EUROPE VIEW: SHIPPING'S BULL RUN

EUROPE VIEW: SHIPPING'S BULL RUN

Suddenly shipping is a sexy industry again following a yearlong bull run that has produced bumper returns in most sectors of the market, from tankers to container ships. Most of the action has been in tanker stocks in New York. That's largely due to the wheeling and dealing of high-profile players like John Fredriksen, a buccaneering Norwegian shipowner who has amassed the world's largest independent fleet, and Stelios Haji-Ioannou, a Greek entrepreneur who finds time to run a shipping business, Stelmar Tankers, alongside easyJet, one of Europe's leading budget airlines.

The industry is attracting some other high-fliers, such as like Silvio Berlusconi, Italy's new billionaire prime minister, and Luciano Benetton, head of the Italian clothing empire bearing his name. They are co-investors in Strade Blu, a company that has just started a short-sea roll-on, roll-off and container service in the Mediterranean.And the industry is retaining others, such as Vincent Bollore, a French corporate raider who has made hundreds of millions of dollars buying and selling stakes in banks, telecommunications firms and movie companies but holds onto Delmas Vieljeux, a shipping company with a leading share of the Europe-West Africa trades.

The return of the good times is making the industry investor-friendly again, according to ship financiers. UBSWarburg, the AngloSwiss investment bank, says it 'strongly believes shipping will successfully claim the place it deserves in the capital markets after several years of being very much ignored and neglected'

That's good news for owners in the bulk sectors who have acquired a pariah-like status in the U.S. capital markets and face the most difficult financing situation since the 1980s following a string of bond defaults. Indeed, shipping's defaulting statistics are the worst of any industry since the Depression, Mortzen Arntzen, chief executive of American Marine Advisors, told a recent ship finance conference in Monte Carlo.

The problem is largely limited to the tramp shipping business, though the financial woes of South Korea's Cho Yang Shipping Co. suggests a downturn in the liner trades could have fatal consequences for vulnerable carriers.

Investors will get their chance to deliver a verdict on the container business in the coming months as a slew of blue-chip carriers, including CP Ships, France's CMA CGM and the Anglo-Dutch P&O Nedlloyd come to market. At the same time, the Israeli government has just issued a tender for the state's 48.6take in Zim Israel Navigation.

While investors have been burned by defaults from such companies as Amer Reefer, Global Ocean Carriers, Ermis Maritime and Pegasus, they also have pocketed big profits from the surge in Oslo and New York tanker stocks in a falling market.

Most analysts expect the bulk and tanker markets, where average charter rates increased by 50% and 48% respectively last year, to perform strongly for the foreseeable future. That's why Singapore's Neptune Orient Lines plans to list its tanker arm, American Eagle Tankers, on the New York Stock Exchange.

These developments have been eclipsed, however, by a surge in orders for liquefied natural gas (LNG) ships. At least 20 vessels - costing up to $180 million apiece - were ordered last year, several on a speculative basis as owners gamble on a shortage of ships as demand for gas, especially in energy-hungry California, outstrips the growth in oil consumption.

The current world fleet of 130 LNG ships is expected to mushroom by an additional 100 vessels by the end of the decade, and some market watchers say there is a good chance that an LNG shipping spot market will develop, This would be a revolution in the LNG industry, which is accustomed to 20-year transport contracts and still remembers the fates of the Nestor and Gastor, two British LNG ships delivered in 1977 without contracts that spent their first 15 years laid up in a Scottish loch.

Investors can grab a slice of the action in this latest boom market. John Fredriksen is backing an LNG shipping company that has raised $280 million and plans to list its shares in New York and Oslo.

There hasn't been this much excitement in the shipping business since the heady days of the early 1970s when supertanker owners made fortunes overnight.