July 27, 2021

The Global Downturn Weighs on Shipowners and Banks

Similar fleets bob at anchor, with empty cargo holds, off the coasts of southeast Malaysia and Hong Kong. And dozens of newly built ships float empty near the giant shipyards of South Korea and China, their owners from all over the world reluctant to accept delivery during one of the worst markets ever for the global shipping industry.

As recently as six weeks ago large freighters that can carry bulk commodities like iron ore or grain were fetching charter rates of $15,000 a day. Now, brokers and owners say, the going rate is $6,000 a day. If any customers can even be found.

Although the fault lies partly with doldrums in the global economy, the bigger factor is a glut of new freighters. The oversupply is putting financial pressure on the shipowners that bought them and the already struggling European banks that financed many of the purchases.

Shipping industry leaders hold little hope of a quick recovery.

“If the tunnel is 2012, I can’t see any light at the end of it,” said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a Hong Kong-based shipping line with 29 bulk freighters and tankers.

Back during the global commodity boom, which continued through the spring of 2008, the world’s shipowners could hardly place orders for freighters fast enough. But because of the long lead times in shipbuilding, those vessels only now are being delivered by the hundreds — into a very different, much less robust international economy than when they were ordered.

For the shipping industry, the glut means not only lower charter fares, but also steep declines in the value of their vessels. The bigger losers, though, could eventually be some big European banks, many of which are already struggling with big losses on their holdings of government bonds from Greece, Italy and other heavily indebted European nations.

Basil Karatzas, the chief executive of Karatzas Marine Advisors, a ship brokerage and finance advisory firm in Manhattan, estimated that European banks hold about $500 billion in shipping loans on their books and face nearly $100 billion in losses to restructure them.

Just as American banks have grappled with huge loan losses for houses that are worth less than their mortgages, European banks face tens of billions of dollars in potential losses on shipping loans.

The banks’ “biggest concern is what is the write-off, and how do you treat it from an accounting point of view,” Mr. Karatzas said. “They do not know how to deal with these losses.”

Banks in Europe have long been the world leaders in ship financing because many of the biggest fleet owners are based there. But many have abruptly stopped lending money to shipowners. Some, as they scramble to muster capital to meet tougher reserve requirements demanded by European banking regulators, have even tried to raise money by asking some shipowners to prepay loans in exchange for a discount.

There is a scant secondary market for ship loans right now, except at deep discounts that banks are loath to agree to, according to shipping finance experts. Even for loans on which the vessel is still worth more than the mortgage, these experts say, the discount demanded is about 20 percent.

Commerzbank in Germany and the Lloyds Banking Group in Britain are among European institutions that have publicly said they were reducing their exposure to shipping loans.

Société Générale in France also has been looking for ways to reduce its holdings of shipping loans and instead focus on providing financial advice to shipping companies, according to two people with knowledge of the bank’s moves.

The bank declined to provide a comment on its shipping exposure ahead of the release of its annual financial report next month.

Shipowners, meantime, are nervously monitoring an industry benchmark, the Baltic Dry Index of bulk freighter charter rates, which has lost more than half its value since the start of the year. The index is now at its lowest level since January 2009, during the depths of the economic downturn after the bankruptcy of Lehman Brothers.

Article source: http://feeds.nytimes.com/click.phdo?i=6b88b772f3bd35df9f3e05facf8f5953

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