Industry braces for time of change

PUBLISHED : Wednesday, 29 February, 2012, 12:00am
UPDATED : Wednesday, 29 February, 2012, 12:00am


The global shipping industry faces a spate of mergers and corporate failures as a lack of cash and overcapacity weigh on the sector. But Asian banks, including those in Hong Kong and the mainland, are set to increase their funding of the industry, maritime experts said yesterday.

Harry Banga, vice-chairman emeritus of commodities group Noble, said: 'I see no silver lining for the shipping industry for the next few years. There is no silver bullet.'

'There will be a spate of mergers and bankruptcies,' he told a 170-strong audience of mainly shipping lawyers, financiers and analysts at the Marine Money ship finance forum. He said financially strong shipowners would cherry pick assets, while banks would become shipowners as their customers failed to make loan payments or break loan covenants on vessels.

Banga said the shipping industry would also have to wrestle with the long-term impact of the growth of industrial shipowners and technological developments that would affect fuel consumption. He said tanker owners had already seen the reemergence of oil companies creating their own fleets rather than chartering ships from conventional shipowners, while commodity companies have also invested in ultra large dry bulk cargo ships.

Banga did not mention specific companies but was referring to firms such as iron-ore miners including Vale, BHP Billiton and Citic Pacific, while Noble is also developing a fleet of coal and iron ore carriers to supplement chartered ships.

While industrial shipowners have previously built and sold their fleets as trading conditions changed, Banga said the rise of these new breed of owners could fundamentally change trade patterns. It would also squeeze the amount of cargo contracted to independent shipowners, including those in Hong Kong and China, by oil and mining companies.

Johnson Leung, head of regional transport equities research at Jefferies, was slightly more upbeat although the shipping sector faced mixed prospects. 'I think the cycle has turned for container shippers,' he said, adding that freight rates on Asia-Europe services had already rebounded by 50 per cent, with a 30 per cent rise on transpacific freight rates.

He said the rebound in rates in the dry bulk sector, which have fallen to below ship operating costs since the start of this year, depended on renewed commodities growth in China, while the tanker sector would remain weak.

Clarksons, the British shipbroking house, estimated there were 5,164 merchant ships totalling 335.3 million deadweight tonnes on order for delivery between now and 2015.

Tobias Backer, head of shipping and offshore at private investment company ICON Capital, said there was a real funding gap that needed to be filled, especially as European banks have curtailed ship lending partly as a result of the euro-zone debt crisis and increased liquidity requirements.

Backer said export credit agencies, including those in China and South Korea, were becoming more involved in shipping finance. . Rodricks Wong, senior research analyst at Marine Money Asia, said bond issues by Asian shipping companies surged 90 per cent last year to a record US$7.97 billion.

'China emerged as the largest shipping bond issuer,' he said, with issues totalling US$3.6 billion last year.