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Shipping bankruptcy: What happens worldwide?

Shipping bankruptcy: What happens worldwide?

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The shipping industry has been experiencing one of the worst moments of its history. Actually, several shipping companies have been through restructuring processes because of the crisis: Genco Shipping & Trading, General Maritime, Overseas Shipholding Group, Nautilus Holdings, ZIM Integrated Shipping Services, STX Pan Ocean, Excel Maritime Carriers, B&H Ocean Carriers and Ermis Martime Shipping, among others. What is the cause of all this distress? Well, in first place, shipping companies have loaned out lots and lots of money while the peak shipping commodity cycle was happening. In second place, we are talking about a tremendous competitive business, which faces crests and troughs that no one can predict. In consequence, charter rates have dropped in a sharp fall, and a huge amount of shipping companies filed for bankruptcy. Hyundai Merchant, for example, and its big contender in the shipping and container market, Hanjin Shipping, which grip the wholesale of the exports of its country, have experienced annual operating losses since five years, and amassed total of its debts is huge. China’s slowdown has tremendously affected shipping companies worldwide because of the collapsing demand. It will force many to sell vessels deep under their original prices in order to survive while the tough time is still going on.

China’s case is an example of this industry going underwater. It has been the worst known fall because of (a) a delaying demand for iron ore and coal from this country, and (b) a worldwide excess of containers. Investments will be stressed for shippers due to the actual status of benchmark freight rates. In fact, more than sixty percent of the China’s dry bulk shipping companies are doing everything they can against long-term losses; whereas about forty percent are about to file for bankruptcy.

The bad decline of the shipping market is extreme and things will keep going downwards on the current year. There is much uncertainty in the air. The crisis can’t last forever, but nobody knows when things are going to lift a little.

On the other hand, some cases show that everything is not that bad. The biggest bankruptcy that almost occurred was related to Hyundai Merchant Marine (HMM), although its creditors were trying to keep the situation under control. After the company’s holders did not accept a plan for rescheduling debts, and without any help from the government, bankruptcy was near for this giant corporation, and that would have been –for sure– the largest ever bankruptcy of the South Korean carrier.

Because the survival of this company depended practically on a government bail-out, and based on the total container capacity, a failure of Hyundai Merchant Marine would have been studied in the future list of the top ten bankruptcies of all times. Every charter rate reduction negotiation from ship-owners had also failed here. The real fact was that Hyundai Motor Group did not want to take possession of its affiliate in trouble, which was a possible hope: its creditors also voted against the rescheduling of debts. The government suggested that Hyundai Glovis, should take over the shipping company.

Yet, the storm did not last forever. Hyundai Merchant Marine could get through its financial issues thanks to an asset-sale plan. It was made when no other options were available and bankruptcy was almost a certain event. The company resumed the sale of its affiliate, Hyundai Securities, and other shipping accommodations for raising enough money for covering debt. However, creditors are still skeptic about the future of this move, and analysts consider that the survival of this company isn’t guaranteed.

Image courtesy of astrid westvang at Flickr.com
Image courtesy of astrid westvang at Flickr.com

Time will tell.

Other example of the effects of the actual crisis is Lithuania. Sigitas Dobilinskas, PC Lithuanian Shipping Company General Director submitted for starting bankruptcy filing proceedings to the District court of Klaipeda. The sad news is that it was the second time –in months– that the corporation filed for bankruptcy. A week after the pronouncement, the Ministry took a choice: withdrawing the application thanks to a rescheduling arrangement with the AB SEB bank on three million Euro debt.

The state-owned corporation, which hires two hundred thirty-seven employees has been amassing up losses since the last decade. Actually, the piled loss at this time stands at twenty million Euro. The firm’s incapacity for paying its credits has caused many arrests of its vessels by several claimants. The report of the Latvian Information Agency (LETA) informs that the majority shareholder of this shipping company, and its biggest claimant, SEB Bankas, have settled the provision of 1.2 million Euro to safeguard the return of ships and their crews to European trade and ports.

There are many other examples, and it’s not time for pessimistic predictions, but the truth is that a Global Economic crisis is heading this way, and the shipping industry decline is one of the early signs of it.

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