Ship financing faces competition

China Cosco Holdings, for example, reported a narrow profit in 2013 after two years of losses. Cosco is the largest shipping company in the Chinese mainland. The country's second-largest shipping company, China Shipping Container Lines, reported a 2.65 billion yuan ($430 million) loss in 2013.

Overcapacity means that shipping companies can eke out a profit in the good years but may have to deal with significant losses when demand drops, as it did during and after the global financial crisis.

Drops in demand and excess capacity led to huge falls in profit through 2008 and 2009. Demand has stabilized in the past couple of years but the industry is once again piling up capacity and prices are suffering and so are the bottom lines of shipping companies.

Low shipping prices and far too many boats on the water are making it hard for shipping companies in Asia and else-where to turn a profit. The low profitability is likely to continue even as more centers across Asia compete for business and more money becomes available for more ships in the largest ship finance locations like Hong Kong, Singapore and, increasingly, Shanghai.

The Baltic Dry Index, which tracks the price of shipping raw materials by ship, fell as low as 723 last month according to Bloomberg, having hit 2,337 last December.

Part of the problem is that even as shipping fees drop, companies continue to buy new and bigger ships, encouraged in part by the greater availability of finance.

No single place is responsible for this newfound willingness of banks to finance ship acquisitions. The reality is that no bank can survive in that business by focusing on any one location. Rather, banks focus on the sec-tor and take a regional view. For them, there is little difference between financing a ship in Hong Kong or Singapore.

"There is not sufficient business for a bank to operate in shipping finance in one city," says Cheng. "Ship finance is a very cash-intensive business. You need banks to do this business."

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