Fricaudet, Marie; (2025) Financiers' expectations and the risk of stranded assets in the shipping industry. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

Asset stranding is pertinent to shipping stakeholders for several reasons. First, due to their extended lifespan, the modelling undertaken in this thesis showed that around 40% of the existing and ordered ships will need to transition to cleaner technologies during their operational lifetime or face premature scrapping to align with a 1.5°C pathway. However, several of those technologies are still in their infancy and offer a variety of potential options. This creates an environment of uncertainty for investments. Second, because ships are predominantly financed through debt, asset devaluation is potentially a significant concern for lenders. This thesis aims to study the interplay between: • Financiers’ expectations of the upcoming transition in shipping; • The investment decisions by shipowners; and • The materialisation of the risk of stranded asset. To do so, this thesis establishes a theoretical framework building on the Multi- Level Perspective which describes of five archetypal behaviours which the financiers could adopt in the future. The expectations and behaviours of shipping financiers are investigated through the lens of this framework using a mixed methods approach. The results show that that after decades of inertia, shipping financiers are now expecting a transition to low-carbon shipping to take place, although the shift in expectations is partial and ambiguous. In-depth interviews with financiers have shown that this ambiguous shift and the importance of the relationships and trust with their existing clients mean that they have expressed the intention to support them in the upcoming transition to low-carbon shipping, but are wary of supporting new entrants and some of financing unproven technologies. Furthermore, a regression analysis of loans spreads has shown that banks are now providing cheaper loans to shipowners with higher climate performance, but not to less carbon-intensive ships. The consequences of such a behaviour have been investigated in a scenario analysis. The modelling results show that regardless of the behaviour of the financiers, , should the shipping industry align with a 1.5°C trajectory, the amount of stranded capital could reach up to the full fleet value, if retrofit was uneconomic or unavailable, but can be reduced by around 50% if retrofit is possible. However, if financiers’ expectations of stranded assets translates into concrete behaviour, and if financial policy is further implemented, this leads to an early uptake of zero-/lowcarbon ships in the 2020s which significantly accelerates the transition, reduces the amount of stranded assets (by up to 44%) and reduce cumulative emissions by up to a 25% over the period to 2050.

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