Global ship operators face significant refinancing and default risks as a result of tight bank funding, enormous industry overcapacity and depressed global trading conditions, Standard & Poor's Ratings Services said in a report released this week.
"Global Ship Operators Scramble For Liquidity To Stay Afloat" depicts an industry that has been dramatically hurt by the economic downturn. Ship charter rates have fallen to between 30 and 80 percent below their 10-year historical average in parallel with declining economic activity, according to the report. High operating costs, particularly for fuel, also are depressing shipping companies’ earnings.
Furthermore, ship operators accelerated orders of new vessels in years when shipping markets flourished, so these vessels are now hitting the water at a time when trade demand is subdued. During the last 10 years, the global container ship and dry bulk fleets have more than doubled and the tanker fleet has grown by more than 50 percent.
Ship operators are also finding it increasingly difficult to raise capital for new ships and to refinance existing loans. Banks, faced with their own financial difficulties and a riskier shipping industry, are imposing tougher conditions for lending and charging higher premiums, according to the report.
"We expect asset values and the performance and credit quality of shipping companies to remain weak in the coming quarters, which will further exacerbate banks' reluctance to lend," Standard & Poor's credit analyst Izabela Listowska said in a statement. "As a result, we think further shipping company defaults and financial restructurings are likely over the next few quarters."
The report is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. Non-subscribers can purchase a copy of the report by calling (212) 438-7280 or sending an e-mail to firstname.lastname@example.org.
Last month, the New York Times reported on the issue, focusing on the European market.
“A glut of ships, and slack demand for shipping in the weak global economy, have reduced the value of cargo ships. According to some estimates, as many as half the cargo carriers on the high seas today may no longer be worth as much as the debt they carry — putting them underwater, in financial jargon,” the story notes.
A recent report on the issue by Investor’s Business Daily was more optimistic, noting, “Shipping stocks have finally charted a new course due north after sailing south for most of the past three years.”