Shipping companies believe business will get worse before it gets better
According to 153 global respondents from the shipping industry
63% anticipate widespread bank enforcement of troubled shipping loans
66% expect these enforcements to peak in three to nine months time
81% predict it will be at least 12 months before the number of banks actively lending to the shipping sector increases
79% see no return to pre-crisis levels of available bank debt within three years
58% think it likely or highly likely there will be a key role for private equity or hedge funds
68% believe it is likely there will be more joint ventures in the industry
Shipping companies do not believe this will be a short and sharp recession, according to a survey of transport businesses by international legal practice Norton Rose Group.
The survey: “The Way Ahead for Transport” is based on a survey of 961 individual respondents from the aviation, rail and shipping sectors from 17th June - 3rd July 2009 to coincide with the first signs of improving confidence in the transport industry following the global financial crisis of late 2008. A total of 153 respondents from the shipping sector; 154 respondents from the aviation sector and 654 respondents from the rail sector gave their view. The aim has been to find out how participants in these sectors view the short to medium term future and more specifically their business strategy for managing the impact of the crisis.
Bank Enforcements
Notwithstanding improvements in certain sectors, the prevailing view seems to be that business will get worse before it gets better for the shipping industry. 63% of shipping respondents anticipate widespread bank enforcement of trouble shipping loans, a source of lending on which the sector has generally been reliant. 66% of shipping respondents expect these enforcements to peak in three to nine months time, suggesting the worst is still yet to come.
Funding Gap
A major issue the sector identifies is a funding gap. 81% of shipping respondents predict that it will be at least 12 months before the number of banks actively lending to the shipping sector increases, while 79% of shipping respondents see no return to pre-crisis levels of available bank debt within three years. Other sources of funding must be sought in the meantime.
Alternative Financing
58% of shipping respondents think it likely or highly likely there will be a significant role for private equity or hedge funds in shipping markets. Another 68% believe it is more likely that joint ventures between private equity or hedge funds, banks and those with technical expertise will increase to take advantage of opportunities presented by low vessel and stock values. A further 61% see the role of Export Credit Agencies increasing in the next 1-2 years. The hope must be that other forms of capital can fill the void currently being created by the shortfall in bank debt.
Harry Theochari, Head of Transport, Norton Rose LLP, London said:
“The current financial crisis was sudden, unforeseen and global. Most transport businesses did not plan or make provision for such an eventuality, particularly the difficulties in obtaining finance, especially from the banking sector. Bearing in mind that we are only beginning to see the real ‘fall out’ of the crisis, as evidenced by the recent foreclosures and enforcements in the industry, it comes as no surprise that most respondents are of the view that the crisis will not be short and sharp.”
Simon Hartley, Partner, Norton Rose LLP, London said:
“It comes as no surprise that consolidation is expected in the shipping industry. In current market conditions, many companies will struggle to survive without some material change. In addition, those companies with ‘war chests’ generated from retained earnings from the recent good times will sense that acquisition opportunities are likely to be just around the corner”.
Phil Roche, partner, Norton Rose LLP, London said:
“We are already seeing the first indication of the enforcement phase of this crisis and many ship owners are locked in grim negotiations with lenders to refinance. As lender confidence returns and the price of second hand ships increases, lenders will be less tolerant of persistent defaulters and only those owners with good business models and survivable levels of debt will be permitted to continue. Repossessions will increase into the 2009/10 winter and insolvencies will inevitably follow”.
Chris Hobbs, partner, Norton Rose LLP, London said:
“In the shipping industry, some players are clearly faring worse than others. It is not a good time to be a container vessel operator or a ship builder. On the other hand, tankers are holding up, as are some sectors of the bulk carrier market. The problems for many owners stem from the fact that they are trying to finance new or nearly new vessels bought at the top of the market in circumstances where earnings have collapsed”.
About the survey
From 17th June to 3rd July 2009 we surveyed 961 global business respondents from all aspects of the aviation, rail and shipping transport sectors, including transport operators; financial institutions; regulators; representative bodies; governments; insurers; ship managers and maintenance providers. A total of 654 respondents from the rail sector; 154 respondents from the aviation sector and 153 respondents from the shipping sector gave their view on their transport sector’s state of health. Respondents were surveyed by email and given the option to remain anonymous
Norton Rose Group is a leading international legal practice. It offers a full business law service from our offices across Europe, the Middle East and Asia.