The Last Half Century of Financing Vessels

Article by Francis X. Nolan III

Changes in marine finance have been both evolutionary and revolutionary over the past fifty years. This Article will explore many of those changes from the past fifty years to the present and suggest how these changes have already influenced and might impact the future of marine finance.

While the costs per ton-mile to carry commodities by sea have in many cases declined,1 the costs of modern ships have risen dramatically. Shipbuilding has migrated in large part away from Europe and North America to Asia. Within Asia these locations have shifted from Japan to Korea to China. The vessels delivered over the past fifty years have increasingly traded under flags of open registries and less frequently under the banners of traditional maritime nations.

Many traditional vessel operators have withdrawn from vessel ownership, and vessel ownership has experienced consolidation. New sources of capital, both equity and debt, have emerged. The classic marriage of closely held equity with traditional long-term bank debt has faded. Demand for capital has grown enormously to fuel the shipping industry growth to meet the demands of international trade. Resort to the public equity and debt markets has grown as shipowners have adapted to disclosure requirements for issuers, and capital markets have developed an appetite for shipping investment. Private equity firms have sponsored large, primarily equity investments in ships in tandem with professional ship managers, operators, and pools. New online lenders, aimed at smaller, more price-sensitive transactions, are preparing to move into ship finance.

Technological advances that have allowed exploitation of deep seabed oil reserves and greater capacity tanker operations also set the stage for heightened exposure to catastrophic oil pollution incidents. The governmental responses, both nationally and internationally, have resulted in greater liability risks to owners, operators, and investors, both passive and active. Casualties that once carried only the risk of loss of the investment now also may entail enormous liabilities to third parties for damage to natural resources due to strict liability statutes.

Finally, the primacy of national flags and of flag state policing of vessel conditions and operations has given way to a system dominated by sophisticated open registries and port-state control of transiting vessels. The role of classification societies has expanded, and the need to contain liability exposure has spawned innovative insurance products and called for greater capital in the insurance and reinsurance markets.

Collectively, all of these developments have served to expand the variety of financing structures and fueled the length, density, and complexity of ship finance documentation. However, no development has displaced the special position of the ship mortgage.

About the Author

J.D. 1974, Syracuse University College of Law; A.B. 1971, University of Notre Dame, member of the New York and California bars, and a shareholder in the New York office of Vedder Price P.C. Mr. Nolan is currently First Vice President of the Maritime Law Association of the United States, a former chair of its standing committee on marine finance, a titulary member of the Comité Maritime International, a member of CMI's International Working Group on Judicial Sales of Vessels, and is currently chair of the CMI's International Working Group on Vessel Nomenclature.


91 Tul. L. Rev. 927 (2017)