Dead in the water: an analysis of industry practices and perceptions on vessel efficiency and stranded ship assets

This paper presents an analysis of the concept of stranded assets in the context of shipping. It presents the findings of a series of semi-structured interviews with the industry’s leading debt and equity financiers as well as a variety of financial intermediaries on the topics of energy efficiency, efficiency retrofits and stranded assets. The results show differentiation amongst financial actors and by entities that finance assets and those that finance balance sheets. Amongst debt players that finance assets, competitive advantage is a consistent rationale for the use of vessel efficiency information. Actors that view vessel efficiency as a competitive advantage typically either finance efficiency retrofits or have considered doing so. There is mixed awareness of stranded assets and perceptions of the risks they pose to vessel financiers. The case for the inclusion of vessel efficiency information in vessel financing decisions is building, yet further work is needed. While some financial actors connect efficiency-derived competitive advantage to financial risk mitigation, there is a strong case for broader consideration in the context of market cyclicality and the associated increase in probability of vessel stranding. Such considerations may also have a positive impact on operational cashflow and thus investment returns. This research concludes that, should this link be analogous to other industries, vessel efficiency may be a good determinant of the vulnerability of portfolios to climate constraints on the industry that force the stranding of some assets.