Danish Ship Finance (DSF) says owners will have to get used to making less money from asset plays and more from actual shipping operations. In its six-monthly look at vessel markets, the finance house argues that producers of future fuels will need long-term off-take deals with shipping companies. A team of analysts led by Christopher Rex, head of innovation & research, said long-term ship charters will need to go hand-in-hand with these agreements to provide certainty around income. “Vessels that are committed to long-term contracts are less likely candidates to participate in a future asset game,” the report added. Value will be created through cash flow yields instead.

“That may sound extremely unattractive to many, as the cash flow yield from operating vessels has been a weak driver of value across vessel segments and business models over the past 15 years, except during short-lived periods of freight rate super-cycles,” DSF said. It warned that demand could decline if cargo owners are not willing to pay more for their transport, or if shipowners do not find a way to bridge the gap between costs and customers’ willingness to pay.

The price of the new fuels is expected to be much higher, possibly three times that of the cheap stuff used today, DSF believes. “The global market for greener fuels is immature and many of the services that are required for a spot market are not in place. The creation of new fuel markets is not a task for small or mid-sized shipowners,” the lender said.

The investments required to build scaled fuel production are huge. Producers will need a high degree of financial certainty from creditworthy counterparties to start building new infrastructure, DSF added. The shipping industry is capital-intensive, with a combined market value of the fleet above $1.4trn distributed among more than 100,000 vessels and 24,000 to 25,000 owners. The average shipowner has four to five vessels.

Building a new market for zero-emission bunkers could potentially be done by one of the large owners or across a group of owners through capacity sharing, DSF argues. But vessel operators could be cut out altogether by cargo owners or freight forwarders. “Once the cargo and the fuel profile are in place, the next generation of vessels can be ordered at scale,” DSF concluded.