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;
- Supply/demand 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
- Increasing operating costs - Operating costs including crew wages, hull and machinery insurance, dry-docking, repairs and maintenance are on the rise.
Key considerations for owners & operators
- Increase operational efficiency, particularly around bunker management, procurement and asset utilisations
- Fix balance sheets, reduce debt where possible and divest non-core assets
- Better manage cash and working capital
- Change governance processes and transparency to make the business more attractive for financing.
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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