Private Equity "Ruining" the Shipping Market

Frachtcontor Junge warns that too much investment could hurt the market 

The influx of private equity funding into the shipping market has the potential to do significant harm to the industry because investors lack knowledge of the business, Jens Christian Nielsen, managing director of brokerage firm Frachtcontor Junge, told industry news site ShippingWatch.

"This somewhat uncritical investment in shipping, especially in newbuildings, was overwhelming, even frightening," he said.

"It really took us by surprise how much capital came in and is coming in, and which is ruining the market."

Frachtcontor Junge warns that accelerating newbuilding activity could hurt the bulk and tanker market from 2016 onward.

"Traditional bank capital has pulled out, and this has had a positive effect on the orderbook, but when cheap capital enters the market - not just from US funds but also from previously unknown Chinese investors and leasing companies - it could potentially destroy the market," Nielson said.

"This is something of a deja vu of what we saw in 2006 and 2007, when the German KG market was doing poorly."

The private capital entering the market comes mainly from U.S. equity funds.

Oaktree Capital, the largest of these funds to enter the market, has invested in Genmar, Hansa heavy Lift, and Rickmers Group and was involved in restructuring efforts by General Maritime Group and TORM.

Global Hunter Securities has also become involved in companies including Navigator Holdings, Scorpio Bulkers, Navios, and Seadrill.

Private equity funds have also invested in Scandinavian carriers including Eitzen Chemical, Herning Shipping, Axis Offshore, Nordic Tankers, OW Bunker, Scan-Trans, Nordic Shipholding, Scandlines, Unifeeder, and Hafnia Tankers.

This January, UK private equity fund Talis Capital said it was expanding investment in shipping, and Global Maritime Investments Group said last month that it was seeking backers for a fleet of 25 eco-ships.