Shooting the messenger? Shipping carries the can as investors shun coal

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LONDON (Businesshala) – The shipping companies that transport the world’s coal are in the crosshairs of some financial backers who are cleaning up their businesses in the absence of a truly global campaign by nations to discard the dirty fossil fuels.

FILE PHOTO: A coal barge is pictured queuing along the Mahakam River in Samarinda, East Kalimantan Province, Indonesia, August 31, 2019. Businesshala / Willie Kurniawan

In a sign of investors taking the initiative, six European firms, collectively representing more than 5% of the dry bulk industry’s estimated annual $16 billion capital financing needs, told Businesshala that they would either reduce exposure to those vessels. who used to transport coal or were considering doing so.

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Such carriers – Titanic ships up to 270 m (885 ft) long and capable of carrying hundreds of thousands of tons of cargo – are the cheapest way to transport large quantities of coal and other commodities such as iron ore and grain.

Swiss Re told Businesshala that from 2023 it will no longer cover the transport of thermal coal through reinsurance treaties, where it covers a portfolio of insurers’ policies. It exited direct insurance of coal cargo in 2018.

“Insurers are under a lot of pressure in terms of ESG,” said Patrizia Kern-Ferretti, head of marine at Swiss Re Corporate Solutions, referring to the sustainable investment sector. “I have heard from brokers that they are having difficulty placing coal policies in the insurance market,” she said. “More and more companies are implementing direct guidelines.”

Esben Saxbek Larsen, senior portfolio manager at Danica Pensions in Denmark, said it supports green shipping firms because they provide the best risk/return characteristics. The fund has “closely communicated” with the firms regarding their ESG strategies.

“If we are uncomfortable with such answers, we will not invest in the company,” he elaborated on the specifics of the methodology.

Such pressures present new challenges for the shipping industry, which has so far not been drawn largely by policymakers and investors to the center of the coal debate, which focuses on production and consumption rather than transporting the fuel.

Andreas Sohmann-Pao, chairman of BW Group, which operates a diverse fleet including oil and gas tankers, offshore vessels and dry bulk carriers, said ESG pressures on investors and banks – the capital providers for the industry – were increasing.

“How it plays out in terms of results is a different question. Sometimes, people move away from an area and returns are better only as supply improves,” he said.

“Everyone has to do what feels right to him. Sometimes, you can have counter-intuitive effects.”

Good money could be made from the delivery of coal, which accounts for roughly 30% of cargo volumes and a drop in record prices amid a shortage of fuels, including natural gas, to provide the global economy with the power needed to recover from a pandemic I have come

and is being sought for decades to come after major consumers, including China and India, failed to agree a deal to phase out coal power at the UN climate talks in Glasgow this week; While Europe and the United States are retiring coal-fired plants, Asian nations are building about 200 more here.

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Khalid Hashim, managing director of Precious Shipping, one of Thailand’s largest dry cargo ship owners, said investors should target consumers and producers of coal.

“We simply transport it from the point of origin to the point of consumption, like a messenger delivering his message,” he said. “Coming after the shipowners seems to be the easy cop-out route because we have no voice.”

Capesize Cargo

The six firms that Businesshala spoke to about their coal concerns have collectively owned, financed, insured or reinsured more than $1 billion in capital in the dry bulk industry, based on the estimated value of shipping assets.

Major shipping financiers currently provide about $290 billion in loans to the industry annually, according to analyst and Businesshala estimates, with the dry bulk segment requiring about $16 billion in capital.

The investor pullback, part of a wider shift in the financial industry away from fossil fuels, threatens to raise the cost of finance and insurance for some shipping firms in the dry bulk sector, which carries nearly half of global marine cargo volumes.

London-based specialist asset manager Marine Capital, which owns and operates shipping assets on behalf of institutional investors, said it anticipated that funders would not support investments in the largest bulk carriers that typically sell coal. carry, which are known as capasize ships.

“When it comes to small bulk carriers below the Panamax size, the amount of coal they carry is relatively modest and our experience shows that certainly now institutions will consider that the relationship with coal, from their point of view, is de minimis,” Marine Capital said. CEO Tony Foster.

Tufton Investment Management, another major investor in shipping, said it has been limiting its exposure to coal carriages, particularly thermal coal, since 2018, charterers are less likely to carry the fuel.

“For example we choose farm houses over miners and utilities,” said Chief Investment Officer Paulo Almeida.

Separately, at least two major ports are making major changes; Antwerp has turned its back on coal, for example, while Peel Ports is redeveloping its former Hunterston coal import terminal in Scotland to be able to handle offshore wind, dry docking for ships, aquaculture and recycling of energy May be

‘Lipstick on’

Some wholesale shipping players are looking to get ahead of the climate curve by shifting their businesses away from fossil fuels. Others, who have seen lower profits in recent years, are reluctant to turn their backs on coal.

Monaco-based Eneti is in the former camp, and it has this year moved out of completely dry bulk shipping into providing specialist vessels for the offshore wind sector.

“As we exited the dry bulk sector an important consideration was thermal coal,” managing director David Morant told Businesshala, adding that trying to clean up coal transport was “just applying lipstick”.

“As a publicly listed company, renewable energy through offshore wind is high-growth, environmentally responsible and attractive to our investor base.”

Similarly, Purus Marine, which has leading US investment company Entrust Global as a founding shareholder, says it focuses on more environmentally friendly ocean industries.

“Our business model is that of owning ships and marine infrastructure involved in the climate-aligned sectors of offshore renewable energy, seafood, ferries and industrial shipping,” said CEO Julian Proctor.

high shipping price

The impact of higher prices for shipping coal will be most felt in Asia, which consumes 80 percent of the global coal supply and is more dependent than elsewhere on coal-fired electricity.

Even though emissions from burning coal are the biggest contributors to climate change, the priority of many developing countries is to provide electricity to rapidly growing populations rather than converting to renewable plants.

Vuslat Bioglu, managing director of Menar, a South African investment firm that has stakes in South African thermal coal, anthracite and manganese producers, said the sudden shift from coal would increase logistics costs for producers and consumers.

“The worst-case scenario is that countries are seen to be plunged into darkness and manufacturing is being hit hard, thus ushering in a global economic crisis,” he said. “This would be highly irresponsible, as many countries are exiting a prolonged period of recession and COVID-induced decline.”

Additional reporting by Caroline Kohn in London and Helen Reid in Johannesburg; Editing by Simon Webb, Veronica Brown and Praveen Charu

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