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SOURCES OF FINANCING SHIP PURCHASES A INTRODUCTION Ships have always represented a major capital investment for their owners Even the earliest ocean going ships although small would have represented a major investment at the time and a very risky one Shipping finance has become a generic term referring to the financing of maritime projects which encompasses not just shipping but also other sub-sectors like ports shipyards and containers However in the following section financing of shipping projects is confined Shipping is a capital-intensive industry Vessels constitute almost 90 percent of the fixed assets net block and capital work in progress of a typical shipping company A LNG carrier costs around USD 250 million a double-hulled VLCC costs around USD 90 million a Handysized chemical ship is around USD 70 million But ship values change up to 60 per cent in a few months In such a scenario a shipowner or a potential shipowner wishing to acquire a vessel finds a considerable gap in his personal funds availability and additional funds requirement Shipping finance has to a large extent remained a specialty sector on account of a number of unique characteristics associated with the shipping industry such as unsettled markets international service mobile assets and others Despite the complications involved in shipping finance sophisticated financial instruments are conspicuous by their absence In contrast asset-based financing in industries with a similar profile like Airways have had highly sophisticated instruments to match the prevalent risk-return structure Internationally term lending backed by security in the form of collateral and mortgage has been the most prevalent form of financial assistance given to shipping companies Globally governments have provided substantial financial support to respective shipping industries either directly or indirectly The growth of the maritime industry especially shipping in countries like Japan and Korea can be attributed to this One method of obtaining funds for expansion is by retaining a part of the earnings This is
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