Lines struggle with overcapacity, liquidity

Lines struggle with overcapacity, liquidity    A leading ship finance executive has claimed overcapacity will plague the container, dry bulk and tanker market through 2012.
   'The problem in most markets segments definitely is the significant oversupply of ships, which is basically due to the fact that markets were high for a while,' Dagfinn Lunde, member of the board of managing directors, responsible for shipping finance, for German-based DVB Bank, told the bank's in-house publication Performance. 'Today, the shipbuilding capacity is about 2.5 times as big as the immediate replacement of tonnage. We expect China and Korea to continuously put ships into the market. With too many ships persistently coming into the different market segments, the prices for newbuildings will further decline. The oversupply situation is killing the shipping markets.'
   Lunde said the overcapacity is the liquidity of shipping companies in all sectors.
   'If there is an oversupply in your market segment, you will realize less income for your product and — resulting from that decrease — your enterprise will then be facing a liquidity problem,' he said. 'A lot of participants in the shipping markets are actually short of liquidity at this point in time. We see banks giving installments and granting delayed repayments to their clients in order to be able to restructure loan facilities.
   'Let me emphasize that the restructuring of transactions will be a key topic for the ship owners the respective banks for the rest of 2011 and well into 2012. Those ship owners who bought expensive vessels at the high end of the market are clearly facing problems on the liquidity side at the moment. Due to the lack of liquidity, some fire sales and foreclosures might occur, especially if the bank involved does not extend the load. It is always a lack of liquidity which kills a company.'
   Lunde said the downturn in the market has led to banks that dabble in ship finance exiting the market, leaving behind a small cadre of competitors for DVB, namely a couple banks each from Scandinavia, Germany, France, as well as HSBC and Standard Chartered.
   He said the development of export credit agencies (ECAs) has acted as a replacement for some financing that has been lost due to banks dropping out of the industry since 2008.
   'The ECA's commitment is a very big change in the finance market,' he said. 'In the near future, capital markets will only serve to replace the decrease in financing volumes for really strong and big corporate names — if at all.'