Marine Finance focuses on financing vessel acquisitions for the spot market, time charters or bareboat charters, as well as the construction of work boats, and to finance the acquisition of vessels for scrapping.
According to the International Marine Organization, over 90% of everything we consume comes and goes on a ship, by sea. The seaborne trade industry was valued at $12 trillion USD in 2017. The maritime industry underpins the global economy as almost all goods and products we touch and feel everyday are transported across the oceans.
We believe this is the first time retail investors will be able to invest in Marine Finance on Yieldstreet. Yieldstreet investors will be able to participate in three main areas of Marine Finance: Vessel Acquisition, Vessel Construction and Vessel Deconstruction.
The Marine Shipping industry is tied to the health of global trade and the wider economy in general. In addition, the industry is impacted by the global supply of available vessels. To gauge the state of the dry cargo industry, many use the Baltic Dry Index, or BDI, which measures the amount of business activity in the shipping industry by calculating daily shipping rates for specific global shipping routes.
The index helps measure demand for shipping capacity vs. the supply of available ships through daily freight market prices and shipping costs. It is calculated through the input of a panel of shipbrokers, who submit their assessment of the freight cost of twenty international shipping routes on a daily basis. The index helps shipbrokers, commodity producers and traders on Wall Street and elsewhere globally to gauge the level of business activity in the shipping industry.
Unlike a car or an airplane, the value of a vessel can actually increase as the BDI strengthens because its worth is derived not only from the value of its parts and infrastructure, but also its future earnings power as well. If there is a healthy supply/demand balance in the available vessel fleet and the global economy is projected to grow, the BDI should increase, as should a ship’s value and the cost of transporting goods.
There are a few factors that are useful to understand when investing in a Marine Finance offering:
Starting in 2003, the global shipping industry went through a five-year super-cycle spurred by the industrialization of China having entered the WTO two years earlier, particularly dry bulk vessels transporting coal and steel. The 2008 financial crisis brought global trade to a near standstill and a collapse of the shipping industry, decimating European banks, the main lenders to the industry.
After a decade long trough with very few new vessel deliveries and mass vessel deconstruction, the dry bulk fleet has reached an equilibrium and the market has recovered. The European banks for the most part, drastically reduced their exposure to marine lending: the top 40 ship finance banks’ portfolios stood at US$355B as of end December 2016, down $40B from December 2015. This has created an opportunity for Yieldstreet Marine Finance to address the increasing demand for asset backed financing.
Similar to our other asset classes, borrowers come to Yieldstreet because of the flexibility we can provide them compared to traditional banks or lending institutions. Marine borrowers can have irregular lending or interest payment timelines that are incompatible with bank requirements. At Yieldstreet, we can custom-structure the loan to fit the borrower’s business plan or timeline.
By investing in a Marine Finance offering on Yieldstreet, your money goes directly to an originator, who seeks to fund borrowers looking to buy, lease, build or deconstruct ships.
At Yieldstreet, we like Marine Finance offerings because they are short in duration (typically between 1-3 years) and backed by an asset (the ship). In the case of certain vessel acquisitions, principal is not only protected by the interest in the ship itself, but also by the added Residual Value Insurance that further protects downside.
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