/2015 10

Standard sterns, for example, including engineroom

arrangements and shafting ..

6/17/2015 11

…or common bows, which can be built and

assembled without the need for a slipway.

6/17/2015 12

A standard hull fitted as containership here, if we change the

cargo carrying section we can have a different type of ship,

suitable to carry dry or liquid cargo in bulk.

6/17/2015 13

How do we cope with narrow profit

margins?

By using automation as far as possible.

By making loan repayment longer to keep daily

financial cost down.

By introducing umbrella arrangements for

multiple newbuilding orders.

By benefiting from joint purchasing of ship

equipment (engines, shafting, bridge equipment

etc)

By encouraging organised procurement during

operation.

6/17/2015 14

Finally, how do we keep financiers happy?

By offering them additional security to the first

preferred mortgage.

By building ships in tranches of 12, each one

of which costing roughly 150 million euros.

By enhancing financial certainty through

partnerships.

By ensuring high standards of quality

operation throughout.

6/17/2015 15

Ladies and Gentlemen, please allow me

now to become more specific..

The key instrument is the mother company which has

the following tasks:

1. To participate as majority shareholder in the capital

of the 12 daughter companies, each one of which

will be the owner of one ship.

2. To negotiate the terms of the 12 newbuilding loans

with the financial institution.

3. To guarantee the good performance of each one of

the loans to the financial institution.

6/17/2015 16

The Short Sea operator who wants to see his ship replaced,

sells his old ship and invests in shares of one daughter

company which builds a standard ship of his choice.

He can participate in the capital of the daughter

company up to 49%.

His interests are duly represented in the Board of

Directors of the daughter.

He is free to buy shares of the mother company, if he

so wishes.

When the ship is ready he has a first refusal to

charter the ship on bareboat basis.

The hire is paid to the daughter company which

repays the building loan.

6/17/2015 17

The same arrangement is followed in all

daughter companies.

If the operator does not want to bareboat charter the ship, he

simply declares so and the vessel is given to someone else who

is experienced in running short sea ships.

If the operator wants to purchase the remainder 51% owned by

the mother company, he is free to make an offer to it.

If the operator wishes to be a partner in other daughters too, he

is free to do so.

If he wants to sell his shares, he can make an offer to the

mother company, or anybody else.

IN ALL CASES, THE NEW SHIPS ARE BUILT, THE OLD

SHIPS ARE REMOVED FROM THE EU COASTS AND THIS

ARRANGEMENTS BENEFITS ALL.

6/17/2015 18

You might now ask, where does the

mother company get its funds?

Each mother company gathers capital by selling its shares to the public. Consider this:

Its shares offer real value as they represent majority shareholdings in brand new ships.

These ships are already 18% cheaper than any other ship of the same size /quality built by a single owner.

These ships can also be sold to the market at a premium if the market rises.

The shares of the mother company are good value and sound investment.

6/17/2015 19

What is our next task?

1. Find shipyards that can organise this

task and provide refund guarantees to

the lenders.

2. Negotiate with suppliers of equipment.

3. Prepare vessel plans.

4. Talk to charterers to raise their interest.

5. Tell the EU Commission about it to see

how it can be of use. No aid is needed.

6/17/2015 20

Apologies for rushing you through,

but,

We have a job in our hands….

I shall be pleased to answer any questions a little later.

Thank you for listening !

END