Financing to ship owners and companies are expected to drop by one-third as money markets are at a standstill, potentially leaving related exchange traded funds (ETFs) lost at sea.
The frozen money markets are driving away the ability of banks to raise funds, and shipping prices are dropping, says the industry’s largest lender.
Alaric Nightingale and Maher Chmaytelli for Bloomberg report that banks will provide around $100 billion to shipowners this year, $150 billion less than last year. Funding costs are up 1% above the London Interbank Offered Rate. The shipping industry needs around $300 billion over the next three to four years to fund construction vessels that are already ordered. Container ships are idle because of lowered U.S. demand for goods.
Commodity carriers are going to be hit the hardest with the tightening credit markets, along with dry bulk, where many of the vessels ordered were going toward.
ETFs that could be affected by the slashed lending:
- Claymore/Delta Global Shipping (SEA), down 55% since Sept. 8 inception (black line)
- PowerShares Global Progressive Transportation (PTRP), down 21.9% since Sept. 23 inception (green line)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.