Partner with O’Melveny & Myers
Is the fall of the shipping industry in 2015 continuing in 2016?

Is the fall of the shipping industry in 2015 continuing in 2016?

twitterpinterestlinkedintumblr

Through 2014 many shipping firms closed their doors, including some big American shipping companies like Genco Shipping, Eagle Bulk Shipping and Nautilus Holdings filed papers for bankruptcy after having a lot of financial problems. These problems have not seized since 2014 and this was clear in 2015, so today we’re analyzing which shipping companies went bankrupt during 2015 and why it happened. It will help us take a better look at the bigger picture and with a better understanding of the problem, it will allow us to predict what may happen during 2016 and how to get ready for the changes that the problem might bring.

Since the star of 2015 the problem seemed to persist, as various Chinese companies closed their doors, the main reasons seem to be overcapacity and really weak demand, this goes tied with the Chinese economic problems, including their slowing economy and their low imports, that had dropped by almost 20 percent. The freight rates were alarmingly dropping, from six thousand dollars per day in early 2014, to three thousand dollars per day in April 2015. This was not only happening in Chinese territories as the Baltic dry index also dropped significantly, by the amount of almost of almost 2 thirds in the last 18 months.

One of the most important firms that has fallen this year in the dry bulk shipping firm Winland Group Co. After 22 years in the business, it filed the bankruptcy papers on February 13 of 2015. Winland’s fleet included different kinds of ships, like three container ships and eighteen bulk cargo ships. These fleet got reduced from eleven container ships, as the volatile market and the charter rates made them take this measures, a couple of ships had to be removed from service due to legal issues. This lead to a loss of almost eight million dollars from a total loss of twelve millions and this accompanied by an outstanding debt to various international banks and agency (including some like the China Merchants bank, China CITIC and Rich Fort Investment) of almost sixty-three million dollars. All this problems finally led to Winland to file for Chapter 11 bankruptcy protection, this allowed them to try restructuring the company to pay the debts.

This shipping company bankruptcy also affected Europe, as some important firms were also affected by these financial problems. The private Danish shipping company Copenship A/S filed for bankruptcy in February, some of the problems that caused this were similar to the previously mentioned, including substantial losses in the dry bulk market that led to financial problems. A partner at the Lett law firm and the one assigned as a trustee to Copenship, Per Astrup Madsen, has reported numerous claims against the company after they filed bankruptcy, as the firm had many creditors around the world that were affected by these problems and the bankruptcy.

Image courtesy of Ahmad Tarek at Flickr.com
Image courtesy of Ahmad Tarek at Flickr.com

Another European company, also from Copenhagen, D/S Norden, had lots of loses during the year 2014 and the early 2015. Their problem, however seems to have been present for some years before 2014, they had losses of three hundred and twenty-six million dollars in 2012 and losses of about two hundred and ninety million dollars in 2013 from calculating the full year Earnings before Interest, Taxes, Depreciation and Amortization.

Other companies that faced problems were the Shanghai Hong Sheng Gang Tai Shipping Co Ltd as its head disappeared in February, leaving the company with unpaid debts. Another Chinese company, the Zhejiang Xiazhiyuan Ship Management Company Ltd, had a similar problem in January as their owner went to Singapore from China, trying to escape an almost two hundred million debt.

So both 2014 and 2015 were bad years for the shipping industry, and there is no much to be expected for 2016, as the panorama doesn’t seem to be getting better. The fail of the Shipping industry, as told before, is something that is affecting different countries all around the world, including powerful countries like the United States and China. And though many specialists say it might be possible for the Shipping industry to recover in the late half of the year, they are not inclined to believe so, as they say it might take a longer time to see a full recovery. A couple of things may get your hopes up if you are involved in this kind of business, including the fall of the price of oil, making the process of shipping much cheaper, and also the increase in consumer disposable income, that leads to a higher demand in shipping services. To conclude, this year might be better than the previous years, but it is also expected to be slow as longer time is needed for a full recovery and even though the storm has not faded yet it surely is getting softer for the shipping industry.

Facebooktwittergoogle_pluspinterestlinkedintumblrmail

Sorry, comments are closed for this post.