Maritime Asset Financing Explained

The shipping business has invariably been capital-intensive. From container vessels to offshore drilling units, floating assets are capital-intensive and cost hundreds of millions of dollars. Only a handful of shipping houses or offshore units are able to finance such projects from internal accruals. That is where maritime asset financing steps in.

Financial institutions and banks provide credit facilities, loans, and bespoke debt solutions that allow owners and operators to buy, build, or refinance ships and offshore units. International trade and energy supply chains are built on such financial offerings, and lending institutions have, in recent years, embedded extra layers of risk management, especially around alignment for regulatory and climate purposes.

Here, we'll see how marine finance operates, the involvement that comes from banks and niche lenders, and why instruments such as the Poseidon Principles are defining the direction in which offshore finance is heading.

Primarily, shipping asset finance refers to a loan and credit facility that is secured by floating assets, i.e., ships, offshore support ships, or platforms. As with a mortgage on landed houses and buildings, lending institutions secure their loan by taking a lien on the vessel per se, often a first preferred ship mortgage.

In practice, lenders consider several factors before approving such loans:

Due to the high sums involved, the Banks syndicate the risk across a number of institutions, or make use of export credit agencies (ECAs) to provide loan finance.

While most commercial banks have retreated from cyclical shipping markets, a group of dedicated institutions continue to dominate European maritime finance. Some 80% of international ship finance is supplied by banks that are registered with the Poseidon Principles, a voluntary framework for measuring and reporting the climate impact of ship finance portfolios.

Active lenders are:

Apart from the banks, leasing houses in China and expert private equity funds have emerged and provided other avenues of finance for shipowners and offshore contractors.

Just as there are various vessel types, tankers, bulkers, container ships, offshore support ships, there are various means to finance. Most typical are:

This is the classical type of strategic shipping project finance, wherein the bank takes security over the ship and advances against the present value and cash flow of the same.

ECAs undertake a proportionate share in the risk for newbuilding contracts that allow banks to extend long-term credit.

A cartel of banks share funds to finance extremely large ships or fleets, distributing risk amongst members.

Chinese leasing companies have emerged as important participants, enabling shipowners to charter ships on a long-term bareboat charter basis with a purchase option.

Offshore drilling or offshore wind farm projects involve offshore finance and bank structures that are tailored for cross-border risk and tax efficiency.

The shipping industry is under pressure to decarbonize. With the International Maritime Organization (IMO) targeting net-zero greenhouse gas emissions by 2050, lenders must assess whether vessels they finance are aligned with global climate goals.

This is where the Poseidon Principles fill the gap. Banks make the carbon intensity of loan portfolios public and match them against IMO decarbonization trajectories. Ships with outdated propulsion or low fuel efficiency face funding restraints, while ships for alternative fuels (LNG, methanol, ammonia, hydrogen) enjoy favorable capital availability.

Compliance demonstration has become a necessary condition for shipowners to obtain competitive proposals for loans. The development is redefining maritime accounting and finance solutions, with corporate entities required to monitor, report, and optimize ships performance data.

Apart from cargo shipping, the offshore finance sector has been essential in the funding of floating assets like drilling units, floating production storage and offloading units (FPSOs), and offshore wind installation ships. The assets are mainly on a long-term contract and are thus favorable collateral for financiers.

For instance, a 10-year drill contract secured by a rig with support from an oil major provides stable cash flows. Ships financing offshore wind projects are similarly appealing for green funding drives, as they are part of renewable energy development.

Sometimes, property finance for offshore residents overlaps corporate shipping lending, particularly when ships are purchased by private investing entities stationed in offshore financial centers.

Shipowners and operators need not just capital, but visionary shipping project financing that considers the cycles in markets, cycles in regulations, and the dynamics for long-term competitiveness.

A few strategies include:

Each arrangement reflects the interrelation between the lender's risk appetite and the entrepreneur's business strategy.

Setting excepted, marine finance is a risky business. Banks and borrowers both experience hurdles like:

They highlight why banks insist on technical evaluations, climate reports, and evidence of long-term charter prior to lending.

There are three fundamental forces that will determine European shipping finance and global shipping finance:

The message to borrowers is quite direct: accessibility on a competitive basis will be a function of alignment strategy against environmental, social, and governance (ESG) expectations. 

Ship finance is both a complicated and a vital vehicle that drives international commerce and offshore economies. By giving loans against ships and offshore units, financiers and banks provide the required liquidity for funding newbuilds, upgrading, and fleet replacement. 

Moreover, investors like Citi Maritime Finance, DNB, ING, Credit Agricole, and KfW IPEX are concerned about both credit risk and climate alignment. Programs like the Poseidon Principles ensure that marine finance is aligned with a shipping sector transition to a low-carbon one. 

For shipowners, accessing this capital requires more than collateral, it demands compliance with environmental standards, adoption of new technologies, and a forward-looking financing strategy. Whether through offshore banking and finance, green loans, or syndicated lending, maritime financing will remain central to the success of floating projects worldwide. At The Floating Institute, we continue to explore and share insights into how these financing structures shape the future of global shipping and offshore investments.

The Floating Institute is all about advancing knowledge of the global floating economy.