GOOD NEWS MASQUERADING AS BAD NEWS.

A recent issue of TradeWinds, the "International Shipping Newspaper", contains two items of particular interest.  First, Germany's largest shipping bank has stopped new shipping loans for the rest of 2007, perhaps a precursor to tighter lending practices in the larger shipping financial world.  And second, Morten Arntzen of OSG estimates that "some 75% of newbuildings on order have not yet been financed".  These two factors fuel a pessimistic view of the future, with ambitious shipbuilding projects dying from a lack of available credit.

I believe this pessimism is wrong and that optimism should replace it.  Let me explain.  Everyone knows (or should know, even if they have forgotten) that the shipping business is strongly cyclical.  One of the main drivers of the shipping cycle is the ordering, and over-ordering, of new tonnage.  When freight rates are high, ships are ordered, and inevitably the influx of new tonnage drives down freight rates and the cycle begins anew.  There is no reason to believe that the current cycle will be any different, and, in fact, warnings of over-building have been heard (and ignored) for some time now.  But if the tightening of credit, not caused by the shipping markets, can lessen the over-building, then there is a chance that the coming down side of the shipping cycle will be moderated and some corporate failures and bankruptcies will be averted.