What sectors will face the biggest challenges in 2016/2017 in
the UK & Europe? This series offers industry insights, real
time updates, analysis of the market and key considerations for
stakeholders to emerge stronger.
Shipping - Batten down the hatches
Three of the biggest challenges facing the shipping sector
The Shipping sector in the UK is experiencing significant change
which presents a number of challenges;
imbalance - Global fleets are continuing to grow due to
orders placed in 2008 coming into the market, despite demand
plateauing due to slow global growth
Lack of liquidity -
As banks are forced to curtail their lending capacity, shipping
companies need to explore alternative financing options
costs - Operating costs including crew wages, hull and
machinery insurance, dry-docking, repairs and maintenance are on
Key considerations for owners & operators
Increase operational efficiency,
particularly around bunker management, procurement and asset
Fix balance sheets, reduce debt where
possible and divest non-core assets
Better manage cash and working
Change governance processes and
transparency to make the business more attractive for
Key considerations for lenders
Refinancing through traditional bank
channels will likely become more difficult as we see lenders divest
their shipping interests.
Government desire to support national
industries is wavering particularly where there are other national
operators to take up some of the operations and assets.
Bondholders are likely to play an
active role in any standstill or restructurings
Divestment of traditional bank
lenders could lead to opportunities for hedge funds
The industry has begun to recognise
the need for fundamental, underlying structural issues to be
addressed through a proper, focused restructuring process.
"We can see
another round of significant restructuring negotiations between
operators, their lenders and the broad range of stakeholders, as
liquidity once again becomes a major issue, but an increasing
number of insolvencies (whether at an operating company level or
through vessel arrests) appear likely.
"For lenders, keeping a close eye on operations is critical
and portfolio sales or loss-sharing arrangements may again be the
order of the day. For the borrowers, in an industry with a growing
demand/supply imbalance, operational efficiency and active
stakeholder management will be critical."
David Soden, Shipping Lead
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