Drewry: Lines may need to draw more cash in ?10

Drewry: Lines may need to draw more cash in Æ10    Cash will be the key consideration for liner carriers in 2010, according to the latest edition of Drewry Shipping Consultants' Container Forecaster.
   'Several large container operators would have gone to the wall in 2009 if major benefactors or governments had not stepped in to bail them out,' said Neil Dekker, editor of the monthly report. 'What would happen if the banks or the shareholders refuse to inject more cash (this year)? There seem to be three scenarios: either the carriers are liquidated, causing financial harm to shareholders, suppliers and banks; or carriers walk away from vessel orders with shipyards, causing damage to the shipyards; or governments are forced again to rescue the carriers.'

Dekker

   Dekker said much hinges on transpacific rate negotiations this spring. Drewry is forecasting that all-in rates in the key east/west head-haul routes will improve by as much as 14.1 percent this year, but that's against a 2009 decline of 26.2 percent.
   'Carriers have to substantially improve revenues in 2010 and this means that the transpacific rate negotiations with shippers this year are the most crucial ever,' Drewry said. 'There are no real signs yet of U.S. consumers changing their spending habits, and it will be very much a case of shippers bailing out the carriers. The big question is how much will they acquiesce to the rate demands of carriers against a backdrop of tight supply?'
   If revenue doesn't improve, carriers who want to remain solvent could be forced to sell assets, like terminals, Dekker said.
   'Even if the industry can secure the same amount of fresh cash in 2010 as it received from shareholders in 2009, it will not be sufficient cash to cover its needs,' he said. 'Another estimated $1.4 billion of cash may need to be found from other sources to keep the carriers trading.'
   Drewry is paying particular attention to the restructuring of French carrier CMA CGM.
   'Many large banks are highly exposed to the containership sector and this is why they are taking so much interest in the financial restructuring of CMA CGM, which may eventually set new standards for how some companies are run in the future,' Dekker said. 'While a $500 million credit line will address the short-term issues, the company still needs to resolve the financial overhang of its enormous order book.'