Shipping companies still dodging the financial bullet

Echoing a recent report published by credit rating agency Standard & Poor's (S&P), speakers at the Marine Finance Forum in New York – representing the commercial banking, investment banking and legal sectors – debated whether financiers, vessel operators, owners and shipyards are in denial over the current economic crisis, refusing to take needed – albeit painful – measures to put their respective houses in order.

The S&P report addressing the North American transportation market, although focusing mostly on the air, rail and trucking modes, presented the same conclusions reached by maritime financiers.

A team led by Philip Baggaley, managing director and senior airline credit analyst at S&P, offers in the report the view that demand has stopped falling and a glimmer of hope for recovery can be found in some sectors, but that the "ride up may be slow and unsteady".

S&P notes in the report that, for airlines - the mode whose performance has most closely mirrored that of shipping - the focus is on liquidity, that is, having enough cash to meet obligations.

Unresolved battle

With the maritime mode, cashflow is paramount. Speaking at the forum, Chris Weyers, managing director at FBR Capital Markets, points to "an unresolved battle among shipowners, banks and shipyards".

The backdrop of oversupplied maritime markets in each of the drybulk, tanker and container sectors, provides context to the denial theme.

Quite simply, more bad news is likely to be on the way for industry cashflow generation. The bank market is limited in what it can provide and, therefore, asset prices must move lower for the markets to properly clear.