How shipowners can carry out ship repairs and maintenance without affecting their cash flow
Shipowners mostly rely on their cash flow to foot the numerous bills involving their vessels’ maintenance. For owners of big vessels, they have the financial bandwidth to withstand any expenditure. The same however cannot be said for small- and medium-sized vessel shipowners.
Dissecting the cash flow concern
According to shipping finance expert, Ing Loges from Newport Shipping, some shipowners may in exceptional cases be able to source for a short-term bank loan or funds from other financial institutions to ensure repairs are carried out. Loges remarked, “If banks grant a loan, it is because they are already in possession of the first mortgage collateral of the vessel and they want to make sure that the vessel stays operational, as well as for value preservation.”
While shipowners can secure discounted rates for repairs during initial negotiations with the maintenance professionals, the challenge remains in the payment terms and rates, reputation for quality and timely work offered by service providers. However, more favourable terms are usually offered to repeat customers; typically with 40 to 50 per cent of the final invoice to be paid on redelivery and the remainder due within a maximum of six months after departure of the vessel from the shipyard.
Considerations for the shipyards
Loges noted, “In the case where an owner always goes to more or less the same shipyard or shipyard group and has a good track record, it might gain a higher overall discount on the final invoice and better payment terms.” Attractive payment schemes may be an effective marketing tool for shipyards. It does not inoculate shipyards from cash flow issues.
Loges stressed the shipyards also run a risk of not getting paid in full and on time and therefore risks can outweigh the rewards. He added, “It’s quite simple: the shipyard is financing the owner over a certain period. In order to do this properly the shipyard needs a risk strategy. I have my doubts that this is the case with most of the repair yards taking into account the short-term outlook of most of the contracts.
“Cash flow is as important for the shipyard as for the shipowner. In a normal situation, yards only give very short payment terms, if they give it at all, and you need to be a strong shipowner to get such treatment.”
How shipowners can preserve their cash flow
During challenging times like now where the pandemic is circulating worldwide, many maritime companies are either forced to shutter due to cash flows or massive losses from halted business. With service providers offering more flexible financing terms for ship repair work, shipowners have more breathing room.
There are maritime companies providing manageable payment terms that require no collaterals, letters of credit or other bank guarantees. Small- and medium-sized vessel shipowners being the most affected group during this challenging time would be pleased to know that Marine Online’s credits offer clients the flexibility of paying for marine services almost immediately. Vastly different from typical trade credits determined by the scale of the project, Marine Online offers clients the provision of engaging vessel maintenance services and making good the payment for completion of work. The client will subsequently deal with Marine Online for respective payment terms, with their vessels remaining in operation.